(Reuters) - A former customer of Peregrine Financial called Monday for a U.S. congressional investigation into the National Futures Association (NFA), after the industry-funded regulator failed to spot 20-year fraud at the bankrupt Iowa brokerage.
Attain Capital Management, a Chicago-based introducing broker that had accounts at Peregrine Financial, or PFGBest as it is commonly known in the futures industry, said there needs to be an immediate overall of how futures brokers are regulated.
Peregrine founder Russell Wasendorf Sr. was arrested on Friday after confessing to duping regulators in a $100 million scheme using little more than a rented post office box, Photoshop and an inkjet printer to produce false bank statements. Wasendorf left a signed confession along with a suicide note when he attempted to take his life earlier in the week.
“This is just the most glaring public display of incompetence at the NFA,” Attain Capital said in a press release.
“We hereby call for the CFTC (U.S. government regulator Commodities Futures Trading Commission) and Congress to launch a thorough investigation into the practices, policies and people of the National Futures Association,” the broker said.
Attain Capital added that this was a “vote of no confidence” in the NFA, and that it would seek the “revocation” of the NFA’s charter as a front-line regulator if it thought the action was necessary.
The industry-funded NFA, which was PFGBest’s primary regulator since 1992, has come under fire since the scope and duration of the fraud became clear last week.
The regulator, which oversees mostly smaller, independent futures operations, has been criticized for missing a number of red flags at PFGBest and relying on young, inexperienced auditors.
The NFA has said it was its own efforts that eventually caught Wasendorf, who attempted suicide in the parking lot of PFGBest’s Iowa headquarters, just hours after finally authorizing the regulator to verify the firm’s bank account balances electronically.
The NFA and CFTC did not immediately respond to calls seeking comment.
Attain Capital Management has emerged as one of the loudest voices demanding the return of customer money from PFGBest, alongside calls for reforming the industry in the wake of the second futures broker scandal in nine months.
Attain put forward a number of proposals after the collapse of MF Global last year revealed that the wall segregating customer funds from company funds might have been breached in the broker-dealer’s dying days. Attain said more now needs to be done.
“The PFGBest scandal has changed the narrative ... from questioning not just whether we have the right rules and laws in place ... to whether we have the right people in place to insure the rules are being followed,” Attain Capital said.
“We have the right as members of the NFA to question their abilities. Now is the time to demand integrity from our regulators.”
Attain has requested help from the Commodity Customer Coalition (CCC), which was founded after MF Global’s collapse to fight for the speedy release of customer money.
James Koutoulas, chief executive of Typhoon Capital Management and co-founder of the CCC, has indicated the group will be willing to provide assistance to PFGBest customers.
“At this stage, we are advising customers to gather their statements and prepare for a claims or account transfer process,” a statement on the CCC website said.
Wasendorf Sr.’s son Russell Jr. was president of Peregrine. (Editing by Steve Orlofsky)