Regulators are scrambling to deal with an alleged fraud unfolding at Chicago-based futures brokerage, Peregrine Financial Group, Inc. (PFG).
The U.S. Commodity Futures Trading Commission (CFTC) announced Tuesday that it filed a complaint Peregrine Financial, a registered futures commission merchant, and its owner, Russell Wasendorf, Sr., alleging that they misappropriated customer funds, violated customer fund segregation laws, and made false statements in financial filings with the CFTC.
The CFTC reports that Peregrine’s self-regulatory organization, the National Futures Association (NFA), found in an audit that the firm falsely represented that it held in excess of $220 million of customer funds when in fact it held approximately $5.1 million.
Its complaint, which was filed in the US District Court for the Northern District of Illinois, the CFTC says that Wasendorf attempted suicide yesterday, July 9; and that, in the wake of that, the NFA learned that he may have falsified certain bank records. The CFTC is seeking a restraining order to freeze assets, appoint a receiver, and preserve records. It also seeks restitution, disgorgement, and civil monetary penalties among other relief.
The Investment Industry Regulatory Organization of Canada (IIROC) says that Canadian clients of the firm do not appear to be affected. It reports that Peregrine Financial Group Canada, Inc. which is a wholly owned subsidiary of Peregrine Financial Group, is a separate legal entity in Canada that is regulated by IIROC, and it is not subject to, or affected by, the NFA regulatory actions.
“It appears that all client monies and assets are accounted for at the Canadian subsidiary,” it says, adding that it has approved the transfer of client futures accounts in bulk to another IIROC-regulated firm, RJ O’Brien & Associates Canada Inc. And, it says that, before the transfer is complete, which may take a few days, clients can liquidate their contract positions directly through Peregrine Financial Group Canada.
On Monday, the NFA announced that it has taken an emergency enforcement action against Peregrine Financial Group and Peregrine Asset Management, Inc. a commodity trading advisor and commodity pool operator, because the firms have, “failed to demonstrate that it meets capital requirements and segregated funds requirements. NFA also has reason to believe that PFG does not have sufficient assets to meet its obligations to its customers.”
Effective immediately, the firms are prohibited from soliciting or accepting any additional customer accounts or customer funds; from trading, except to liquidate existing customer positions; and are prohibited from distributing any funds, including to existing customers, without the prior approval of the NFA.