Many PFG customers have had a hard time with the CFTC's position opposing the distributions. Your sarcasm is justified danger kitty.
Reuters has just published an exhaustive two part special report on the fraud perpetrated by Russ Wassendorf. Wassendorf spent tens of millions of dollars on luxury items and in failed business ventures with money stolen from client accounts. Part One: http://in.reuters.com/article/2012/09/24/us-wasendorf-life-one-idINBRE88N0EJ20120924 Part Two: http://in.reuters.com/article/2012/09/25/us-wasendorf-life-two-idINBRE88O0HF20120925 One of the most distressing aspects of the fraud is that Wassendorf was nearly caught last year in a routine audit but managed to head off the NFA with a last second fax that allowed him to keep the fraud going for another year. The episode highlights the need for greater auditing and accounting standards, not to mention the need for more financial disclosures for brokers so as to prevent lone wolf CEO's like Wassendorf from hiding the true state of their firm's finances.
What is most disturbing to me, is not that business frauds occur, but the resulting response to them by regulators. In the S&L crisis, there was hell to pay for many. (William Black - the best way to rob a bank is to own one) These days I have trouble of thinking of any entities caught that have done more than pay small fines. (A huge change in only about 20 years.) I can't think how it can get worse, but I am pretty sure that is what is coming. Will we look back in 20 years and say how wonderful things were today?
The CFTC has released a transcript from the public roundtable that was held in August. http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/transcript080912.pdf While retail forex is absent from the discussion the issues pertaining to FCMâs is of importance to retail forex customers since FCMâs like PFG routinely offer retail forex as part of their suite of products. One of the arguments against additional financial disclosures for FCMâs is that these disclosures may weaken the fragile, financial health of less profitable FCMâs. Warren Davis of Sutherland, Asbill & Brennan made the following point in response: "In the case of a FCM, the money that the customer gives the FCM is not for the use of the FCM. It's solely to protect the customer, so it seems to me that the run on the bank analogy is not altogether appropriate here. But what is appropriate is to ensure that customer money is, in fact, used for the only purpose for which it's given which is to secure the customer's obligations to the FCM and the clearinghouse. And therefore, if information is released which causes a customer to move its account from one FCM to another, that shouldn't be viewed as a bad thing. That's sort of the way the futures world is supposed to work." Unfortunately, that is not currently the way the futures world works. Because FCMâs are able to keep their financials hidden from the public there is no way of truly knowing if the firm traders are doing business with is healthy or unhealthy. The net result is that traders are left to play a guessing game about whether their funds are safe or not. CFTC has yet to announce when they will unveil their reform proposals.
The PFG bankruptcy proceedings are turning into a tragedy for PFG's retail forex customers who may now be forced to stand by and watch their funds be used to reimburse customers who traded on-exchange futures with PFG. In response, a group of traders have started a website to try and rally support amongst PFG's forex customers: http://www.pfgforexmetalslegalaccount.com/index.html The Traders who have setup "Forex Metals Account LLC" have also sent out an email to PFG's forex customers updating them on the bankruptcy proceedings: http://www.elitetrader.com/vb/showthread.php?s=&threadid=245769&perpage=6&pagenumber=24 FXCM has been lobbying Congress since 2005 to include retail forex in any bankrupcy prodeeding but we have not had much success due to the hesitancy of Washington to re-open the bankruptcy code on behalf of retail forex customers. In the meantime, the PFG bankruptcy should give retail forex traders pause in regards to opening a retail forex account with a Futures Commission Merchant instead of a Retail Forex Exchange Dealer due to the disparity in treatment the two class of customers are getting in this bankruptcy. We are also still encouraging traders to contact CFTC at secretary@cftc.gov to urge greater protections for retail forex traders.
The Wall Street Journal is reporting that PFG's trustee is now going to address the status of PFG's retail forex customers: http://online.wsj.com/article/SB1000...googlenews_wsj Of further interest to traders in the article is the NFA's support for additional legal protections, although nothing was specified.
The lawyers for PFG's Forex/Metals customers have just filed a motion designed to prevent creditors from laying claim to the funds of forex traders. The hearing for this motion is set for Thursday morning. http://www.pfgforexmetalslegalaccou...d-for-thursday-october-11-2012-at-1000am.html It is a noble sentiment and one that FXCM wholeheartedly supports. We have been hammering away in Washington on this issue for seven years now. Hereâs hoping the judge surprises on Thursday with a ruling supportive of retail forex traders everywhere. But clearly, the status quo cannot be tolerated. You can let the CFTC know by emailing secretary@cftc.gov and by contacting your local Congressional Representatives and passing along your concerns. In the meantime, we will continue to advocate for Segregation of Funds, Customer Insurance, and Public Disclosure of Financials for all FCMâs and RFEDâs.
In yesterday's hearing on Drohan Lee LLP's motion on behalf of PFG's retail forex customers Judge Carol Doyle advised the plaintiffs to file an "adversary" suit against the Trustee to force him to return the funds of PFG's forex customers. http://www.law360.com/articles/385989/peregrine-forex-metals-clients-to-sue-over-funds-atty-says That is exactly what they are about to do. Futures Magazine has a good article regarding the new motion: http://www.futuresmag.com/2012/10/11/pfg-forex-metals-customers-want-justice A victory for Drohan Lee would indeed be a huge precedent for all retail forex traders in the United States, and a welcome one at that. However, the precedent may not be to the liking of many in the futures industry. This quote from John Roe of the Commodity Customer Coalition is very telling: If FX customer assets are no more than a backstop for futures customers in the event of bankruptcy then retail forex traders need to think long and hard before opening an account with a FCM whose primary business is futures. That is what is at stake in the adversary suit that is about to be filed.
The CFTC has just announced they will be holding an open meeting to consider additional customer protections for the futures industry next Thursday. http://www.cftc.gov/PressRoom/PressReleases/pr6392-12 FXCM has been lobbying in Washington to extend such protections to retail forex traders as well. FXCM supports tougher accounting standards, customer insurance and a requirement that all FCM's disclose their fully audited financials to the public. We are encouraging traders to submit their comments to the CFTC at secretary@cftc.gov.