Lazy accountants cannot pick up a phone and directly check a party's purported account balance with the custodial banker. That fucking simple.
Here's another fascinating report by Privco on past red flags at PFG Best: http://www.privco.com/press/inside-the-secret-world-of-peregrine-financial-undetected-red-flags
Red Flag #2 is interesting. Quote: Peregrine in fact did NOT terminate Aslin, other than simply stating so in writing to FINRA in an attempt to avoid the firm's having to comply with the Taping Rule. End Quote. It is explained in the article that Best Direct (PFG) mislead FINRA and that became the basis of a court case, but nobody picked it up. However the fact that Best Direct was a subsidiary company meant that they could terminate the individual and that would not affect his position in the parent company. Two separate legal entities here, and the author seems to miss that point. It does illustrate the lengths to which PFG went to avoid scrutiny.
The larger question is: Who else may be embezzling customer funds? I'm now convinced that there may be more firms in the same predicament. What other firms are sending out red flags similar to PFG and MF Global? let's start this discussion....
Well, the real spine of the issue is: how many corporations and financial entities are audited by accountants too lazy and too incompetent to directly confirm the entity's account balance figures against what the Bank can confirm ? This is a much broader issue than just futures clearing. Seems like we have systemic risk based upon audit accounting practices and the direct verification of stated funds versus actual funds held at a bank.
which brings up a good point..in many of the fraud cases the outside auditor is in the pocket of the auditee (aah humm..inactive cpa here)... a good start would be to check who the outside auditor is for a particular firm and start there.... "Bubba's CPA Firm" for a large broker would peak my interest... Personally, if it's not a top-tier CPA firm this would also peak my interest