Here’s something you don’t hear around our offices too frequently (or possibly ever before)… Good Job NFA !

While the NFA’s handling of the PFG fiasco belongs in textbooks on how not to do public relations in times of crisis, it looks like someone over there finally woke up and is trying to turn the tide of public opinion. MarketWatch reports:

The National Futures Association has repaid a $700,000 fine levied on Peregrine Financial Group Inc. in February, boosting the funds available to the trustee liquidating the collapsed U.S. brokerage. […]

The fine was part of a settlement settling charges related to an alleged Ponzi scheme run by a customer of the brokerage. The agency charged that Peregrine didn’t properly monitor and report suspicious activity, and the firm agreed to the fine without admitting or denying the allegations.

The voluntary return of the penalty adds to funds available to the trustee to distribute to Peregrine’s futures and options-trading customers, though a steep shortfall remains.

It’s about time, considering that we started calling for a return of these funds two weeks after the bankruptcy was declared. And that’s two for two, first following our advice on having always-on access to FCMs bank accounts, and now returning the regulatory fine money to the PFG estate for benefit of customers. We have just two concerns.

One, we calculated the NFA’s fines for PFG over the years as $870k. Since Wasendorf admitted that he committed fraud for 20 years – the NFA should pay it all back, and not just the most recent fine. What’s $170k more when you have assets in the tens of millions? And second, please tell me that you specified that this money was to go to the benefit of customer segregated funds – that you wired it to the 4d accounts of the PFG estate, and not just into the open arms of the general estate. Please tell us some of that $700k won’t be fought over and go to general creditors. Please tell us you were thinking of the customers here and actually thought through how they would get the money directly, and not just the PR headline.

As long as someone over at NFA appears to be listening (after all, we do submit every one of our blog posts to NFA for regulatory review for compliance per the NFA’s promotional material guidelines) here are a few more things you can do to shore up the industry and improve your standing:

1. Send over dozens of people from your audit team to assist the PFG trustee in verifying the books of PFG and which investor accounts are real, and which were falsified. Call every customer if you have to, get every bank statement. Use your powers to get in there and do the work (for free) which the estate is being charged hundreds of dollars an hour to do (and doing it quite slowly). You owe it to the customers.
2. Champion a SIPC-like insurance fund for the futures industry. Lobby the CFTC to expand your powers and allow you to levy fees to fund the insurance. Make rules where it is optional and set out regulations for how FCMs and clearing exchanges track each type of customer.  Get behind the idea and do all that you can to see it through to fruition.
3. Create a system whereby any and all interpretations made by NFA staff in regards to promotional material, accounting practices, and other regulatory compliance are posted to a website for all NFA members to see. Your current system only gives these interpretations to the firm being reviewed, creating an uneven playing field and the possibility of NFA member firms doing something “wrong” simply because they don’t know about the most recent interpretation of the rules by the staff.
4. Realign the NFA board of directors to have greater customer representation by having more individual broker and introducing broker board seats. The brokers and introducing brokerage firms are the firms on the front line talking to the end customers day in and day out, not the Goldman Sachs of the world. The way the MF Global and PFG scandals have played out, there is a feeling that the customers’ interests are secondary to the big institutions that use futures markets – one look at the composition of the board of directors tells you exactly how that feeling came about.  The end customers and brokers who represent them are woefully underrepresented on the current board structure.

The NFA appears to be turning the corner at last. Now keep the momentum going!