Just when we get a little bit of good news (last week’s motion for an interim distribution of funds) in the ongoing PFGBest debacle, something comes along to spoil our hopes. Last week, the PFG trustee announced plans to make an initial distribution of customer funds – at last. Just a few days later, however, the regulators come in saying that motion shouldn’t be granted. Via the Wall St. Journal:

U.S. regulators have urged a Chicago bankruptcy judge to hold off approving a plan that would return some money to customers of Peregrine Financial Group Inc., warning that the proposal needs more work.

The trustee unwinding the collapsed futures and currency brokerage needs to run tests on accounts that would receive funds and flesh out his plan to distribute about $123 million to clients, according to a legal filing by the Commodity Futures Trading Commission.

Really, CFTC? Now you’re concerned about the accuracy of PFG’s books? Talk about closing the barn door after the horse has left. The trustee has been holding off the distribution in order to confirm account balances, and your complaint is… that account balances need to be confirmed? If that’s your worry, don’t just force motions and delay payouts to customers: send in a team of experienced auditors who can set the books straight. We know a little firm named the NFA with intimate knowledge of PFG’s operations with ample staff to do just that. Talk about a good PR move for once in this fiasco, why wouldn’t the NFA be in there doing everything they can to speed the verification process?

We get that this is an intricate process, but as we pointed out last week, the longer clients wait with 0% of their money returned, the more likely they are to suffer from not having the diversification value of their investments. This was a failure of the regulators, and pushing for further delays (again caused by the regulators) is not the way to make this right.

One silver lining, though – the CFTC’s worries about falsified books could end up working in favor of PFG customers. Via Futures Magazine:

The CFTC said its “preliminary” investigation uncovered more than $45 million in fictitious bookkeeping entries and unusual activity or balances in customer accounts.

This could potentially be great news – it’s not totally clear at this point what these fictitious bookkeeping entries actually represent. But if there really is $45 million in fictitious customer accounts, that could mean $45 million more for real customers to get back. Here’s crossing our fingers…

At the end of the day, we understand that PFG’s books may be a mess, and we certainly understand the hesitation to disburse funds without knowing that all the account balances are accurate. But that’s why the trustee is only doing a partial distribution. And if the CFTC’s big concern is that the books aren’t accurate yet, then they should use their authority and force the NFA to cough up a 100 auditors to get in there and call every customer and every bank of those customers to confirm validity.

Or, better yet, take up Attain’s offer (made privately last week and publically at the creditor’s meeting today) to verify customer validity and balances for the accounts the accounts introduced by them. Why is there no outreach to the customers and brokers who know the details of the accounts better than anyone? The trustee (and now the CFTC) are saying how important verification is – but doing very little in terms of real action to move forward with such verification. We are more than happy to provide independent corroboration for every penny of our customers’ funds that were held at PFG – and at least three other large IBs of PFG we have spoken to would do that same. The trustee has shared that he is willing to take us up on this offer…but we’re not doing any work yet…