If you weren’t already convinced that our regulators need a closer look, Reuters reports:

The source offered new details on how Wasendorf allegedly carried out the deceit, which involved the forging of confidential documents that the NFA uses to verify a broker’s cash balance with its depository institution.

Wasendorf intercepted these documents after they were mailed by the NFA, the broker’s first-line regulator, to U.S. Bank, where PFGBest had said it had well over $200 million on deposit, the person said. The NFA has said the account actually held just $5 million this week.

Wasendorf had set up a post office box in Cedar Falls, Iowa, according to a second person involved in the matter. It was to that post office box that NFA sent the documents, which were addressed to the bank.

The post office box was neither in Wasendorf’s name nor registered to the bank, the second person said.

Wasendorf then forged signatures and fabricated bank balances on the documents and simply mailed them back to the Chicago-based NFA, the person said.

Hold on, it gets worse:

The scheme apparently began to unravel after the NFA began to press Wasendorf, who was an early advocate of electronic trading, to allow the regulator to confirm balances electronically and directly with the bank, rather than in a hard copy via mail, the person said.

NFA “started getting suspicious. He was resisting this new way of confirming the balance,” the source said.

Wasendorf only recently signed the authorization, a decision that would quickly have led regulators to uncover the discrepancy, the person said. PFGBest’s total segregated funds requirement was around $400 million, meaning more than half is missing.

As we highlighted in the newsletter this morning, the bank statements are supposed to be verified by the NFA– members have to sign authorization forms which allow the bank to tell the NFA whether the balances reported by PFG are legit.  As the article explains, they’re supposed to be using the electronic system that the NFA has had in place for some time, and yet the NFA was accepting manual submissions.

This is disgusting. There was an assumption, especially given regulatory heat in recent years, that the regulators were more on top of things now than ever. We and many other firms around the industry relied on their enforcement to help protect clients. And yet, here we are.