WASHINGTON — Lawmakers and investors are searching for answers and demanding change from regulators charged with overseeing the futures sector following the implosion of an Iowa-based investment firm — the latest company to collapse and rattle market confidence.
Peregrine Financial Group and founder Russell Wasendorf Sr. are accused by federal regulators of misusing about $215 million of customer money that is now missing.
Wasendorf was found Monday outside the company’s Cedar Falls headquarters, after an apparent suicide attempt. The National Futures Association, which was the firm’s primary regulator, said Peregrine may have falsified financial documents.
The company was ordered shut down, and filed for Chapter 7 bankruptcy on Tuesday.
The downfall is the latest to outrage Washington lawmakers and investors astounded that customer funds were again left unprotected, and that regulators were unable to effectively oversee the futures market.
Jill Sommers, a Republican commissioner at the U.S. Commodity Futures Trading Commission, said Wednesday that until investigators know everything that happened in the Peregrine case it’s difficult to assess how well the current regulatory system worked and what, if any, improvements need to be made. “You can’t write rules around every possible type of fraud out there,” she noted.
The collapse of Peregrine is the latest scandal to rattle the futures industry following the bankruptcy nearly nine months ago of Wall Street brokerage firm MF Global, led by former New Jersey Sen. Jon Corzine. In the MF Global case, more than $1 billion in customer money disappeared, leading to criticism that the CFTC and almost a half-dozen other regulators policing various parts of the firm were not watching its bookkeeping closely enough.
Soon after MF Global’s demise, customers fled the market and trading volume dropped, prompting regulators to acknowledge that steps needed to be taken to restore public confidence. While some measures have been put in place and regulators are considering a host of others, market watchers, investors and lawmakers fear the $215 million of customer funds missing from Peregrine could erode any progress that has been made to restore that trust.
U.S. lawmakers quickly called for increased oversight in the wake of the Peregrine collapse.
“The dramatic collapses of Peregrine and MF Global within a period of months very strongly indicates the need to reform the system for regulating and policing futures firms in order to protect customers, investors, and the integrity of markets,” said Sen. Tom Harkin, D-Ia. He said the effectiveness of the self-regulatory model used to govern the futures industry should be reviewed.
Fellow Iowa Sen. Chuck Grassley, a Republican, said he will be a sending a letter to the CFTC and the NFA to see “if they are doing their job.” Grassley said most of the rules to regulate the market may already be in place, which would indicate a failure to properly enforce existing regulations.
“When you have things like MF Global and PFG . . . it makes you wonder if” regulators are doing their job, said Grassley. “We have a responsibility to . . . make sure that the laws are being done.” Both Iowa lawmakers are members of the Senate Agriculture Committee, which oversees the CFTC. Grassley also sits on the Senate Finance Committee.
Peregrine helped customers minimize their future risk through a process called hedging. The firm helped customers buy, sell and trade foreign currency, futures and options and investments whose value can change depending on the expected future price of food, energy and other goods.
Even though investigators are trying to uncover what happened at Peregrine, agriculture groups said a risk remains to customer funds, which are supposed to be protected.
Dave Miller, director of research and commodities at the Iowa Farm Bureau, said if the problems at Peregrine date back to 2010, as regulatory documents indicate, it appears regulatory oversight failed.
“Farmers, grain elevators, and other customers have to have trust in both the brokerage houses … and the regulatory process,” he said. “And there appears to be a breakdown.”
“Farmers put a lot of trust in the futures market system,” either individually or through their cooperatives that are working to reduce risk, Miller said. “And to have that trust shaken by these types of events becomes problematic for everyone in the system.”
The apparent misuse of customer funds could spur Congress to establish an insurance fund to make up any shortfalls to customers in the futures world, similar to the Securities Investor Protection Corporation for securities and the Federal Deposit Insurance Corporation for banking. The measure has long been promoted by Bart Chilton, a Democratic commissioner at the CFTC, but so far has not garnered the necessary support from lawmakers.
Michael Greenberger, a law professor at the University of Maryland and a former director of trading and markets for the CFTC, said the discovery of a second firm apparently misusing customer funds “is going to cause a crisis of confidence in the market.” He said the self-regulatory auditing system is not working, and he advocated changes, such as giving the CFTC the proper funding to audit or supervise the auditors to help restore confidence.
“Whether or not it is systemic, in reality the consumer population views it as systemic and is going to cause people to decide, for example, that it isn’t worth hedging because it’s complicated enough to hedge when your money isn’t stolen,” said Greenberger. “I think even speculators that lose their money are going to speculate in another area. This is too dangerous.”
Donnelle Eller of The Des Moines Register contributed to this story.
Niciun comentariu:
Trimiteți un comentariu