EDIT: New information from the NFA, see our latest post.
At this point, many of you may have heard that FCM PFGBest has been put on liquidation only by the NFA. The following email was sent to brokers and clients of the FCM:
We don’t like reporting information that has not been confirmed, but the stories have already begun to circulate, so we will tell you what we do know. Russ Wassendorf, Sr., CEO at PFGBest, attempted to commit suicide this morning, leaving behind a note indicating that accounting irregularities would be found. In turn, the NFA placed the firm on liquidation only. The extent and nature of said irregularities are yet to be determined, but our sources have indicated that it was not related to customer segregation issues and may be something to do with Wassendorf’s personal trading account. The story is still evolving, and we will likely not know the full scope of the problem today. However, some in the industry have indicated that the situation may be handled by receivership. This is good news, as it is a much smoother, faster process than resolving accounts in the midst of a bankruptcy.
We are closely monitoring and investigating the situation, and will update you as more information becomes available. However, we know the MF Global comparisons have already begun, so until those final details come to light, it’s important to realize the large differences between the two situations:
- The rumors are often worse than the real thing. At this point, it is all rumors outside of the PFG email above.
- There has been no talk of client money at risk or PFG going bankrupt. With MF Global, the firm’s financial health was a focus in the media for weeks prior to the bankruptcy. Client funds were a focus from the moment trading was halted. This hasn’t been the case here.
- The SIPC is not involved here, which is what delayed things for months upon months with MF Global. We would expect that, should things unravel, PFG’s entire business would be moved within a few days to a new clearing firm. That is infinitely smoother than what happened with MF Global.
- PFG was not large enough to be investing in European bonds or the like as MF Global was doing. They were a firm focused on futures and forex clearing only.
- No notice was received from Jeffries, the clearing broker for PFG, that they were failing to meet customer fund segregation obligations. Further, we confirmed weeks ago that they do NOT use the alternative method of net-capitalization calculation.
Stay tuned for further updates.