This would be sad if it wasn't so damned infuriating....
The collapse of Peregrine Financial Group Inc. has prompted new scrutiny of the futures industry's front-line regulator and triggered plans to change its practices just as the agency prepares to take on a bigger role in policing derivatives markets.
The rest of the article goes on to talk about how the NFA (National Futures Association) "missed" PFG Best's fraud, calling it "extremely complicated."
I'm sorry, but Photoshopping bank statements is not "extremely complicated." It is in fact amateur hour, and so is not verifying through independent channels that the document you received that is allegedly a bank statement is actually authentic.
Ditto for tying back transactions through the journal -- or rather, not doing so. Bank statements don't exist in a vacuum. Every transaction in the business that moves actual money hits the bank statement in some form or fashion. To forge the entire journal to match a fictitious bank statement to a level of detail and care that would pass even the most-cursory of checks would be a monumental task -- and almost-certainly wasn't done.
We're not talking about someone stealing the petty cash here, where a receipt book can be "disappeared" so that the journal entries simply never exist. We're talking about transactions where CME margin postings are made nightly and customer account balances and statements are put together -- both are external references that can be verified if anyone bothers to look.
Today we have these things called "computers" and they're pretty good at doing arithmetic too.
One of the most-frustrating parts of both MF Global and PFG Best is that nobody is being held to account on the regulatory side. In the case of MF Global there were explicit warnings of believed funny business sent to the SEC and buried. In the case of PFG Best not only were bank statements unverified but nobody bothered to look at the journal, tie it back, and then verify on a sample of clients that their statements matched the journal!
If any of that had been done the fact that the figures didn't match (because they couldn't) would have been discovered. If the CME refused to permit "netting" across a brokerage's customers (a practice that is dangerous in and of itself) then the fraud would have been impossible as nightly margin requirements would have required the deposit of actual margin cash where the CME could verify it.
But heh, it's all ok until someone loses half their account -- a second time -- right?
Wrong.
