Are you getting collapsed brokerage firm PFGBest confused with collapsed brokerage firm MF Global? It's understandable! They're both commodity brokerage firms with a lot of consonants in their names. They both collapsed suddenly, making a bunch of customer money vanish.
But less than nine months ago, PFGBest, a unit of Peregrine Financial of Cedar Falls, Iowa, went out of its way to tell clients it was nothing at all like MF Global.
In a Nov. 1 statement on the firm's website, just after MF Global filed for bankruptcy, Peregrine's president and chief operating officer, Russ Wasendorf Jr., told his customers they had no reason to fear Peregrine would go out in the style of MF Global -- that is, by making all its customers' money disappear:
PFGBEST is not only customer-centric, but compliance-focused. We consider it a privilege to conduct business with you and to be an advocate for you. We abide by all regulations mandated by the CFTC and the rules of NFA to hold customer funds in segregated accounts that are always separate from operational funds.
This claim was consistent with what the firm told oil analyst Phil Flynn in 2009, when it bought his old firm, Alaron Trading. Flynn told The Huffington Post that he wanted to leave Peregrine after the merger but had been assured by Wasendorf Jr. that the company "was going to be the most compliant firm in the industry -- it was going to be bulletproof." Flynn said he left the Peregrine when he started to get the sense that maybe it was not the most compliant firm in the industry, after all.
In an earlier interview with Fox Business Network, Flynn detailed some of the warning signs that led him to leave the company, including regulatory fines and "a lawsuit filed by the state of Minnesota [claiming] that PFG turned a blind eye to a potential Ponzi scheme."
This week the regulators that Wasendorf mentioned in his November missive to clients, the Commodity Futures Trading Commission and the National Futures Association, accused Peregrine of being neither very customer-centric nor quite so compliance-focused.
Peregrine did indeed keep its customers' money in segregated accounts -- with JPMorgan Chase, also just like MF Global -- but according to the commission, Peregrine took "segregated account" to mean one to dip into whenever spare change was needed for the snack machine.
"It is our policy to keep extra funds on deposit in our customer segregation accounts to protect you," Wasendorf Jr. wrote. Apparently the firm may have a unique understanding of what "extra funds" means because the Commodity Futures Trading Commission alleges that Peregrine has misplaced about $220 million of customer money.
This story is just getting started, and we'd like to hear about the experiences of customers and employees. Are you a current or former customer or employee of PFGBest and want to talk about your experience? Email me at email@example.com.
Correction: Peregrine is based in Cedar Falls, Iowa. An earlier version of this post incorrectly listed its headquarters as Cedar Rapids, Iowa.