Debacle at PFGBest is worst nightmare for client

Small Attain Capital struggles to cope with shocking news

Jul 15, 2012 @ 12:01 am

By Andrew Osterland

The calls started coming in at about 2 p.m. last Monday, said Lauren Nelson, communications director for Attain Capital Management LLC, a small introducing broker that specializes in managed futures.

Friends and industry members wanted to know if she had heard about the problems surfacing at Peregrine Financial Group, the non-clearing futures commission merchant put on ice last week by the National Futures Association. Had Ms. Nelson heard reports that the brokerage firm's boss, Russell Wasendorf Sr., had attempted to commit suicide?

“It didn't seem believable to us at the time, but we got the e-mail from Peregrine at 3:09,” said Ms. Nelson, whose firm uses Peregrine — commonly referred to as PFGBest — for a “fair amount of their business.”

The e-mail gave her a sinking feeling.

“Due to a recent emergency involving Russell R. Wasendorf Sr., a suicide attempt, some accounting regularities are being investigated regarding company accounts ... Until further notice, PFGBest is not authorized to release any funds,” the e-mail read.

LIQUIDATION ORDER

A statement later in the day from the NFA, which is responsible for monitoring such firms, confirmed that PFGBest had been given a liquidation order, preventing clients from any trading other than to liquidate their positions.

Advisers at the firm were initially given discretion as to whether they would close out client positions at PFGBest, Ms. Nelson said.

But when Jefferies & Co. Inc. said later that night that it was raising margin requirements for PFGBest clients, Attain Capital Management starting working to transfer accounts to other futures-clearing merchants.

The next day, PFGBest, based in Cedar Falls, Iowa, filed in U.S. Bankruptcy Court in Chicago for protection under Chapter 7 of the bankruptcy code after revelations that it was missing more than $200 million in customer funds.

Mr. Wasendorf, 64, was taken into custody Friday after being arrested and charged by U.S. prosecutors with making false statements to federal regulators. The charges come days after he attempted suicide by piping exhaust into his car. He said in a signed note found in the car that he had perpetrated a fraud that stretched back two decades.

Federal prosecutors said additional charges might be lodged.

Last year, another futures clearing merchant, MF Global Holdings Ltd., collapsed after client money went missing. Although smaller than MF Global, PFGBest appears to be in an even more precarious situation.

The Commodity Futures Trading Commission said Tuesday that it had filed a complaint against the company. In all, PFGBest and Mr. Wasendorf are accused of misappropriating more than $200 million in customer funds.

Information released by the NFA suggested that contrary to bank confirmations that it was given in 2010 and again last year, PFGBest didn't have more than $200 million in cash in the bank account, but in fact had less than $10 million at both those times.

“With the confirmation process and the infrastructure in place, we have no idea how the NFA could have missed this for two years running,” Ms. Nelson said. “We have a lot of anger and frustration over this right now.”

Patricia Campbell, a spokeswoman for PFGBest, didn't return calls seeking comment.

NFA spokesman Larry Dyekman didn't return a call seeking comment.

Futures customers aren't covered by the Securities Investor Protection Corp. fund.

aosterland@investmentnews.com Twitter: @aoreport

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