Iowa Commodity Brokerage Firm Goes Under

Iowa Commodity Brokerage Firm Goes Under

Farmers and grain elevators put a lot of trust in the futures market system, brokerage houses. Did the regulatory system fail?

Rumors of another MF Global type of debacle surfaced early last week as Peregrine Financial Group filed for a Chapter 7 bankruptcy under the U.S. bankruptcy code. The company, based in Cedar Falls, Iowa, claims between $500 million and $1 billion in assets and between $100 million and $500 million in liabilities. The filing also claims 10,000 to 25,000 creditors.

Iowa Commodity Brokerage Firm Goes Under

The National Futures Association put PFG under emergency enforcement action following news of the CEO's attempted suicide on Monday, July 9. PFG may have been tripped up by enhanced monitoring that came as a result of last fall's failure of MF Global. Enhanced regulatory oversight includes electronic monitoring of brokerage monies at financial institutions where companies keep their cash.

A federal regulator last week pushed the PFG company for documents that could help the government find some of the $200 million it says is missing from the Cedar Falls futures brokerage firm. The U.S. Commodity Futures Trading Commission says it "has reason to believe that substantial PFG customer funds may have been transferred to third parties."

Grassley seeks scrutiny of commodity broker regulatory system

U.S. Sen. Chuck Grassley, R-Iowa, is asking the leaders of the Senate Agriculture Committee to address the PFG broker scandal during a hearing scheduled for August 1 about the loss of funds by farmers, grain co-ops and commodity brokers when MF Global' s broker-dealer unit collapsed late last year.

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Grassley also is asking the Commodity Futures Trading Commission to provide information on what the CFTC did in response to red flags that were raised with the commission regarding PFG. "We have to make sure regulators are doing their job, and congressional oversight is a very important means for doing so," says Grassley.  "People need to have confidence in our commodity trading system in order for it to work for farmers and investors the way it's intended."

Click here for Grassley's letter to Agriculture Committee Chairman Debbie Stabenow and Ranking Member Pat Roberts.  Click here for Grassley's letter to CFTC Chairman Gary Gensler. Below is the text of both letters, dated July 12.

 

The Honorable Debbie Stabenow

Chairman, Committee on Agriculture

Nutrition and Forestry

Russell Senate Office Building 328A

Washington, D.C. 20510-6000

 

The Honorable Pat Roberts

Ranking Member, Committee on Agriculture

Nutrition and Forestry

Russell Senate Office Building 328A

Washington, D.C. 20510-6000

 

Dear Chairman Stabenow and Ranking Member Roberts:

 

I know you are both just as concerned as I am with the recent events involving the brokerage firm Peregrine Financial Group Inc., ("PFGBest").  From the hearing the Senate Agriculture Committee conducted earlier this year on MF Global, it's clear the members of the committee understand just how important our commodity markets are to U.S. agriculture and our economy.

In light of the troubling news reports about how long PFGBest had shown signs of trouble, it's important the Senate Agriculture Committee look into the PFGBest matter in the same manner as what we have done regarding MF Global.  We have to make sure regulators are doing their job.

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I appreciate the fact you have scheduled another hearing regarding MF Global for August 1, 2012.  I respectfully request that you broaden the scope of that hearing to include a look into the PFGBest matter, and ensure there is a witness from the Commodity Futures Trading Commission ("CFTC") present at the hearing who is able to answer questions regarding PFGBest.

I thank you in advance for your consideration of my request.  Please feel free to contact me or my staff if you have any questions.

 

Sincerely,

 

Charles E. Grassley

United States Senator

 

July 12, 2012

Chairman Gary Gensler

Commodity Futures Trading Commission

Three Lafayette Centre

1155 21st Street, NW

Washington, DC 20581

 

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Dear Chairman Gensler:

 

The recent developments involving Peregrine Financial Group ("PFG") causes me serious concern as to whether the Commodity Futures Trading Commission ("CFTC") is properly overseeing the activities of commodity brokerage firms.  With the events of MF Global fresh in everyone's memory, we now are faced with yet another incident in which farmers' and investors' money may not have been properly safeguarded.

It is my understanding there was no ongoing CFTC investigation that precipitated the events of this week at PFG.  This is extremely troubling given that, according to press reports, there have been red flags for some time.  For example, it has been reported there were indications PFG was short of funds and/or had accounting irregularities as far back as February 2010.  It is critical for Congress to know what the CFTC did to look into these red flags.

Farmers and investors trust commodities brokers to safeguard their accounts and trust the CFTC to police the commodities market.  With the failure of MF Global and now PFG, the CFTC must be open and transparent with Congress and the American people to prevent the continued erosion of customer confidence in the integrity of the commodities markets.

As Congress examines the CFTC's actions regarding PFG, please provide the following information to help us with our investigation - What steps did the CFTC take to oversee PFG from the beginning of 2010 to the present?  When answering this question, please include all information related to previous violations of PFG, suspicious activity by PFG, and what steps, if any, the CFTC took to respond to these red flags.

I look forward to receiving your response in a timely manner.  If you have any questions, please contact me or my staff.

 

Sincerely,

 

Charles E. Grassley

United States Senator

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