How to Stop the Frauds
Futures magazine's Dan Collins discusses the recent collapse of commodity firms due to financial irregularities and what changes he sees for the futures industry.
Well the futures industry, in terms of trust, has taken a hit a couple of times in the past few years with MF Global and PFG and the fraud involved there. My guest today is Dan Collins of Futures magazine to talk about that. So, Dan have we seen the end of this? Is there another company, or is this going to happen again as you see going forward?
Well I mean I think that’s a problem. I think that’s the big problem with PFG because a lot of people were talking about MF Global being you know a one off event and then PFG comes along and that did a lot of damage to people’s confidence.
So what’s going to change here? What are the NFA going to try to do to make this so that it’s not just faxing paper documents for doing audits and that sort of thing?
Well, and the NFA has come under a lot of criticism probably rightly so, but they did discover it, or was it the SEC, by getting electronic filing of these things and that’s them demanding that is what kind of ended that long fraud, you know he couldn’t hide it any longer. That’s going to be more widespread. There’s talk of an insurance program but there’s a really big split on whether that’s a good thing or that’s not a good thing.
Do you see a time when the NFA or somebody will require nightly electronic audits of bank accounts to make sure the money is there every night?
Yeah. I think I mean they’re doing daily you know transparency right now that these reports are daily, and I think it makes sense that I mean we’re dealing in a world where we talk about 1,000 trades per second, so if they can do that, why shouldn’t they verify the banking information as well?
Alright, so what’s an investor to do to find a futures brokerage firm? Even if you did everything right with PFG you could have been in trouble, so where do we go from here?
Well, you know you talk to people in the industry, you do due diligence on everyone. There were some red flags with both. We’ll be talking about that in a future issue because it’s hard to believe but October 31st is the one year anniversary of MF Global, and the sad thing is that people haven’t got all their money back, and then so the industry needs to take action. They need to show that they have this in order.
And the NFA is a self-regulatory agency association and they’re going to regulate it in themselves. Do you see the SEC or somebody else taking over that role?
I could see maybe a push for that but you know to put it plainly they may have messed up but they haven’t messed up to the scale of the SEC has over the years. I mean, all the scandals over the last decade; they weren’t the ones that discovered it. The attorney generals did, they didn’t discover Bernie Madoff, even though ten years before it blew up, they were given a road map as to actually what was going on, so I mean if you score the self-regulatory organizations, you can criticize the CME for not being more on top of MF Global but there was fraud there. You can criticize the NFA but I think they probably are better placed to do that than have a central regulator or the CFTC take over more things or the SEC. I think their record is better.
Are you going to see or do you think we’re going to see jail time for, obviously, for the head of Peregrine, if you will, or PFG, or for someone at MF Global?
That is a big, big issue. The whole industry was ignited by a story about a month ago in the New York Times, which you know citing unnamed sources said there’s going to be no jail time. That maybe was a good thing in that it reignited people’s anger about this. Who knows what they’re going to do, but the industry will hold them accountable and I think that there will be State attorney generals that will try and bring charges because it’s money, customers have not been whole yet, and if we want to build back people’s trust, you can’t just let this fade away and that’s what seemed to be underneath that story and they even discussed and if any of your listeners go to futuresmag.com, I write it a blog on it too, and I wrote a couple of blogs. I’ve been writing a blog on it for the whole time and different aspects of it, but it really appeared that somebody was kind of floating something out there to see how much splash back are we going to get if nothing happens there, and I think it’s going to be quite a bit.