http://www.dailyfinance.com/2012/07/14/10-key-details-in-the-peregrine-financial-collapse/
http://www.silverdoctors.com/jpm-not-us-bank-held-pfg-segregated-client-funds/
Early reports from the NFA and CFTC regarding the PFG segregated client fund theft claimed that $215 million of PFG’s segregated client funds were missing from a US Bank account.
The investigation into the collapse of Iowa brokerage firm Peregrine Financial Group is notable for one name that has not yet turned up: JPMorgan Chase.
10 Key Details in the Peregrine Financial Collapse
You've caught the headlines about Peregrine Financial and PFGBest. The comparisons drawn to the massive failure of MF Global (NASDAQOTH: MFGLQ.PK) piqued your interest. Ready to get up to speed fast? Here are the 10 things you need to know to get up to date on Peregrine's crash landing.
1. The easy way outRuss Wasendorf Sr., the 64-year-old founder of Peregrine Financial, apparently saw his house of cards collapsing around him. He was found in his car Monday after a suicide attempt -- there was a tube running from the exhaust pipe into the car and a bottle of vodka next to him.
Fun Wasendorf fact: The finance magnate graduated in 1971 from the University of Northern Iowa with a degree in filmmaking. Apparently he was good at telling stories.
2. Where's the money, Lebowski?In the wake of Wasendorf's suicide attempt, regulators forced the company into liquidation and checked up on its accounts. And ... whoops! Wouldn't you know it, an account at US Bancorp (NYS: USB) that was supposed to have $225 million had just $5 million. According to reports, this was nothing new -- that account normally had only around $5 million.
3. The tell-all suicide noteDetails have begun to leak out about the suicide note that Wasendorf left. Based on what's come out so far, it looks like we have a pretty clear possibility of fraud on our hands. Why do I say that? The signed note read "I have committed fraud." The note also suggested that the brokerage's founder may have been stealing from the company for almost 20 years.
4. The "special" mailing addressHow did Wasendorf pull the wool over regulators' eyes? It appears that he gave them a bogus P.O. box number and sent them his own version of the bank statements that provided the accurate account information as it existed in the Wasenworld alternative universe.
5. Who knew?Russ Sr. may not have been the only one in on the apparent fraud at Peregrine. Though he had a fancy wedding scheduled for Aug. 4, he tied the knot with his fiancee Nancy Palladino in a quiet ceremony in Las Vegas on June 30. Three days later, he signed over power-of-attorney to his son, Russ Jr., Peregrine's president. Were these simply seen as oddities by those close to him? Or were there others who were hip to the scheme and its impeding unraveling?
6. Some cushion for the way downA change that cropped up after MF Global's meltdown may come in handy. CME Group (NYS: CME) set up a $100 million fund that it's said can provide up to $25,000 per account to farmers and ranchers caught up in the Peregrine mess. That's certainly something, but maybe not a much of a lifesaver for some farmers. In the wake of MF Global's meltdown, we talked to one farmer who had $250,000 in his account at the broker. And, of course, CME's offer does nothing for Peregrine customers who aren't food producers.
7. What can be recovered?In a cheeky blog post titled "Ignore the Idiots," asset manager Attain Capital Management noted that it's not anywhere near right to assume that the $5 million at US Bancorp is all that will be available to Peregrine customers. In addition to that $5 million, Jefferies Group (NYS: JEF) , the clearing bank for the broker, is holding about $125 million of account assets. Attain believes there may be another $50 million at JPMorgan Chase (NYS: JPM) , which also held Peregrine customer accounts. That's against around $400 million in reported customer assets.
8. The infamous Trevor CookIf you believe in the idea of like attracting like, then it may not be surprising that Peregrine was tied up in a legal battle with the receiver for victims of Trevor Cook, who ran a Ponzi scheme that bilked investors out of $194 million and who traded $48 million in accounts at Peregrine. That was huge business for Peregrine, which had around $203 million in customer equity at the time. The lawsuit against Peregrine alleges that the company overlooked "objective red flags of fraud" because the business from Cook was very lucrative.
9. $700,000 says something went very wrongJust five months ago, the National Futures Association slapped Peregrine with a $700,000 fine for not properly overseeing its introducing brokers and allowing them to rip off clients. The NFA also said Peregrine didn't have effective anti-money-laundering procedures. For a broker Peregrine's size, $700,000 is a huge fine. Obviously, the NFA recognized that this wasn't a tightly run ship -- why didn't they make sure all the I's were dotted and T's were crossed elsewhere?
10. And ... here come the vulturesOne man's misery is another man's potential profit. At this early stage of the Peregrine mess, CRT Capital has already swooped in and offered to buy up customer claims from Peregrine victims for 20 to 25 cents on the dollar. If nothing else, this is a sign that CRT is pessimistically handicapping the outcome of the Peregrine customer recoveries -- the lowest price CRT paid for MF Global claims was 60 cents on the dollar.
and while ZIRP couldn't have caused a 20 year self admitted ponzi / fraud , ZIRP possibly blew the cover off the ponzi....
http://www.forbes.com/sites/timworstall/2012/07/15/peregrine-futures-was-the-fraud-really-caused-by-low-interest-rates/
Peregrine Futures: Was The Fraud Really Caused By Low Interest Rates?
There’s an excellent observation here by Craig Pirrong on Peregrine Futures. Could it be that the whole fraud and collapse thing was brought on by the current low interest rate environment?
In one sense of course this is obviously nonsense: low interest rates don’t create fraud. Fraudsters create fraud. In another though it is an interesting idea.
Do Peregrine, MF Global, and JP Morgan’s travails have anything in common, except for bringing further discredit onto the finance and banking industry? I think they do. I think they are all consequences of near-zero interest rates.The traditional FCM revenue model relied on interest income from customer funds invested by the FCM. Very low interest rates make that model unviable. That is a major reason why Corzine felt it imperative to transform MF Global-and to take on more risk. I conjecture that similar pressures led Wasendorf to commit fraud. (Though his admission that he had been doing so for 20 years cuts against that interpretation. A hypothesis: Wasendorf had been engaging in this activity on a smaller scale for years, but escalated it sharply as the financial pressures on Peregrine grew in the low interest rate environment.)
The point Pirrong is making is one I made back when MF Global went down:
Weil is looking at what the company did, take mostly phone orders for futures trades and he’s right, that is old fashioned and there’s not a hugely profitable future in that one would have thought. However, that simply is not where MF Global used to make its profits. It’s not where such brokers (futures, prime brokers, even insurance companies) actually do make their profits.The execution of the trades, or for insurers, the collection of premiums and payment of claims, is the boring unprofitable part of the business. In fact, one which in a competitive market they almost always make a loss on. The actual profit comes from handling the oodles of cash that flow through the companies as premiums, deposits, margin calls and so on. These can be and are invested for the benefit of the firm, not the customer.In fact, in these sorts of businesses it would be more profitable if you didn’t actually have to do anything, you were just able to play with the customers’ money as the float. And this business model is just fine. You take in money, say the margin required of a futures trader, and you sit on it. The customer gets no interest at all. But you do get interest, because you use that money to go and buy T-Bills (as an example). And you get that interest on those T-Bills. This makes you an awfully large amount of money as MF Global itself shows, until of course interest rates are artificially depressed and you make no money.
The business itself, futures broking, does not make money. As almost all insurance does not make money (yes, most insurance companies most of the time make a loss on the underwriting. Well, they do in competitive markets at least and this is one of the markets of whether the market is competitive.). The money is made by having a large cash float within the business, one upon which you can earn money and one upon which you do not have to pay out money. And as both Pirrong and I point out, this is all just fine until you end up in an environment with very low interest rates.
With MF Global it appears that this led to a straining for yield, into riskier trades. At Peregrine we’re not sure yet but I would hazard a guess, as with Pirrong, that the absence of profits upon that float triggered some of the actions.
and once again how is the JP Morgan role ( similar to its role in MF Global ) unclear , subject to the cone of silence from the banks and regulators....http://www.silverdoctors.com/jpm-not-us-bank-held-pfg-segregated-client-funds/
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