Tuesday, July 10, 2012

A Lick and a Promise Audit

Peregrine Financial Group, the holding firm for PFGBest is alleged to have used their customer's segregated funds which is a big no-no. It has only been nine months or so since MF Global allegedly also used their customer's segregated funds. Apparently, PFGBest had been showing more than $200,000,000 in a segregated account to regulators via allegedly fabricated bank statements. Early word is that they may had only had about $5,000,000 while claiming to have more than $200,000,000.

Do you actually mean that the regulators went in to audit this firm and accepted dubious paperwork as "proof of funds"? Are you stinking kidding me? It doesn't take a smart person to figure out that this is not an audit of any kind. An audit means that you go to the clearing firms and the banks in question and ask for audited proof of funds in those accounts that matches exactly what the futures firm is claiming. Apparently, the 70 or so futures firms that were "audited" (don't make me laugh) were given this type of audit after the MF Global fiasco. The emperor has no clothes now. Their lick and a promise audit was a joke. Who are these regulators? They need to be fired. They are incompetent.

As the great coach Vince Lombardi once said, "What the hell is going on around here?"

The regulators tried to alleviate everyone's fears after the MF Global fiasco by sending out their regulators to audit roughly 70 futures firms. If these 70 firms were audited this way by these regulators, then we have no idea whether these futures firm have properly segregated their customer's funds.

Bernie Madoff, when audited, simply gave the regulators made up statements that they accepted as authentic. Apparently, the regulators in charge of auditing these 70 futures firms did the exact same thing. They took the firms word for it. This is no audit.

Sadly, more employees are probably going to be out of work as a result of this fiasco.

Now, you will hear cries for insurance to protect customers and the need for more regulation. I promise you. We do not need any more of this kind of regulation. The entire industry has already proved without a shadow of a doubt that they only held the 70 firm audit to satisfy the cries of MF Global customers. Think about this from an ethical standpoint for a minute. These regulators are the ones in charge of protecting customers. They performed lick and a promise audits to satisfy their critics. However, they now have egg on their face. They have proved without a shadow of a doubt that they were just going through the motions. Is this ethical behavior? I for one do not think so.

Heads need to roll over this.

Be careful out there.