The U.S. Commodity Futures Trading Commission, probing a shortfall of $200 million in client funds at Peregrine Financial Group Inc., must take immediate steps to safeguard customer funds, a Republican commissioner said today.
The futures regulator should call an emergency meeting of its technology advisory committee to weigh an industry-funded system to verify customer funds daily, Scott O’Malia said in a Bloomberg Television interview. He spoke a day after the CFTC sued Peregrine in federal court amid claims of a $200 million shortfall in an account that was supposed to be segregated.
“This is the second black eye for the industry,” O’Malia said. “We can no longer tolerate any misappropriation of funds. We’ve got to put an end to the fraud. And we’ve got to put in place a system that no longer relies on human compliance. We have to put in technology that prevents people manipulating others’ money.”
The CFTC is facing new scrutiny from lawmakers and futures industry participants less than a year after being scolded for poor oversight following the collapse of MF Global Holdings Ltd., which left a $1.6 billion shortfall in customer money.
Peregrine is under investigation over an alleged shortfall after Chairman and Chief Executive Officer Russell Wasendorf Sr. unsuccessfully attempted suicide. The National Futures Association said the chairman may have falsified bank records after only $5 million was found in an account that was reported to have $225 million on or about June 29.
“In the wake of MF Global, this latest failure raises serious questions about our current regulators and whether they are capable of doing their jobs,” Senator Richard Shelby, an Alabama Republican and ranking member of the Senate Banking Committee, said in an e-mail yesterday.
The CFTC can take steps immediately without requiring new authority under the law, O’Malia said.
“We do not need to wait for congressional action,” O’Malia said. “We do not need to wait for a rulemaking or other things. This should be implemented today and we should have real-time reporting of customer protection.”