Compliance

01:01 PM
Phil Albinus
Phil Albinus
Commentary
Connect Directly
Twitter
RSS
E-Mail
50%
50%

The CFTC Sniffs Out Another Bad Broker

It's an evergreen of TV news: At least twice a year, the FBI, ATF, DEA or Coast Guard capture huge bales of cocaine and marijuana coming into the US from Mexico. The booty is lined up on a table next to a podium for the beaming government official to declare that the cartels are on notice.

It seems that every one of these press conferences heralds this haul as the largest drug seizure on history.

Check out Wall Street's 9 Worst Bets Ever.

If that were only the case. Every drug expert knows that the supply of drugs into the US is continuing unabated. These seizures may be impressive from a law enforcement point of view -- the $3 billion War on Drugs is working! -- but in terms of the overall flow of narcotics, it's the tip of the iceberg. These mounds of drugs maybe destroyed later on but the pipeline keeps flowing.

This depressing image came to me when the CFTC announced that they caught discrepancies within Peregrine Financial Group, the unit inside Iowa broker PFGBest. So far, the estimated shortfall of the broker's client funds is around $200 million.

This recalls when the CFTC approached MF Global for their suspicious use of customer funds to hedge bad trades. Sure, we shouldn't live in an age when we commend federal agencies for doing their job but this is the age we live in: Competency is a rare thing. Many people saw the major Wall Street firm about to fall off the cliff but no one spoke up. If they did, they were summarily ignored.

But this does beg the question, that brings us back to the mountains of illegal drugs that still make it into our cities, suburbs and country counties: What is the CFTC and the SEC missing? For every MF Global, JP Morgan's London Whale, Bernie Madoff and Peregrine, what are other investment firms -- large and small -- hiding and getting away with?

And the second question is: Will we ever know?

Phil Albinus is the former editor-in-chief of Advanced Trading. He has nearly two decades of journalism experience and has been covering financial technology and regulation for nine years. Before joining Advanced Trading, he served as editor of Waters, a monthly trade journal ... View Full Bio
Comment  | 
Print  | 
More Insights
More Commentary
Data Integrity: A Necessity, Not an Option
Financial institutions that have taken on the data integrity task in the past now have to spend more money on hardware, software, and people just to keep up with the demand.
What Colombia’s New IT Campaign Means for Latin American Tech Investment
Colombia’s campaign is the latest example of how Latin America is trying to edge into the global technology space.
Initial Margin: When Does More Turn Out to Be Less?
Changing margin regulations are set to affect the OTC derivative market, including initial margin risk models for non-cleared OTCs.
The Mainframe Innovation Drag
It may be time for a consortium of firms motivated around the objective of eliminating the mainframe. What if every self-clearing firm decided to participate in building a modern, back-office system as an open-source, cloud-based project?
Big Data DIY
Now that we have passed the initial hype phase of big data, companies are searching for real business value from their investments. Consultants can play a part, but only if financial firms insist on a new partnership model.
Register for Wall Street & Technology Newsletters
White Papers
Current Issue
Wall Street & Technology - July 2014
In addition to regular audits, the SEC will start to scrutinize the cyber-security preparedness of market participants.
Video
Stressed Out by Compliance, Reputational Damage & Fines?
Stressed Out by Compliance, Reputational Damage & Fines?
Financial services executives are living in a "regulatory pressure cooker." Here's how executives are preparing for the new compliance requirements.