Peregrine Financial – Another MF Global

This story is interesting.  On Monday, Federal CFTC regulators shut down Peregrine Financial.  (CFTC = Commodities Futures Trading Commission)  Peregrine Financial claimed to have $220M of segregated customer money, but they only had $5M.  This is nearly an exact duplicate of MF Global.

After MF Global failed, the CFTC said “We audited all the other futures brokers.  Everything is fine!  Move along!  Nothing to see here!”  Either they were lying, or they were incompetent.

Allegedly, Peregrine looked the other way for another Ponzi scam involving Trevor Cook.  The Ponzi scam was a large percentage of Peregrine’s business, giving them an incentive to ignore the fraud.  It turned out that Peregrine also was a fraud.  After the Trevor Cook incident, why didn’t regulators carefully audit Peregrine?  That’s criminal negligence by the CFTC.

Allegedly, Peregrine submitted fake bank statements to CFTC regulators.  Here’s a nice link describing how he forged the paperwork.  Allegedly, Peregrine was submitting false bank statements to regulators since 2010 or earlier.  The CFTC wanted to switch to electronic submission of balance information by the bank, but Peregrine’s CEO resisted, which was suspicious.  His fraud would have been discovered if they switched to direct electronic statements.  Why didn’t the CFTC regulators directly subpoena records from the banks, rather than relying on forged documents by Peregrine executives?  That only takes an hour, and is part of “Auditing 101″.

If you are a Peregrine Financial customer, you probably are SOL.  Your account is frozen.  You will be margin-called out of your positions, or you’ll have to cough up more money.  You will only recover pennies on the dollar after bankruptcy, and only then after months/years of waiting.

This article was interesting.  After Peregrine failed to make a margin call, the broker Jefferies liquidated all positions with Peregrine.  Jeffries cleared through Peregrine.  Jefferies had advance warning of Peregrine’s bankruptcy.  Did they leapfrog ahead of other creditors?  Jefferies customers lost nothing, but did that come at the expense of other Peregrine customers?  Jefferies is a much bigger broker, so they can reimburse customers for any losses due to Peregrine.

Did Peregrine’s scam end, only because they couldn’t make the margin call?  Even though Peregrine had stolen segregated customer money, they still didn’t have enough cash to pay the margin call?  The scam didn’t end because regulators wised up, but because Peregrine ran out of money.

Jon Corzine was never indicted, after stealing $1.6B of customer segregated money.  It would be ironic if Russell Wasendorf goes to prison, but Jon Corzine does not.  The lesson is that insiders can get away with crime, but small fry like Wasendorf go to prison.  There are two justice systems, one for insiders and one for everyone else.

Jon Corzine was clever enough to cover his tracks, with subordinates who stole money for him without being explicitly ordered to steal.  That gives Corzine plausible deniability.  Russell Wasendorf probably was personally involved with the theft of customer money.  He tried to commit suicide on Monday, but failed.

As I mentioned before, you’re an idiot if you trust the US financial system.  The best investment is physical delivery of gold and silver.  However, if you have gold and silver in your home, you may be robbed.  With physical gold, you can be robbed either by regular criminals or by criminals wearing badges and uniforms.  Due to the way “asset forfeiture” laws work, police can steal your property without a trial.  Possession of gold or cash is evidence of a crime, because only a criminal wouldn’t trust a bank.  When you buy gold from a State-licensed dealer, your ID is recorded, and that information may be leaked to criminals.

A pro-State troll says “Buy gold and silver PM funds, like GLD/SLV/PHYS/PSLV!”  Sometime in the next 5-10 years, there will be a default on one of the big PM funds.  They will be worthless, when all investors try to cash out at the same time.  Allegedly, those PM funds are secretly practicing fractional reserve banking.  They don’t have all they metal they’re supposed to have.

Only a fool would still use the futures markets.  Just like with MF Global, Peregrine’s customers are losing their investment.

If you use the futures markets, you’re exposed to counterparty risk.  Your broker can steal your money, and you’re stuck with the loss.  Therefore, futures prices should always be in backwardation.  The default risk is priced into the future, and shorter futures have less default risk exposure.

If enough people stop using the futures markets, then the futures price will start diverging from the real price.  For example, the “official” futures price of gold may be $1600/oz, but if you want to buy a physical gold coin or bar, you’ll have to pay $3000+/oz.

If you use the financial system, you’re letting banksters gamble with your money.  You are an unsecured creditor, when the banksters default.  For banks and the stock market, there’s FDIC and SIPC insurance.  However, those are paid for by a tax on your account, in the form of higher fees/commissions and lower interest rates.  There is no equivalent to FDIC/SIPC for the futures market.  The brokers resisted for a long time, but after MF Global and Peregrine, that may change.

The financial industry uses the ridiculous principle of “self regulatory organization”.  The banks are supposed to regulate themselves.  As you might imagine, that’s been a disaster, as indicated by MF Global, Peregrine, Lehman, Bear Stearns, Madoff, and many other scams.

Peregrine Financial stole $220M of segregated customer money.  It’s the exact same thing that MF Global did.  A year later, and the government is still powerless to stop flagrant bankster theft.  “Segregated customer money” is supposed to be one of the sacred provisions of the futures market, but the government isn’t able to enforce that clearcut law.

If you were a Peregrine Financial customer, you are SOL.  Corzine got away with stealing $1.6B from his customers, but Russell Wasendorf will probably go to prison.  Wasendorf is a low-ranking State criminal, and is expendable for an example to be made.  Corzine is a high-ranking criminal, and immune from prosecution.

You’re an idiot if you still use the futures markets.  You’re an idiot if you trust the US financial system.  Whenever you use a bank, you’re financing bankster gambling.  As long as you use paper money, you’re letting banksters rob you via inflation.

6 Responses to Peregrine Financial – Another MF Global

  1. i don’t understand you sometimes fsk ! on one hand , you’re an anarchist ( like myself ) but on the other , you blame bank failures on the lack of government regulations ! what gives ?

    • Currently, the government has a monopoly for regulating banks, and failed miserably. It’s an argument against government.

      Maybe I was unclear. “The CFTC said they audited all commodity brokers after MF Global. They either lied or was incompetent. Therefore, the government regulatory monopoly is evil. The CFTC regulators should have personal responsibility, when they either lied or were negligent. However, the State protects police and regulators via sovereign immunity. The Peregrine customers can’t directly sue the CFTC regulators personally to collect damages.”

      Do I have to add “Therefore, the government police/justice/regulatory monopoly is evil!” after each paragraph? It gets redundant when I say it in every post. I feel like I’m whining, when I say that too often.

      This may lead to an insurance on commodity accounts, similar to FDIC/SIPC insurance. That just shifts the costs from dishonest brokers to honest brokers, via a tax.

      In a really free market, if you invest in a bank that commits fraud, you do deserve to lose your investment. In a really free market, you would be able to directly sue all bank employees and auditors, which would encourage responsibility by everyone.

      For example, a teller in a dishonest bank doesn’t deserve a crippling liability of $1M+. However, there should be some payment and liability. The teller’s salary should be considered stolen property, and subject to forfeiture/clawback.

      In a really free market, if I worked as a free-market bank auditor, and I say “Bank XYZ is sound!”, then I’m personally liable if I’m wrong. All the bank executives and employees would also be liable for a loss due to fraud. State regulators get a perk of immunity, when they’re negligent.

  2. Being an anarchist doesn’t imply no state, it implies no involuntary state. You can have a voluntary state and not violate morality. I would not submit to our current state voluntarily therefore its a mafia.

    • The State refers to the evil use of the government monopoly, all the people who directly or indirectly benefit from corruption, and all the people who are pro-State brainwashed to believe this is desirable or a necessary evil.

      The CEO of a big bank counts as part of the State, even though he is not directly employed by the government. Due to State subsidies, bank CEOs are very dependent on the State and Federal Reserve.

      For example, Ron Paul works for the government, but he isn’t necessarily part of the State. When Ron Paul pushes the limits of the debate ceiling, he isn’t part of the State. When Ron Paul provides a distraction for people who want more freedom, he is part of the State.

      If a CFTC regulator was smart enough to do a proper audit, then he might not be considered part of the State. Due to increasing corruption, such people tend to get weeded out.

      Even without a government monopoly, criminals would be caught and forced to pay restitution plus punitive damages. If caught criminals don’t owe punitive damages but merely restitution, then you’re actually encouraging crime. Without punitive damages, if the criminal is caught, he merely repays what he stole; otherwise, he gets to keep it.

      Fraud would still be caught in a free market. In a really free market, there would be greater incentive to not commit fraud. Every person who profits from the scam, directly or indirectly, is partially liable. There is no “limited liability incorporation” in a really free market.

  3. Here’s another interesting link. Here’s how the CEO tricked regulators with forged statements.

    He falsely listed the bank’s address, instead listing a mailbox or PO Box he controlled. He mailed his forged statements from this fake address.

    The regulators are so incompetent and lazy, that they didn’t check the bank’s address.

  4. According to Piwik, a lot of people are finding this post via a Google search of “Who audited Peregrine?”

    This link has the answer. It was the National Futures Association (NFA), a self-regulatory organization (SRO). “Self regulatory organization” means that the bank gets to audit themselves. That leads to the obvious problems.

    That’s the model for banking regulation, you get to regulate yourself, and when there’s a problem too bad. If you’re a true insider (Corzine), you get away with it or get a bailout. Small fry like Wasendorf go to prison.

    Here’s another interesting link.

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