Canadians who have money in trading accounts with PFG Canada, the Canadian arm of brokerage Peregrine Financial Group where $220-million has gone missing, are expected to get their money back.
After looking into the matter, the Investment Industry Regulatory Organization of Canada said "it appears that all client monies and assets are accounted for."
At this point it is still too early to say anything definitively because the regulator was only made aware of the missing U.S. money on Monday afternoon, but a senior employee in the Canadian operation said "there's a 95-per-cent-plus probability that Canadian clients will remain whole" – industry slang for getting their money back.
The Commodity Futures Trading Commission, which regulates U.S. commodity markets, has filed a lawsuit against Peregrine Financial Group and Mr. Wasendorf, the firm's founder. The CFTC alleges Mr. Wasendorf misused client money and doctored company accounts for the past two years. "PFG and Wasendorf have used customer funds for purposes other than those intended by its customers, and consequently, have misappropriated these funds. The whereabouts of the funds is currently unknown," the commission said in the suit filed today in a U.S. District court in Illinois.
The suit alleges that in Feb. 28, 2010, PFG claimed it had $207-million in nearly 2,000 customer accounts. "However, the actual balance in the account was less than $10-million," the suit alleged. Similar shortfalls appeared in 2011 and 2012. On Monday, PFG's records showed a balance of $225-million in customer accounts. In fact, the CFTC alleges, the company's actual balance was approximately $5-million.
North of the border, however, "things are well in hand for Canadian clients," the source here said. Unlike the MF Global fiasco, during which Canadian clients were stuck in limbo for two week as they waited to figure out where their money is going, a swift decision has already been made to transfer client funds to RJ O'Brien & Associates Canada Inc., an IIROC-regulated firm.
Client funds held by PFG Canada are also covered by the Canadian Investor Protection Fund, which puts them at an advantage over U.S. clients. The U.S. equivalent to the CIPF, the Securities Investor Protection Corp. doesn't cover futures accounts, while CIPF covers all investment accounts, from stock to futures to currencies.
CIPF was apprised of the situation late Monday afternoon but does not believe it will be called upon to cover any losses, said vice-president Barbara Love.
She confirmed that PGF's Canadian operation is a member of the fund, and customers would be eligible for coverage, but "at this point we don't anticipate being asked," said Ms. Love, who confirmed that customer accounts are likely to be "transferred in full to another firm."
The call came in at 5 p.m. (ET) on Monday about the developing situation and "we really just got updated on everything that was going on in Canada this morning," she said.
Regulators are working "very quickly. There's a lot more knowledge in Canada about the futures industry after MF Global."
The National Futures Association (NFA) in the U.S., an industry group that also plays a regulatory role, said yesterday it had issued an emergency order to effectively freeze U.S. futures broker PFGBest's operations after finding that a U.S. bank account the broker said contained $225-million in customer funds actually held only $5-million.
PFGBest told customers their funds had been frozen and clients would be allowed to liquidate open trading positions, but would not be able to withdraw funds or make new trades until further notice.
There is no word yet on how much Canadian money is held by PFG Canada, however, Ms. Love said that PGF's operations in Canada are not as large as MF's. "It's a much smaller firm, [with] fewer clients." When MF Global's Canadian funds were frozen, about $400-million of invested money was affected.
A public statement from PFG Canada is expected later this afternoon.
The CFTC's formal complaint against PFG can be found here.