NFA Responds to Peregrine Financial Group Audits

The National Futures Association (NFA) announced its intention to implement 21 changes and recommendations to how it manages futures industry firms. The news comes after the Berkeley Research Group (BRG), as part of its independent analysis of NFA’s audits of the Peregrine Financial Group, uncovered countless auditing oversights in the wake of the $200 million financial fraud by futures broker Peregrine Financial Group Inc.

Cedar Falls, Iowa-based Peregrine, fell into bankruptcy in July after the fraud was discovered at the same time as the firm’s CEO and founder, Russell Wasendorf Sr. attempted suicide.

A special committee of the NFA board met on Jan. 29, and recommended that the organization modify its auditor training and hiring practices; update its auditing policies and procedures; and better incorporate information from its own disciplinary reviews and auditing by the Commodity Futures Trading Commission.

The board will also appoint a special committee to supervise the implementation of these recommendations. These changes, according to the BRG, are “designed to improve the operations of NFA audits” based on the results of its analysis.

The BRG also recommended that the NFA organize more testing of internal controls, and take better steps to recognize potential risk factors in futures commission merchant (FCM) operations. An NFA press release from President Dan Roth stated, “Our primary goal is to thoroughly review the BRG report and develop a plan to implement its recommendations.”  Mr. Roth concluded in the press release, “We will present our plan to the board in the near future. We are confident that the actions already taken by NFA and other regulators, along with the recommendations proposed by BRG, will help us to create a stronger regulatory environment and a better industry.”

The Peregrine fraud was uncovered last year as the association was began new changes to their electronic process for reviewing bank confirmation statements regarding customer funds held by futures brokers such as Peregrine. Unlike the Madoff Ponzi scheme, no complaints or attempts at whistleblowing  were made, regarding Waseendorf’s fraud.

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About The Author


Felix Shipkevich

Felix Shipkevich

Mr. Shipkevich’s practice focuses on regulatory, transactional, and enforcement matters in the fields of futures, commodities, and derivatives. He works with Futures Commission Merchants (FCMs), Retail Forex Exchange Dealers (RFEDs), Introducing Brokers (IBs), Commodity Pool Operators (CPOs), Commodity Trading Advisors (CTAs), Swap Dealers (SDs), Swap Execution Facilities (SEFs), and domestic and offshore hedge funds. Mr. Shipkevich guides clients on procedures related to registration with the U.S. Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA), as well as domestic and international regulators in local jurisdictions. Mr. Shipkevich prepares and helps implement compliance, anti-money laundering (AML), and Electronic Trading Systems (ETS) procedures for clients in the commodities and derivatives fields.

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