NFA Orders External Audit

In the wake of the Peregrine Financial scandal, the National Futures Association (NFA) has ordered an external review of its operations, and may cut staff bonuses, according to several sources.

The NFA, the designated self-regulatory organization (DSRO) for FCMs such as Peregrine, was widely criticized for failing to detect alleged decades-long fraud at the firm. NFA President and CEO Dan Roth, who has been with the agency since its inception in 1982, is said to have considered resigning in the immediate aftermath of the revelations.

In addition to introducing new rules to better protect customer-segregated funds, the agency has retained Berkeley Research Group, LLC to conduct a thorough review of its auditing practices. The NFA’s board of directors will evaluate Roth’s future and staff bonuses for the 2012 fiscal year upon the audit’s completion.

The review will be overseen by a new subcommittee of the NFA’s board, made up of its public representatives and headed by Todd Petzel, chief investment officer of Offit Capital Advisors LLC.

The NFA is seeking to have the review completed by the end of 2012, ahead of new swap market rules going into effect early next year. The new rules will greatly expand the NFA’s oversight duties over over-the-counter derivatives.

Customer losses at Peregrine are estimated at $215 million. None of that money has yet been recouped.

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