For Immediate Release
For More Information Contact:
Karen Wuertz (312) 781-1335, kwuertz@nfa.futures.org
Larry Dyekman (312) 781-1372, ldyekman@nfa.futures.org
Karen Wuertz (312) 781-1335, kwuertz@nfa.futures.org
Larry Dyekman (312) 781-1372, ldyekman@nfa.futures.org
National Futures Association adopts recommendations from an independent analysis of NFA's Peregrine Financial Group audits
January
31, Chicago - The National Futures Association announced that at a
special meeting of its Board of Directors today, the Board voted to
accept the recommendations made by Berkeley Research Group (BRG) as part
of its independent analysis of NFA's audits of Peregrine Financial
Group, Inc. NFA staff will shortly develop a plan to act on the
recommendations. The Board will also appoint a special committee to
oversee the timely implementation of the recommendations.
According
to BRG, its 21 recommendations are "designed to improve the operations
of NFA audits" based on the results of its analysis. The
recommendations cover a wide range of topics, including auditor hiring,
training, supervision and continuing education. In particular, the
report recommended that NFA enhance its training and procedures to
ensure a greater sense of professional skepticism among its audit staff.
In
addition, BRG recommended that NFA conduct more testing of Members'
internal controls, the qualifications of outside auditors and the
sources of firm capital contributions. BRG also recommended that NFA
take steps to better identify potential risk factors in futures
commission merchant (FCM) operations.
"BRG
conducted an independent, thorough, and accurate review of NFA's audits
of Peregrine Financial, and identified areas in which NFA could have
been more inquisitive," said Todd Petzel, chairman of a Special
Committee comprised of NFA's Public Directors that retained BRG in
August 2012. "Its recommendations are smart and appropriate. With the
full backing of the Board, management will implement these
recommendations and we expect the result will be improved regulation and
oversight and a stronger, more secure industry."
BRG
found that, overall, "NFA audits were conducted in a competent fashion
and the auditors dutifully implemented the appropriate modules that were
required in the annual audits" following the standards set by the Joint
Audit Committee, a representative committee of the Audit and Financial
Surveillance departments of U.S. futures exchanges and regulatory
organizations.
BRG
also found that, unlike in the Madoff Ponzi scheme, there were no
complaints from customers or attempts at whistleblowing regarding
Wasendorf's fraud. BRG concluded that Wasendorf "was able to conceal his
fraud meticulously by providing numerous convincingly forged documents
to NFA and others."
"NFA
has already taken steps to address some of the issues highlighted in
BRG's recommendations," said NFA President Dan Roth. "For example, we
have expanded our use of Certified Fraud Examiner training for our audit
staff, increased our recruiting of experienced supervisors and directed
our managerial staff to spend more time in the field during audits. NFA
and CME Group have created a process to receive daily confirmations
from all banks holding customer segregated funds. The segregation
confirmation system will perform an automated comparison of that
information with the daily reports filed by the FCMs and generate
immediate alerts for any material discrepancies."
"Our
primary goal is to thoroughly review the BRG report and develop a plan
to implement its recommendations," said Mr. Roth. "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
BRG Investigative Team conducted a comprehensive review of NFA's audits
of PFG from 1995 through 2012. BRG examined over 190,000 NFA documents
containing over 3 million pages, including over 166,000 emails and
related attachments. BRG also conducted interviews of 32 individuals
with knowledge of the factors or circumstances surrounding NFA's audits
of PFG, including 25 current or former NFA employees and 5 former PFG
officials (including former PFG CEO Russell Wasendorf, Sr.).
BRG's Recommendations Report and Report of Investigation are available on the NFA website at www.nfa.futures.org.