Peregrine collapse outrages lawmakers, investors

ByABC News
July 11, 2012, 9:44 PM

WASHINGTON -- Lawmakers and investors are searching for answers and demanding change from regulators charged with overseeing the futures sector following the implosion of an Iowa-based investment firm — the latest company to collapse and rattle market confidence.

The U.S. Commodity Futures Trading Commission alleged that Peregrine Financial Group and founder Russell Wasendorf Sr. misled the agency for more than two years and misused about $215 million of customer money that is now missing.

Wasendorf was found Monday outside the company's Cedar Falls, Iowa, headquarters after an apparent suicide attempt. Officers found a suicide note detailing some of Wasendorf's alleged financial improprieties. The National Futures Association, which was the firm's primary regulator, said Peregrine may have falsified financial documents.

The company was ordered shut down and filed for Chapter 7 bankruptcy on Tuesday.

Washington lawmakers and investors were astounded that customer funds were again left unprotected and that regulators were unable to effectively oversee the futures market.

Jill Sommers, a Republican commissioner at the CFTC, said Wednesday that until investigators know everything that happened in the Peregrine case it's difficult to assess how well the current regulatory system worked and what, if any, improvements need to be made.

The collapse of Peregrine follows the bankruptcy nearly nine months ago of Wall Street brokerage firm MF Global, led by former New Jersey senator and governor Jon Corzine. In the MF Global case, more than $1 billion in customer money disappeared, leading to criticism that the CFTC and almost a half-dozen other regulators policing various parts of the firm were not watching its bookkeeping closely enough.

While some measures have been put in place and regulators are considering a host of others, market watchers, investors and lawmakers fear the $215 million of customer funds missing from Peregrine could erode any progress that has been made to restore that trust.

U.S. lawmakers quickly called for increased oversight in the wake of the Peregrine collapse.

"The dramatic collapses of Peregrine and MF Global within a period of months very strongly indicates the need to reform the system for regulating and policing futures firms in order to protect customers, investors and the integrity of markets," said Sen. Tom Harkin, D-Iowa.

Fellow Iowa Sen. Chuck Grassley, a Republican, said he will be sending a letter to the CFTC and the NFA to see "if they are doing their job."