Last week, I ranted about regulation and the folks who regulate. This week, I would like to follow up on that rant.
As many of you may know by now, PFG founder and CEO Russell Wasendorf Sr. was arrested last Friday. He admitted to making false statements to the Commodity Futures Trading Commission relating to the value of customers segregated funds at PFG. He even said, "I have committed fraud".
According to his own attempted suicide note, he's been embezzling money from the company for the past 20 years. He also stated that all the bank accounts came to him directly, and that it was easy for him to forge those bank statements over that time.
Here's a simple question I have for the Commodity Futures Trading Commission, and also for the SEC: Why are you accepting statements at face value from any broker, without further checking with the source of those statements?
In the case of PFG, it would have been the bank. In the $50 billion Madoff Ponzi scheme, it would have been the brokers. It would have been crystal clear that there was no trading going on. Had you checked with the actual bank that PFG claimed they had accounts with, there was little or no activity that remotely matched the statements that you, as a regulator, were looking at.
In the case of PFG, the banks were not at fault. This was an out and out fraud that Russell Wasendorf Sr. admitted to and perpetrated over the last 20 years.
I feel like it's basic business 101! As regulators, you should not accept anything without checking the source, particularly in these days of scanners, copiers, and Photoshop. But, that is exactly what the CFTC along with the SEC have been doing for years.
"Mr./Mrs. Regulator", please look at the original documents, check with banks, check with brokers, and double-check and confirm from the source of any third-party statements. Don't just rely on what you are handed by a brokerage firm. It's just too easy to forge anything these days. If crooks can forge 100 Dollar bills, they certainly would have no trouble with a simple bank statement.
And if you can't do that, then let's just outsource regulation to the private sector. I'm sure they'll be a lot more efficient and vigilant with an incentive to get it right and and protect the public's money.
We don't need more regulation, rather we just need the regulators to follow basic accounting principals and perform checks and balances with third parties for account balances and verification. Until that happens, we're likely to come across more crooks and low lives taking other people to the cleaners.
The public and the industry would be pleased to see the regulators go down a path towards honest and diligent regulation.
Rant over, now back to the markets.
President INO.com and co-founder of MarketClub.com