NYSE prepares to tell Congress that current market rules give professional traders an advantage over retail investors, and that the regulatory structure must change in order to fix the disparity. In Australia, some fund managers are pushing for the imposition of a tax on high-frequency traders that flood the market with orders. The CFTC heads to court to ask for a fast resolution on charges made against Peregrine and its ex-chief Russell Wasendorf Sr. In today’s First Read, John Lothian takes a stand for new blood at the NFA. Also, be sure to watch our latest installment in JLN’s Restoring Customer Confidence series; James Gellert, President and CEO of Rapid Ratings, explains how ratings of public brokers and voluntary ratings of private brokers would provide transparency for the FCM community and its customers.

Oslo’s exchange signs up to purchase the Burgundy from its Swedish owners as a way to consolidate influence in Scandinavian trading.  Tradeweb launches an ETF trading platform, allowing access to thousands of ETF products. NYSE Euronext and the Taiwan Futures Exchange sign a memorandum of understanding to share connectivity and access via NYSE’s order routing system.

For all of the deserved criticism the National Futures Association (NFA) is getting these days for missing the “steal and spend racket” over at Peregrine Financial Group, the latest lawsuit involving the current NFA chairman Chris Hehmeyer appears rotten. This is a case only the futures industry could cook up and turn into a “You can’t make this stuff up” kind of story.

Let’s start with the Alaron suit and move backward from there. No doubt, many in the industry have seen or heard about the suit filed by Alaron Trading Corporation against Chris Hehmeyer on Monday for $4 million in damages and another $12 million in punitive damages. Among the many items alleged in this 22-page suit in Cook County Circuit Court are: “negligent misrepresentation, fraudulent misrepresentation, intentional interference with contractual relationships between Alaron and its introducing brokers” and interference with the sale of Alaron’s customer business to Peregrine Financial Group in 2009.

In short, Alaron’s president Steve Greenberg is accusing Hehmeyer of not playing fair with the customer accounts Alaron shifted over to Penson GHCO in late 2008. Ultimately, Alaron agreed to sell its business to Russ Wasendorf Sr.’s Peregrine Financial Group for $2 million, and “up to another $2 million if sufficient customer assets transferred to PFG.”

My house was broken into this weekend. The back door was forced and when that didn’t give way the thief broke the door glass and opened the dead bolt by hand. From there he rifled through a few drawers – he or she took a laptop, small electronics, most of our jewelry, then stuffed them in my favorite backpack and was gone.

I live on the north side of Chicago about a mile away from Wrigley Field. The police came and looked over the scene, dusted for fingerprints but got nothing. I was disturbed and felt violated, edgy and angry at the guy who took our stuff. And I was hopeful the cops would catch this person and bring him to justice. But that’ll likely not happen.

In a way, it’s a metaphor for how the victims of the MF Global case and the Peregrine Financial Group (PFGBEST), and ordinary taxpayers feel today. Someone broke into their account and stole their money. Russ Wasendorf Sr. got caught, but only after 20 years of stealing customer funds and then writing a suicide note detailing the fraud. The MF Global case is still ongoing and many in the industry wonder if there will ever be charges filed against anyone at the company.

An aggregation of today’s news on the PFGBest collapse. See original coverage of the story here and all our commentary and coverage here.

With each new story about PFGBEST and Russell Wasendorf, Sr., new red flags are springing up. In yesterday’s story from Bloomberg we found out a bunch of PFG employees were taken on a trip to Italy where they stayed at luxury hotels.

Then there is the jet, and the $18 million corporate compound built after the financial crisis caused interest rates to plummet along with trading volumes.

There is the social climbing, along with the expensive celebrity sponsorships at FIA and CME Group events. There is the expensive glossy “vanity” magazine which cost $100,000 a month just to print, Russ Jr. once told me.

The sole practitioner accountant working from a home office is a nice touch and a genuine red flag.

The cake topper is the P.O. box for the bank statements, which is so confounding as to be mind boggling.

Yep, more red flags are blowing with each new story about Wasendorf Sr.

An aggregation of today’s news on the PFGBest collapse. See original coverage of the story here and all our commentary and coverage here.

An aggregation of today’s news on the PFGBest collapse. See original coverage of the story here and all our commentary and coverage here.

By John J. Lothian

Yesterday, while the John Lothian News team was breaking the story of Russ Wasendorf’s attempted suicide and financial irregularities at PFGBest, one of our young interns thought the PFG we were talking about stood for the Price Futures Group. 

No, it was not that PFG, I told him.  Nor was it that PAM.  The Peregrine Financial Group has an affiliate company, Peregrine Asset Management.  The Price Futures Group has a much longer established and more well known affiliate, Price Asset Management.

Also, Peregrine Financial Group is a non-clearing futures commission merchant that handles customer funds and The Price Futures Group, Inc. is an introducing broker that does not.

Now, if my mistaken intern were right, that would have made my commentary yesterday about not being a broker anymore that much more interesting.  But, alas, that is not the case.

What is that case is that we have another outrageous instance where customer funds are alleged to be missing.  Yesterday’s NFA Member Responsibility Action report said PFGBEST, which had nearly $400 million in customer funds as of its June 29, 2012 filing with the National Futures Association was supposed to have $225 million of those on deposit at U.S. Bank, which happens to be the bank of John J. Lothian & Company, Inc. too.  Instead of $225 million that was purported to be there according to PFGBEST filings with the NFA, there was less than $5 million.

By Jim Kharouf

I’ve known Russ Wasendorf, Sr. since early in my days covering the futures markets back in 1996. He was one of my sources, a key industry professional to speak with about all types of industry issues, trends, innovations and so on. He was often outspoken, sometimes brash in his criticism of exchanges and regulators, and a strong proponent of competition in the marketplace.

He was driven, accessible, articulate, demanding and tough. This is the futures marketplace, after all, and Russ was in the thick of it, trying to build one of the largest retail brokers in the business. So when the NFA alleged yesterday that his firm reported bank balances of $207 million in February 2010 and $218 million in March 2011, but actually held less than $10 million in each of those months, everyone wonders, how did it happen?

Regulators will be combing over records and transactions in the upcoming weeks to decipher how PFG ended up this way. That could explain why Russ tried to take his own life yesterday, running a tube from his tailpipe into his car on Monday morning.