Peregrine’s Fraud Went Undetected in Two U.S. Government Reviews

The U.S. Commodity Futures Trading Commission reviewed operations at Peregrine Financial Group Inc. at least twice since 2006 without detecting the fraud that led to the collapse of the futures broker and a $200m shortfall in client funds.

Bloomberg reports that the Washington-based agency conducted examinations at Peregrine in 2007 and 2008, according to a list of CFTC reviews obtained through a public records request. The list, which includes reviews between 2006 and Nov. 9, 2011, does not detail what records or procedures examiners evaluated.

A third review was listed in 2011. A CFTC official said the 2011 exam was scheduled to oversee compliance with foreign exchange regulations but didn’t take place because of limited resources. The official spoke on condition of anonymity because the agency was still reviewing the matter.

Peregrine is under investigation after Chairman and Chief Executive Officer Russell Wasendorf Sr. attempted suicide. Wasendorf had written a signed statement that he committed fraud for two decades at his Cedar Falls, Iowa-based company, according to a criminal complaint.

Gary Gensler, CFTC chairman, is scheduled to testify Tuesday at the Senate Agriculture Committee, which has jurisdiction over the agency. Stephanie Allen, a CFTC spokeswoman, declined to comment on the reviews.

The CFTC sued Peregrine over the shortfall on July 10, less than a year after being scolded for poor oversight following the collapse of MF Global Holdings Ltd. (MFGLQ), which left an estimated $1.6bn gap in customer funds.

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Peregrine’s Fraud Went Undetected in Two U.S. Government Reviews