PFGBest One Year Later: a Chat with James Koutoulas | Attain Capital Managed Futures Blog
There s no question that after the 1-2 punch of scandals involving PFG and MF Global, the managed futures community took it upon themselves to advocate for changes. Shortly after the MF Global incident, the Customer Commodity Coalition was formed distro to conceptualize the frustrations of the customers into visible results. distro Months later, the PFG scandal went down, only adding fuel to the fire of the CCC. It only seems fitting that on the 1 Year Anniversary of the PFG scandal, we sit down with friend and colleague, James Koutoulas of the CCC and chat.
James: We ve done all we can for PFG clients, but unfortunately PFG was a tougher case to be an advocate, because the money was stolen, not being held hostage distro by a bank. In the case of MF Global, we were able to get in there raise hell, and expedite things by a huge degree both in terms of the amounts released and the time of the release. In the case of PFG, we came in their aggressively and I think were able to expedite the first distribution by a couple of weeks. That helps a little, but the fact of the matter is you ve got a $200 Million shortfall with no place to take it from, no bank holding it as collateral or margin. The money was just plain stolen, it s not like we could claw it back from a bank like MF Global.
James: Absolutely. We think that the CFTC lawsuit distro against US bank could be a beneficial long term solution to customers getting back their money. Their complaint is pretty scathing, and I thought the CFTC did a great job laying out the story. However, this lawsuit could go on for years and clients will only have sight of the money after years of litigation. But customers have a real hope of getting a majority of this back if the CFTC is victorious.
James : The CFTC seems to have a pretty good track record, so good actually that I would rather see them lose more cases as that would mean they are taking more risk in pursuing wronging. But this case seems like a high likelihood of success to me, and knowing some of the people over at the CFTC, if they re going to put in a complaint, it s a pretty good indication distro they ve got the evidence to back it up. Of course, I m not privy to what evidence they do have, but U.S. Bank could be on the hook for the full $200 Million here.
Attain: We can t help but notice that $200 Million is only about 1% of US Bank Corp s annual revenues last year, so here s hoping someone over there feels bad for what happened and just decides to take the minimal hit to the balance sheet. distro
James : PFG was a pretty big wake up call for the industry. The NFA has already required audit managers to get certified fraud examiner training. And while it is slow, you re starting to see a cultural shift at the NFA to be preemptive instead of reactive when it comes to fraud. You ve got the online confirmation of bank accounts which I think is a big step. You got NFA looking at ways to implement better controls at commodity pools, to make sure Commodity Pool Operators can t pull the same scam. They are taking numerous steps to tighten the systems up. And what a lot of people forget is the system was very good to begin with. There was just one glaring unbelievable ball dropping which has set off these new initiatives.
James : We re (the CCC) working with congress to draft legislation to create a subordination provision in the Commodity Exchange Act, where all the creditors to FCM s would have to subordinate their claims below segregated account holders. That would mean big banks like JP Morgan would have no right to offset against money due to customers. If we could get that passed, that would help speed any future bankruptcy distributions to customers because the bankruptcy trustee wouldn t have to reserve assets against all the other creditor claims.
James : Now that we re out of the crisis mode where we seemed to be in court every day, we re trying to establish the CCC as a group that is here to stay, filling the void for customer advocacy for futures customers. The big players in the industry have their voice in the Futures distro Industry Association (FIA) and CME lobbyists, and more but there really wasn t a voice dedicated to the end customer until the CCC. We ve created an advisory board and are laying out plans such as a membership model to support our continued efforts
James : We like FIA , and we work with FIA a lot, but at the end of the end who s really looking out for the customer? The NFA is there, but their different because goal is to combat fraud, and fight that aren t compliant to the rules. However, the CCC is in place to actually go out and advocate for the customer, and to get laws passed. I think it s good to have a group outside distro the regulator. It doesn t take the CCC nine months of board meetings to make a proposal.
James : Simply, distro Corzine needs to go to jail. The laws we had two years ago
There s no question that after the 1-2 punch of scandals involving PFG and MF Global, the managed futures community took it upon themselves to advocate for changes. Shortly after the MF Global incident, the Customer Commodity Coalition was formed distro to conceptualize the frustrations of the customers into visible results. distro Months later, the PFG scandal went down, only adding fuel to the fire of the CCC. It only seems fitting that on the 1 Year Anniversary of the PFG scandal, we sit down with friend and colleague, James Koutoulas of the CCC and chat.
James: We ve done all we can for PFG clients, but unfortunately PFG was a tougher case to be an advocate, because the money was stolen, not being held hostage distro by a bank. In the case of MF Global, we were able to get in there raise hell, and expedite things by a huge degree both in terms of the amounts released and the time of the release. In the case of PFG, we came in their aggressively and I think were able to expedite the first distribution by a couple of weeks. That helps a little, but the fact of the matter is you ve got a $200 Million shortfall with no place to take it from, no bank holding it as collateral or margin. The money was just plain stolen, it s not like we could claw it back from a bank like MF Global.
James: Absolutely. We think that the CFTC lawsuit distro against US bank could be a beneficial long term solution to customers getting back their money. Their complaint is pretty scathing, and I thought the CFTC did a great job laying out the story. However, this lawsuit could go on for years and clients will only have sight of the money after years of litigation. But customers have a real hope of getting a majority of this back if the CFTC is victorious.
James : The CFTC seems to have a pretty good track record, so good actually that I would rather see them lose more cases as that would mean they are taking more risk in pursuing wronging. But this case seems like a high likelihood of success to me, and knowing some of the people over at the CFTC, if they re going to put in a complaint, it s a pretty good indication distro they ve got the evidence to back it up. Of course, I m not privy to what evidence they do have, but U.S. Bank could be on the hook for the full $200 Million here.
Attain: We can t help but notice that $200 Million is only about 1% of US Bank Corp s annual revenues last year, so here s hoping someone over there feels bad for what happened and just decides to take the minimal hit to the balance sheet. distro
James : PFG was a pretty big wake up call for the industry. The NFA has already required audit managers to get certified fraud examiner training. And while it is slow, you re starting to see a cultural shift at the NFA to be preemptive instead of reactive when it comes to fraud. You ve got the online confirmation of bank accounts which I think is a big step. You got NFA looking at ways to implement better controls at commodity pools, to make sure Commodity Pool Operators can t pull the same scam. They are taking numerous steps to tighten the systems up. And what a lot of people forget is the system was very good to begin with. There was just one glaring unbelievable ball dropping which has set off these new initiatives.
James : We re (the CCC) working with congress to draft legislation to create a subordination provision in the Commodity Exchange Act, where all the creditors to FCM s would have to subordinate their claims below segregated account holders. That would mean big banks like JP Morgan would have no right to offset against money due to customers. If we could get that passed, that would help speed any future bankruptcy distributions to customers because the bankruptcy trustee wouldn t have to reserve assets against all the other creditor claims.
James : Now that we re out of the crisis mode where we seemed to be in court every day, we re trying to establish the CCC as a group that is here to stay, filling the void for customer advocacy for futures customers. The big players in the industry have their voice in the Futures distro Industry Association (FIA) and CME lobbyists, and more but there really wasn t a voice dedicated to the end customer until the CCC. We ve created an advisory board and are laying out plans such as a membership model to support our continued efforts
James : We like FIA , and we work with FIA a lot, but at the end of the end who s really looking out for the customer? The NFA is there, but their different because goal is to combat fraud, and fight that aren t compliant to the rules. However, the CCC is in place to actually go out and advocate for the customer, and to get laws passed. I think it s good to have a group outside distro the regulator. It doesn t take the CCC nine months of board meetings to make a proposal.
James : Simply, distro Corzine needs to go to jail. The laws we had two years ago
