Banking/Financial Institutions

GOP senator: CFTC head should resign over firm collapse, missing funds

{mosads}On Tuesday, the CFTC filed suit against PFG, an Iowa-based futures merchant that sold derivatives to farmers looking to hedge risk against fluctuating crop prices, alleging that it misused customer funds for years, leaving more than $200 million missing.

The lawsuit, also filed against the company’s chief executive, Russell Wasendorf, claims that the company misrepresented its holdings in customer accounts that should have been kept segregated. When the firm reported holding more than $220 million in customer funds during a July audit, it actually had just $5.1 million on hand, according to the complaint. With the firm facing bankruptcy and heightened scrutiny from regulators, Wasendorf was found in the company’s parking lot by employees after an apparent suicide attempt, and is now in a coma.

The collapse comes just six months after an eerily similar high-profile meltdown by a futures merchant — MF Global. That firm’s bankruptcy was one of the 10 largest in U.S. history and resulted in $1.6 billion in customer funds going missing. A trustee is trying to locate and restore whatever is possible from those funds, which appear to have disappeared in the final hectic days of the company’s existence.

That bankruptcy led to multiple hearings on Capitol Hill, and it’s former head, Jon Corzine, was compelled to testify multiple times by subpoena. Corzine served as a Democratic senator and governor from New Jersey before taking over MF Global.

Sen. Jon Tester (D-Mont.), another Banking Committee member, suggested in May that Gensler should resign over that bankruptcy.

“CFTC was asleep at the switch. They were in the building when all that stuff went on, too,” he told The Billings Gazette. “Maybe Gary Gensler needs to go.”

Moran went on to suggest that Gensler was distracted by his efforts to implement the Dodd-Frank financial reform law, which hands the CFTC expansive new powers over regulating financial derivatives.

“Chairman Gensler has seemingly been more preoccupied with his Dodd-Frank Act power grab than with his core responsibilities,” he said.

Moran is a member of the Senate Banking Committee and the ranking Republican on the appropriations subcommittee that oversees the CFTC’s budget.

While the CFTC has been busy implementing the law, it has had to do so with resources the administrations says are inefficient. Republican appropriators have declined to grant the CFTC millions in new budget authority to implement the law, which has led to loud complaints from Democrats, who charge the GOP is trying to stifle the financial overhaul with paltry budgets.

But Moran dismissed that argument in his statement, saying the CFTC’s issues were “not a question of resources but of prioritization and of resolve.”

Meanwhile, Sen. Chuck Grassley (R-Iowa) is calling on leaders of the Senate Agriculture Committee to investigate the collapse of PFG at an upcoming hearing, but he stopped short of calling for resignations.

“We have to make sure regulators are doing their job, and congressional oversight is a very important means for doing so,” he said.  “People need to have confidence in our commodity trading system in order for it to work for farmers and investors the way it’s intended.”

Tags Chuck Grassley Jon Tester

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