good afternoon welcome to capital account a moralist or here in washington d.c. these are your headlines for tuesday july tenth two thousand and twelve more than two hundred million dollars in customer money appears to be missing from the account of one of the largest known clearing u.s. futures commission merchants p f g best this is according to regulators this is money in segregated customer accounts these are supposed to be sacrosanct customers have been told their money is frozen does this all sound all the familiar well we'll hear from two of the customers and there is evidence p.f.g. best may have been committing fraud for years with falsified accounting statements going back for years this is according to regulators again the f.b.i.

is investigating this c a t c is alleging fraud but why did regulators miss this we'll talk about what this means for investor confidence when a regulated broker can get away with this on detected and a pattern appears to be forming. something which people don't agree with you all the time at m.f. global we tell you what's good for you. m.f. global one bankrupt less than a year ago taking one point six billion dollars in customer money with it we'll talk to a man fighting for m.f. global customers to get him back about why he's having deja vu in the wake of this news john rowe co-founder of the commodity customer coalition will join us let's get to today's capital account.

all right pete best according to its website which i took a look at as soon as i heard this news that has broken it has been ranked one of the nation's top fifty brokers for thirteen years it strives again according to its website to be an industry leader in innovation while at the same time recognizing that it is success rather is absolutely driven by the diligent and respectful care of customers and their accounts then yesterday customers received this e-mail according to one that i spoke to due to a recent emergency involving russell watson door senior that's the firm c.e.o. a suicide attempt some accounting irregularities are being investigated regarding company accounts no customers are able to trade except to liquidate positions until further notice p.s.g.

best is not authorized to release any funds so their money and segregated customer accounts was frozen and the national futures association a regulator took action saying it appears doesn't have sufficient assets to meet its obligations to customers at all detailed these allegations that on july ninth they received information indicating chairman may have also fide bank records and they had heard p.s.g. had reported more than two hundred twenty five million of its segregated funds were on deposit at a us bank but then the n.s.a. learned that rather than the two hundred twenty five million that had reported as being on deposit at a u.s. bank just days earlier only had five million and it doesn't end there folks it goes back the f.a.a. learned in contrast to purported bank confirmations submitted to the n.f. a that sought to confirm the u.s. bank account balances as of february two thousand and ten and march two thousand

and eleven there were puerto balances of two hundred seven and two hundred eighty million dollars respectively actual. balances at those times was less than ten million dollars for each one of these months now according to press reports the f.b.i. is investigating this the f.t.c. the commodities futures trading commission has filed a complaint against peregrine financial group or p.f.g. and its owner who you see there mr wasson dorf the c.r.t.c. alleges fraud by misappropriating customer funds violating customer segregation laws making false statements in financial statements does this all sound familiar we've been reporting on a lot of these same issues same themes for months in the wake of m.f. global's collapse so we'll get more into the big picture in a moment first we want to get up to speed with what customers are dealing with christopher olsen is one he's also president and c.e.o. of treasure island coins and first i really appreciate you being on the show thank

you so much mr olson thanks for having me on the arm absolutely so first just bring us up to speed what is your relationship to this firm and what's happened in your personal situation well we've been trading futures through p.s.u. best for nearly twenty years and we recently began trading four x. drivethrough said spot metals with them through their spot metals division in her early twenty ten we did a lot of business with them and we're primarily a physical precious metals do you are meaning that we sell physical coins and bars to private investors worldwide in order to do that we need to hedge our positions so companies like ours typically deal if you choose contracts or forex positions in order to hedge the price well we go about acquiring resupply of the precious metals that we sold customers ok and now that you've heard the news you've been informed as to p.s.g.

best situation what what happens with with your money with the firm with your trades what's going on there all the trees have been locked down the. the money that we. all the trees have been locked down and the money that we need to operate is locked up with them so there's a good chunk of our operating capital that's been stock and it hasn't closed our business or done much more than give us a good gut shot but it's real wake up call to the fact that we can't rely on the typical instruments that a company needs to use in order to hedge and do business and that also industry in order to do business the trust factor is gone and it's rapidly evaporating throughout the entire financial system. and this isn't the first time that we've had a story like this i mean this is just nine months or so after the m.f. global collapse one of the big issues that goes through both is where were regulators do you have any sense because of your inner knowledge of this business

your experience with this company of how regulators cannot know that that hundreds of millions of dollars in customer money are in the bank that the company is saying that they are not just now going back to two thousand and ten and two thousand and eleven. this is massive regulatory failure and i cannot help but think that they've been bought off they did a spot check in the wake of the end of the scandal and u.s. futures brokers including p.s.g. were thought to be in compliance they said there's nothing to see here falls everything's fine he was only m.f. global they didn't check the bank accounts of u.s. bank that was supposed to be holding over two hundred million dollars of client segregated funds or is less than ten million dollars and they've had well over a year to look into this and they haven't mentioned the j.p. morgan chase account all they've mentioned so far as u.s. bank account whenever we sent body yen to p.f.c. we sentence j.p. morgan don't want said anything about the account you want more and that's

interesting so we have a screen shot of showing where the wire transfers go that j.p. morgan it is who the segregated accounts are where if you are p.f.c. customer now now we spoke to the f. a they said that the onus is not on j.p. morgan to make sure that that what p.s.g. is reporting in terms of its customer accounts is accurate that the onus is not on j.p. morgan but j.p. morgan is involved in this in a different way you were talking to me earlier about how in in at least one of these business j.p. morgan is the prime broker so what role did they play well he had achieved made a big market in o.t.c. spot metals derivatives market that involves basically four x. pairs where you can buy or sell precious metals through. against the price in u.s. dollars and so j.p. morgan was the prime broker that provided you have cheap with and with quiddity to make this market currently from what i've been told pia cheap would

a good trades from other banks like torture bank u.b.s. other banks that were making to market in these derivatives but you if you morgan was the prime credit line of credit facility that provided the liquidity to p.m.t. precious metals right now our entire forex position which numbers in the six figures is locked down and is under the strict control of j.p. morgan and as we speak the precious metals market has dropped significantly since yesterday so this entire position that we have which if you more in spot metals has been held captive and they are presumably liquidating it now without our control at a very low point in the market causing us further losses and it's completely out of your hands now another really interesting aspect of this that you pointed out was that p. at t. if they're when they're dealing with these trades with j.p. morgan that they don't have to post the customers margin with j.p. morgan do i have that right so so they have the will the ok what were you that's ok

tell me explain to me what you were telling me about earlier with positions when they have a certain amount of longs and a certain amount of storage that even out that they'd maybe can keep a customer's money and they don't have to post it as margin. you know that's that's with regards to the futures contracts the derivatives are o.t.c. they're basically for the most part unregulated there's no central exchange reporting of what these positions with these banks truly are of the derivatives are very scary the other side of the coin is the futures market we were active in that with p.s.g. as well i'm about choose a non clearing firm however so they were they had to clear all of their trades through another clearing firm in this case basis but the thing is when they're providing that type of a service they're simply acting as a proxy to beijing so if they have a margin requirement for having the long position of say fifty thousand ounces of

gold but they simultaneously have a short position of fifty thousand ounces of gold from another customer that essentially creates a net position of zero which requires that p.f. she put up a very minimal minimal margin about for that position as it's being record reckoned as a net zero zero zero her for those who have the fifteen thousand law position and the fifty thousand short position they put up a full margin to p.s.g. p.f.g. collects that money they do not necessarily need to forward it based on the adding of the transactions to their clearly broker so that money is sitting in these safe funds account that she is supposedly managing that the f.a.a. is supposedly overseeing their supposedly on hold for the customers they're doing whatever they want with that money we found out they've been spending it they've been losing at. yad l.a. i now one thing that i want to ask about because you have been in contact with

a former employee as someone that you have had me speak to we both spoke and he doesn't want to go on camera for obvious reasons but just to paint a little bit of a picture of what was going on with this company and terms of. korat said adèle a what what did he tell you. well he said the internally within p.s.g. it was a very incestuous relationship for example brenda covers the c.f.o. she was brought on to the company you nine hundred ninety four as a staff accountant she was later promoted to c.f.o. without being a c.p.a. or having any undergraduate study her former job duties involved managing and doing audit and reconciliation and customer segregated funds account so here staff accountant is promoted to c.f.o. of a company of this size under the regulators eyes this is gotta raise red flags russ was a door senior the owner and c.e.o.

of the company builds a twenty four million dollar building in cedar falls iowa far away from any financial centers and goes in on a private jet to fly back and forth between chicago and cedar falls there's all sorts of things that we could talk about that just don't make any sense and the type of people that he surrounded himself with is in this company you were a the type of people to say no or to ask questions because they were all enjoying the ride you know surrounding himself with people who agree with everything you did and did not ask questions and at the same time allegedly falsifying information that the company was posting losses while he's investing in a private jet and as you were telling me earlier hiring george w. bush to to speak it speaking again engagements opening a restaurant taking staff to go see how cuisine is done in northern italy all of this going on all of this getting by regulators for years we just have a minute but after about

a day after that do you have faith then and the financial system at least ten and segregated funds and their sanctity well segregated funds are the problem yet f.a.a. is supposed to be overseeing this they weren't even checking the. bank account of peat of cheap they're just going off of rust loss of nerve seniors signature he says yeah there's three hundred million in the bank trust me they don't ever call the bank they don't want to see real statement what sense does this make they have m.f.a. people in their offices every day going over all their advertisements and all their paperwork with a fine tooth called how could they have not known this money was not in that us big account say funds need to be locked out they need to be reported on a daily basis right now this is not a requirement of these regulators and the n.s.a. has failed miserably to do its job it has failed completely to do its job if you can't do something as simple as check the bank account what good is well and even in the wake of m.f.

global you would think that there would be that much more scrutiny of segregated funds which makes this all the more alarming and my view at least i appreciate you being on the show to share your story thanks so much christopher that's christopher olsen president and c.e.o. of treasure island coins now also still had do not go away we'll speak to another p.s.g. best customer this one in egypt he's not the u.s. would be a safe place to put his money plus we're experiencing deja vu after the m.f. global theft of customer money when it filed for bankruptcy last october we're not alone you will hear from the man who is helping to get customer money back for m.f. global finance but first their closing market numbers. what drives the world the fear mongering used by politicians who makes decisions to

break through that sort of deeply and maybe can you trust no one who is you who view you with a global missionary city where we had a state controlled. the reason is called sessions when nobody dares to ask we do our t.v. question more. you know sometimes you see a story and it seems so you think you understand it and then you glimpse something else and you sure see some other part of it and realize that everything you thought you knew you don't know i'm sorry was a big picture. below zero zero zero zero one zero zero zero zero zero zero zero zero zero zero buck in the alone and so you know get the real headlines with none of them or see the problem with the mainstream media today is that they're completely disconnected

from the viewers and what actually matters to those viewers and so that's why young people just don't watch t.v. anymore if they want news they go online and read it but we're trying to take those stories that people actually care about and transfer them back in t.v. . if you're having deja vu because less than a year ago we were talking about a lot of the same issues with another now defunct firm m.f. global you are certainly not alone earlier i interviewed a peer customer in egypt he is an egyptian he had an account with p.s.g. because he was looking to diversify and with the recent turmoil in his country he thought the us was the place to be theoretically he recounted to me earlier how

back in two thousand and three he went to a presentation where the instructors talked about how the exchanges in the u.s. have been there since the eighteen hundreds and contracts have always been on earth he looked at the f.a.a. and the c. f.t.c. claims about the due diligence they were supposedly doing he was very impressed now fast forward in those years and sees had accounts in the u.s. he barely missed the m.f. global bankruptcy by luck he had pulled his money out of m.f. global got in a fight with the broker he was caught up in the rough go bankruptcy luckily he got his money back now after this where he has had his money with p.f.g. and it is frozen he cannot get it here is his assessment. seems to think it's becoming destruction of the problem and almost the. change but. when we went in and invest in the us we invest a lot to be the safest least i mean of course to

a bit of the risk of the treats you bear the risk of the commodities on the future going through it's that you go to but no longer reserve that you're going to bear the risk of the leaders not doing their job. so should we be considering that i don't know a systemic risk that regulators are going to be doing their job because it seems we have plenty of evidence that they're not now in this customer's case he was using his account to fund his business in egypt because obviously business right now in egypt since the revolution has been tough he tells me and now he doesn't know if he's going to be able to even fund his business because the money he was using he was getting from p.s.g. he can't touch that money now he has a boutique financial investment and consultancy firm in egypt so let's step back let's talk about the bigger picture let's talk about regulation let's talk about if we have a trend here with m.f. global and p.f.g. john rowe has been fighting for customers of m.f. global fighting for them to get their money back he's co-founder of the commodity

customer coalition and he's here now to help us understand how this affects investor confidence and the broader picture so first thank you so much for being on the show today we really appreciate having you on on a day like today. yeah absolutely so first you said i saw you quoted in an article you're having deja vu why are you having deja vu john row over this nine months after a global. group of dollars. property being you know to be charitable this is appropriate while the commodities burn us. such a short time we you know the first instance we're going on since the early. in the way that it was a little so it seems like we're still pretty much the same a similar process and. speaking of that process you have been going through it with m.f. global you've been looking at all of the fine print of how that was able to happen

i want to know the c.r.t.c. in january said it found no material breaches of customer fund protection requirements and a joint review of the seventy largest f c m's with the f.a.a. so this was it was included in this how does this happen. well there's no answer for that was the f.c.c. is going to have to. simple i'm not tying a bank account to or that could have been produced at are more with the bank holding them underneath there that is an utter failure regulators that is absolutely incomprehensible knows the system of regulation is going to work if the regulators are incompetent so to our mind this calls for accountants sure there's been a tremendous amount of low back about the industry but in the regulations aren't sufficient to protect customers and the law is there to turn to deter and the regulators are inept at policing this we have to have some mechanism to shore

customer confidence so you're not going to have anybody willing. in markets in the united states. if this is i guess what i want to know is in your experience and your view of this latest story do you say this as regulators failing to do their job or do you see there being a problem with with regulations because when we spoke to the n.s.a. earlier they said that they don't have to do due diligence to find out if these bank statements are accurate they get the bank statements and they're certified by a third party accountant which we were unable to find much information about and that the n.s.a. then says ok good we've got our information is that right. well i mean. there's a really passed muster now if you receive information from a third party that's fair that's good enough if someone can hold hundred twenty million dollars. from their record on earlier allegedly for years that system

doesn't seem to work at all and that's going to have to be completely rethought and to have a regulator who just in january said everything's fine now i know that in time when you know what they thought that was adequate if their test in january was adequate and yet there were some of the two hundred twenty million dollars we ought because i misspoke there are two hundred forty one dollars of trade with my billion dollars in there but you know that somehow that's good enough there's all this stuff where you work on we just don't understand how it works. it is crazy i couldn't agree more you know one question i have that also seems crazy to me today i sat down on my computer i opened up the financial times there's a story the f.b.i. is investigating best the c f t c already has a suit alleging fraud naming the c.e.o. of this brokerage which was the owner to i also think i recall this story the day after m.f. global's bankruptcy i still don't think i've seen this story now in the same way.

no you haven't and of course that begs the question what is different in the case of the metro and that as you know john or design is very politically connected all things being equal you don't see the same brass of new from the department just in this case the f.b.i. was in there investigating very quickly after the medical but all you heard of this very complicated and money vaporized and there was there when. after especially in light of the trustee to suppress the most recent report it very clearly it was and we still haven't seen the chart is if you look at the seminal case the government has a tremendous amount political cover to say you know this takes a long time took us five years to file charges. so that they'll give them tons and tons of time for people to go ahead and forget about them up a little and not worry about junk or what but in the case of rust lozenge or well ok this is this is much more straight or this is maybe aparna made the choice and we're going to we're going to burn them down but again the one thing that is not

equal between the two cases is the political connections of the. right and you mentioned bernie madoff is this a very made up case or not because with bernie madoff a regulated firm in the same way that i think that's what sir made a firm i went through a cyclical nation with some of the protection they were regulated by the n.s.a. but they were regulated. ok so yes i mean again and we said this many times when i had said to us many times you can stuff jesse james around it with a proper group going ahead and holding you up which you can do is make sure that there's some sort of mechanism to make sure the customers have some sort of protection in the event that all of these things that everyone tells us over and over and over again are in place to protect to protect us bail because clearly twice the nine month right absolutely now i know that you probably talk to a lot of m.f. global customers i'm assuming then that you've heard what i've heard over the last nine months reporting on that which a lot of them they don't. longer have faith in this safeties that they're

supposedly guaranteed by regulators by the u.s. financial system in the wake of p.f.g. best i'm sure you're getting a lot of calls today talking to a lot of people what are you hearing today are people saying forget it i'm done i'm out. well there's a special class of customer that we buy this from today at the g.e. that got caught up in m m g a quarter to another trading firm and then into the. g eight so they're actually caught in both bankruptcy and oddly what we found well ironically is that actually some of their money shielded malfeasance but the fact that attractive enough global so is their interest rate environment it appears the safest place for your money is a bankruptcy court a sad sad commentary on the financial system. but we're hearing from customers those customers are beleaguered and i'm not sure that many of them are going to have to pay him you know they have the option not to retard the futures markets

will obviously they're kinder's that have to participate if you just market with the exception of the fact that we may seem many more people. are trading and direct already trading which will increase our party credit risk but the same time if all these guys are stealing your money what's gone according to credit. but a lot of customers who are resell customers who are just investors they're going to look for other investments where they're going to go look for exchange traded funds and they're going to look for other ways to get exposure these bodies which doesn't necessarily get them out because like i was a money back e.d.s. are actually just logical but they're also. saying that you have to at the counter and it seems the risk you have your claim with what if they do something wrong and your claim doesn't mean i think it's a piece of paper you don't have what you've actually bought i really appreciate you being on the show that's all we have time for today thanks so much for your expertise that was john breaux co-founder of the commodity customer coalition and

that is all we have time for thank you so much for watching make sure to come back tomorrow and in the meantime you know you can follow me on twitter at more and mr get this feedback and you can dot com plus capital account and come back tomorrow. wealthy british scientists sign some time to explain the fine. market why not come to. find out what's really happening to the global economy with max cons or for a no holds barred look at the global financial headlines tune into cars a report. there hasn't been anything good on t.v.

. it is to get the maximum political impact. before the source material is what helps keep journalism honest we thought. we wanted to present. something else. on. more news today violence is once again flared up. saying these are the images the world has been seeing from the streets of canada. giant corporations are old today.