Folks,
As a registered CTA, I am sickened by this occurance. Perhaps I can shed some light on the root of this problem; and pose some possible solutions.
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First, CTFC is the governmental body that is charged by Congress to set the rules and regulations codified by law. The CFTC has established and charges its DSRO (Designated Self-Regulatory Organization), the NFA, to audit and enforce their rules. Due to the low pay scales for such federal government employees, the NFA (and the NASD, the stock counterpart under SEC authority) basically wind up hiring cub lawyers and college grads in Accounting and Finance to staff their audit teams. In general, these employees have little or no prior fiduciary experience, and limited knowledge about the instruments, about trading, about life. To make things worse, in general they have no intention of remaining in these entry level positions as a career due to these conditions. Rather they use their first job as a regulator to parley their newfound acquaintenceships within the firms they are charged to audit into higher paying careers jobs, after a few years with their SRO.
Therefore, they have little incentive to aggressively inspect, irritate, or uncover anything other than the most blatant incompetence or malfeasance. The main goal is to catapult their personal careers in the financial industry and you don't do that by being the bad cop. Indeed you bend over backwards to assist the firm in correcting any issues found.
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Part of the answer is for the US government to wake up and authorize the hire of experienced, senior people, those who have been regulated and have a clean 20 yr work history and do so at proper industry salaries. Furthermore, prohibit them by contract from later joining any firm they have audited or who has had a negative regulatory history for a period of 5 years after working for the SRO.
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Secondly, The Banks that profit from, and are hired by, the FCMs and Broker-Dealers to act as custodians of the segregated account funds, should be required and be held responsible for monitoring the reported statements of their financial customer firms to ensure that daily, the balances claimed by the customer do not differ signifigantly from the balances shown on the books of the bank. If they do, it should be immediately reported to the SRO. As usual, the banks get a free ride, paying zero interest on segregagted funds, and should be held criminally and financially responsible for failure to oversee their regulated clients' balance statements. If they don't like it, they don't have to do this kind of business.
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Third, There should be enacted the most serious criminal penalties for any Licensed Financial Professional who intentionally diverts a clients' funds. At the Executive level, I believe this should extend to the death penalty; even though for the general public I have always been opposed to it. When one voluntarily accepts the mantel of fiduciary responsibility for another's assets, and thus gain the priviledge of earning outsized salaries, bonuses, and commission, one should be held to the most stringent standards.
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Just one mans's opinion.
Anthony Ingrassia, CTA
NFA ID#: 0278164
