PFGBest

BigT1

Sergeant Major
Messages
951
Sadly, it comes down to this: Is an incompetent regulator that can miss things for years (even decades) worse than no regulator at all?

The good news is that sometimes the NFA does catch things quickly. Look at what they said about that lawsuit Raimundas is involved in.

http://www.forexpeacearmy.com/forex-forum/forex-articles/20819-nfa-accuses-fxdd-differential-slippage-more.html
Sadly too Pharaoh, the NFA caught absolutely nothing on its own! If it were not for the poor victims of the vicious violence of FXDD suing their own clients, which resulted in the victims banging down the doors of the NFA, None of this would have seen the light of day even today!
If it were not for this firm's own supreme arrogance resulting in this uproar, the broker would still be quietly ripping the ass out of me and you, forever (yes, I hold a small account at FXDD for testing purposes)!
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Again, I propice that by force of regulation:
A - We require all regulated entities to segregate each and every customer's funds in an individually held, non-aggregated account; and require these accounts be made openly transparent to their individual owners electronically, for continuous inspection from within the custodial bank's records; as a common sense cross-check on the broker's records.
B - We require the custodial banks harboring these "free funds on deposit" be held "fidicarily responsible" as the first-line overseer and guarantor of their fiduciary client firms' "Accounts in Aggregate".
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These are very simple, very accurate, very cost efficient, timely, powerful, and easily implemented modifications to the current rules.
The Statistical Deviation of the growth or shrinkage of the aggregate account balance of any given firm from that of the larger community is always extremely revelatory of a deviant firm's behavior, and are a very reliable tool for immediate detection of aberrant behavior at any client firm, small or large.

Daily, flags would be easily spottable, reviewable, filtered and cross-reported to the client firm's senior mangement, and to the Regulator. Firm mangements are today already held to fairly high standards theoretically, but once placed on notice in this way, would know that indisputable evidence was being recorded in realtime for use in future actions. No one could escape this auto-net within the regulated environement.

I suggest that in the current fllght to regulatory quality this enviromental change would also tend to reverse the flight, encourage the retention of, and attract new business; currently fleeing the complex of US Regulation, as worthless overhead.
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I cannot over-emphasize my opinion that this is THE ONE & ONLY Method for making this industry radically safer, for all, right down to the "Individual Customer Account" level.
I challenge anyone from within the industry or not, to contradict my position and live to tell about it.
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Also recognize: One can only build a solid regulatory structure by incentivizing good behavior from the bottom-up, not by primarily punishing wrong-doers from the top-down.
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1 - The funding of the regulator must be completely independent from its actions. This is absolutely essential to prevent the obvious conflicts of interest.
2 - The funding of the regulator must be completely guaranteed by Congress In Retrograde, to "Adequately and Substantially" fund the hire and retention of all necessary, seasoned, commited, and career-minded industry professionals (so desperately needed); rather than starving the regulatory departments, setting up their leaders indirectly for failure by fiscal means, forcing the hire of Motor Vehicle Department class drop-outs and newbie college grads who majored in Fine Arts with a minor in Law, which are now the typical class of candidate available to them who might be willing to accept their meager offerings.
3 - Up Heavily! the Annual Registration fee for a fiduciary firm's registration, then credit back 95% of the fee for passing a stringent mandatory annual audit.
This would not only help keep out the riff-raff in the first place, but also continuosly reward impeccable corporate behavior.
4 - Assign fines imposed and collected from any errant firm to a ""Regulated Firm Investor Compensation Fund", rather than having those revenues accrued to the coffers of the Regulator. This would do much to divert criticism of double-dealing, while building a very much needed Buffer Fund for compensation over time, on future rainy days such as these.
 
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Pharaoh

Colonel
Messages
19,691
Yeah, the sued parties had to talk to the NFA. Then again, if you get robbed, it's generally up to you to file a police report. If a judge issues a settlement in your favor and the other party doesn't pay, it's usually up to you to complaint. In that one case, I think the NFA has shown that they are capable of reacting both quickly and correctly when the complaints come in.

Thise are good ideas for preventing future issues! How do we appoint you to be in charge of the SEC, CFTC, and NFA?
 

BigT1

Sergeant Major
Messages
951
Yeah, the sued parties had to talk to the NFA. Then again, if you get robbed, it's generally up to you to file a police report. If a judge issues a settlement in your favor and the other party doesn't pay, it's usually up to you to complaint. In that one case, I think the NFA has shown that they are capable of reacting both quickly and correctly when the complaints come in.

Thise are good ideas for preventing future issues! How do we appoint you to be in charge of the SEC, CFTC, and NFA?
"Kind words can be short and easy to speak, but their echoes are truly endless" - Mother Theresa.
Thanks Pharaoh; glad someone is listening. Since you are Pharoah and I am but a Churl, I'm afraid it is up to you to get me appointed, if you so wish it. Do so quickly though; for at age 63, I may not have enough time left to accomplish the monumental crud cleaning needed.
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Regarding being robbed . . . When you are assaulted and robbed in plain sight of a cop concentrating on eating his freshly baked jelly donut while sitting in his cruiser 30 feet away, one is not being unfair by harboring some expectation of implied protection, left unfulfilled. He is on that street solely because society has ordered him into existence for the very purpose of deterring and arresting such criminals in a dark neighborhood known for its seedy characters. The burden must land squarely upon the responsible parties, to do the jobs they were hired to do.
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The investing public has a reasonable expectation to fair treatment and honest dealings from those entities licensed and regulated by government as ethical fiduciaries. There is absolutely no room for compromise on this important public function. It amounts to no more than expecting that when a municipal traffic light says Green, the traveler can rely upon the signal being Red in the cross-wise direction. Without that basic socialized risk control, all traffic control breaks down; as during a power outage. But at least then all lights are dark, so travelers are forewarned; not brutally blind-sided at an intersection flashing Green in all directions!
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It is beholdant upon those elected and paid to act in the best interest of the public at large, to see to it that the structures and entities they selectively permit and license, and whom are given unfair advantage to generate massive profits for themselves; compete fairly for, and treat their sacred trusts as better than themselves.
 
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PipStar

Sergeant
Messages
223
Yeah, the sued parties had to talk to the NFA. Then again, if you get robbed, it's generally up to you to file a police report. If a judge issues a settlement in your favor and the other party doesn't pay, it's usually up to you to complaint. In that one case, I think the NFA has shown that they are capable of reacting both quickly and correctly when the complaints come in.
Sorry Pharaoh, I cannot agree with your statements above regarding regulators. Their job is to be proactive and not reactive.
In other words, they should have rules and regulations in place and stringent audit procedures. They have failed miserably. Now they are trying
to pick up the pieces after a lot of damage has already been done not the least to their own reputation. Yes, they could not have known about
the fxdd removing money from clients accounts case until they received the clients complaints. But surely in case of PFG Best they should have
verified bank statements 20 years ago. It all looks like they wait till something goes wrong to fix it rather than prevent it from happening.
 

BigT1

Sergeant Major
Messages
951
. . . Their job is to be proactive and not reactive.
Hip, Hip, Hooray! A fellow of my own heart!

In Pharaoh's defense, once the NFA was called in and a real NFA audit was actually conducted, what was uncovered was completely unrelated to the legal cases that prompted the investigation in the first place. Incensed by the client complaints, the NFA auditors probed deeper and found otherwise blatant thievery, completely unrelated to the initiating client law suites. This is often the case wherever abuse of power is considered the "Usual and Customary" course of business. To their credit, the auditors have nailed the compliance officer 'Green' who will likely be thinly slicing garlic for the tomato sauce in a federal prison kitchen, shortly.
 
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Pharaoh

Colonel
Messages
19,691
Proactive yes, but only up to a point. Not all bad actions are done in plain site. Even the most restrictive police state can't watch every interaction between every firm and each of it's clients. This is why audits are done from time to time to recheck things, both as a random measure and in conjunction with complaints that pop up - a very proactive stance, since those who violate the rules successfully may still be caught later.

In PFG's case, the CEO was bright enough to provide "contact info" for his bank that really came to him. All the forums were filled out properly and sent in on time. Up until that little bit of news broke, who would have believed that any forex broker would have dared to set up a fake postal address for a bank?

In the case of FXDD, they NFA issued an order and FXDD claimed to have complied. I'm sure there are some NFA people who had a serious "What the hell?!?!" moment when the clients said "FXDD put the money back into my account, then froze the account and sued me." That sort of direct defiance of NFA orders is not exactly common.

Of course, if BigT1's proposals could be implemented, it would be MUCH harder for brokers to pull some of these stunts.
 

BigT1

Sergeant Major
Messages
951
Even the most restrictive police state can't watch every interaction between every firm and each of it's clients . . . In PFG's case, the CEO was bright enough to provide "contact info" for his bank that really came to him . . . until that little bit of news broke, who would have believed that any forex broker would have dared to set up a fake postal address for a bank?
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. . . if BigT1's proposals could be implemented, it would be MUCH harder for brokers to pull some of these stunts.
You know on September 16, 2001 I stared down from 3000 ft. into the smoldering pit at the remains of the company I had once worked for, through the column of smoke still rising from the remains of the WTC (as I witnessed from my window seat while flying back to NY from a Florida vacation). I remember feeling cheated of my career and the future I'd hoped for.
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Later, I recall the deliciously charming Conde Rice blatantly excusing her complete incompetence as National Security Director for the GW Bush Administration, by publicly stating: "Who could have imagined anyone using an aircraft as a missle?". Well, certainly not you; you freakin' mindless jackass. The result?? A promotion to a 4-yr stint as Secretary of State; and now today, she is on the Short List for a possible appointment as "Candidate for Vice President of the United States" on the Romney ticket. Can you freakin' believe this ****?
http://www.usatoday.com/news/washington/2004-03-30-questions-usat_x.htm
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At the time, as an Energy Hedger for The Chicago Corp, ABN AMRO Bank, my jaw dropped open as I read the Declaration of War on the US by Osama Bin Laden, as broadcast on the Reuter's Newswire Service, 5-years ahead of those fatal attacks. I sat on the 11th floor of a nearby building in their shadow, contemplating the earlier bombing in 1993, and awaited my fate.
I IMAGINED IT, YOU BRAINLESS IGNORAMOUS; as did anyone and everyone who had their headset switched-ON at he time!
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My point, Pharaoh? Who could imagine?? Who could imagine??? Imagine this:
Auditing-101: Confirm all information submitted by the Auditee . . . Confirm all information submitted by the Auditee!
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Under securities law, even for an individual opening a plain vanilla stock brokerage account, the broker is required to "Know Your Customer"; and is held financially responsible for failing to prevent the customer from investing or trading in ways unsuitable to their declared risk profile, sophistication, and financial condition. Yet, a custodial bank accepting a $100 Million brokerage as its customer, gets to hold boku bucks while charging fees without paying interest, gets off scot-free!
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US Bank executives had, and continues to have, intimate knowledge of the precise levels of their numerous client firms' segregated accounts. For PFG, this had been known to be roughly $5M. They knew this while PFG's publicly posted statements, their NFA approved advertisements, and their NFA audit reports openly and fraudulently claimed over $500M capital on deposit worldwide with ~$220M on deposit at US Bank. Now citizens, you tell me: Where was the obligation for the Custodial Bank to "Know its Customer"? Right, nowhere! Since Congress and the CFTC have intentionally subverted that specific responsibility.
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The key to regulatory effectiveness is built on simplicity, not a Mussolini style facist state. By placing true fiduciary responsibility exactly where it belongs, the NFA would have much less work to do, not more. The NFA would have most of its work and responsibility for flagging and up-front reporting done for it by the banks themselves. The NFA would then only need to oversee and professionally audit a handful of these very large, sophisticated custodial banks, in order to confidently assure thousands of firms and their millions of customers were truly financially secure.
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This would be self-fulfilling if only financial responsibility and the cost of malfeasance were placed where it should be, upon the custodians. This change only requires the "Know Your Customer" rule be applied as a standard and enforced across the entire chain of custody:
Customer<>Broker<>Bank<>NFA<>CFTC<>Congress;
and provide open visibility as such:
Customer>Broker, Customer>Bank, Customer>NFA, Customer>CFTC, Customer>Congress.
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Put teeth in it, make the custodian pay, and the embezzelment problem is solved.
Then, audits of the Broker-Dealers would not have to spend as much time or effort on that aspect of the business (except as a cross-check on the banks themselves). The audit could then focus on the Operational Aspects of the business, where issues such as the assymetrical spreads that occurred at FXDD and IKON, money laundering, double-dealing, and other potential broker<>customer fraud issues would be examined.
 
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WaveRider

Sergeant
Messages
304
If I may add to this discussion...
A sound proactive regulatory structure is in the long term best interests of the companies who may be fighting that regulation. If a company has to slit its own throat in the long run by making quarterly profits now, the company HAS to slit its own throat. It has a fiduciary responsibility to its shareholders to make as much money as is possible in every quarter. Shareholders do not settle for the excuse of: "This type of activity is bad for us and the industry in the long run. We have decided to make a much smaller profit now in order to avoid destruction of the company later."
Alan Greenspan was publicly shaken at the expanding of his worldview. He said he did not believe companies would act against their own long term interests as they had. Goldman, Lehman, AIG, B of A, and JP Morgan all would have collapsed from short term profiteering to their own detriment. IT'S PROVEN NOW, EVERYBODY. Companies need a stable, regulated environment that enforces ethics and prohibits pilfering of client funds or they will burn their own boat. Share holders will not accept a lower profit ir a loss for the long term good of the company but if this occurs because the company is forced to make profits in the regulatory structure it exists in, CEO's can't be fired or threatened.
To Pharaoh's comment about whether no regulator is better than an incompetent one I might say, if a cop is ineffective against the drug dealers, do you dissolve the police force? Will that make the problem go away? Defunding the police force and judicial system, removing its ability to put men on the ground, prosecute, investigate isn't going to make the drug dealers behave better. The bad element is there and it isn't going anywhere and if you read the gnarly history of the financial system, drug dealers seem more humane. Why anyone would suggest getting rid of the regulators blows my mind. Why don't we just make the regulators more effective? And if you remove the conflicts of interest, like letting regulators sit on the boards of companies they regulate, less corruption will result. It's the guy getting paid by the gov't to be a regulator and also by a corporation to use his influence with the gov't to maximize profits that is now buying unlimited election air time telling you that to remove the conflict of interest is removing your American freedom. That's dumb. Really dumb. And to anyone who believes that, you're a dupe. Freedom is being removed by a two faced snake manipulating both the markets and the gov't.
The regulations put in place in the early 1900's improved the quality of life and guess what? Banks and insurance companies found legal and ethical ways of making profits? Nope. They exploited other regulatory gaps. They had to because it was legal and everyone else was doing it. After the depression congress went in for another round of regulation including The Banking Act of 1933 also generally called Glass-Steagall (though the Glass-Steagall Act of 1932 by the same sponsors was really a different law). It kept speculating bank's funds separate from depository funds and a lot of other safeguards. We did that because banks ran the country and the world into a depression. They acted against the long term interests of society and themselves. With an eviscerated middle class and no one to lend to, the banks also suffered. So we should go back to that unregulated environment? REALLY?! Well if we look at history, unregulated banks = worldwide depression and terrible abuses of the average joe, not more jobs. A lot, lot, less jobs.
 
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WaveRider

Sergeant
Messages
304
One last thing though I know this is off topic. If on August 6, Barach Obama gets a presidential daily briefing that says Bin Laden is determined to carry out a terrorist attack on US soil, acknowledging reports that he wanted to hijack US aircraft and then that happens on September 11, just 5 weeks later, would it be okay if he told the world he had no inkling this was going to happen? If Barach Obama did that I would think he were an idiot who allowed 9/11 to happen. I have no idea why George Bush and his friends get a free pass on the worst attack on the US. I lived in Brooklyn right in the dust cloud path, just across the water, felt the heat of the second blast and saw people jump out the windows with my own eyes. I watched the whole damn thing. I still have a charred Dilbert cartoon that fluttered across that water. It smelled like burning metal all the way till after Thanksgiving. I didn't let myself cry for two full years. Shame on you, Mr. President, for letting that happen, for not reading your briefings and for letting your VP control the White House.
 
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