By Jacob Bunge
A trio of dissident candidates won election to the board of a
critical U.S. futures-market regulator, swept in by a push to
tighten oversight of the industry following two high-profile
brokerage failures in less than a year.
James Koutoulas, John Roe and Jeff Malec, all managers of
Chicago-based futures firms, were elected to the board of the
National Futures Association, replacing standing directors after
campaigning to change the culture of the agency.
"The public still needs some measure of accountability," said
Mr. Malec in an interview.
The addition of several outspoken voices on market regulation to
the regulator's board reflects lingering anger among brokers and
investors over the collapses of MF Global Holdings Ltd. (MFGLQ) and
Peregrine Financial Group Inc., which breeched a central tenet of
the futures business: protecting investors' money.
An estimated $1.6 billion of client funds went unaccounted for
in the October 2011 implosion of MF Global. About $215 million was
seen lost in a long-running fraud perpetrated by Peregrine's chief
executive, which spurred that firm into bankruptcy after the scheme
came to light in July 2012.
The NFA, an industry-funded regulator based in Chicago, was
responsible for inspecting Peregrine and drew sharp critiques after
the fraud came to light. Exchange operator CME Group Inc. (CME) had
overseen MF Global.
The NFA notified members of the board election results in a
notice Wednesday. A spokesman for the agency said it "congratulates
the newly elected members of our Board and we look forward to
working with them."
Mr. Malec is chief executive of Attain Capital Management, a
Chicago-based futures brokerage that was caught up in the collapse
of Peregrine, because Peregrine handled trades on behalf of
Attain's customers.
Mr. Malec said he feels the NFA bears "a big part of the
responsibility" for the collapse of Peregrine, which has left its
customers and creditors facing an estimated $190 million shortfall
in funds. Last summer, Attain called for Congress to investigate
the NFA's practices.
Mr. Koutoulas' firm, Typhon Capital Management LLC, was a client
of both MF Global and Peregrine. He and Mr. Roe, who will represent
commodity-fund managers on the NFA board, in November 2011 formed
an ad-hoc group to argue for MF Global customers in the bankruptcy
proceedings of that firm.
Mr. Roe is principal of BTR Trading Group Inc., also a former
client of MF Global.
Mr. Koutoulas said in an interview that the NFA needs to mete
out stiffer punishments for wrongdoers and hold big firms to the
same account as smaller ones, particularly when it comes to dealing
penalties.
"The trend in Washington toward more rules is the wrong way to
go," Mr. Koutoulas said. "We want to show people that if they break
rules, they are going to be punished."
Mr. Roe and Mr. Koutoulas said they want Jon Corzine, the former
CEO of MF Global, to get a lifetime ban from the futures
industry.
All three new directors said they will urge the NFA to further
strengthen its auditing practices, which bore heavy criticism after
Peregrine's Mr. Wasendorf was revealed to have misled authorities
by faking financial documents for many years.
While the NFA already has beefed up automated reviews of futures
account balances, Mr. Malec said the agency needs higher standards
for hiring auditors, and Mr. Roe said in an interview that NFA
examiners "need to focus on where money is being held rather than
[firms'] sales practices."
The NFA has 27 members on its board of directors, with
directorships allotted to exchanges, trade-clearing firms, fund
managers, brokers and public directors. The elections of the new
directors fill three of the six seats dedicated to funds and
brokers.
Write to Jacob Bunge at jacob.bunge@wsj.com.
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