MF Global

Preventing a Peregrine repeat for less than a dollar a day

August 16, 2012: 11:44 AM ET

Regulators, customers, shareholders, and boards need to push for the wider use of electronic confirmations as part of company audits.

FORTUNE -- Trustees are still scrambling to find the billions at MF Global and the millions at Peregrine that have gone missing from customer accounts.

In June, a report from the MF Global (MFGLQtrustee stated that there are "claims for breach of fiduciary duty and negligence … that may be asserted against [MF Global CEO Jon Corzine]," though it looks like the prospect of criminal charges against Corzine may be dimming. But the wheels of justice are moving much more quickly for Peregrine CEO Russell Wasendorf. He will be arraigned on Friday resulting from an indictment by the Commodities Future Trading Commission earlier this week for allegedly falsifying records.

A confession purportedly written by Wasendorf explained how he had used forgeries of bank statements and a post office box he opened in 2006 to thwart regulators' and auditors' paper-based confirmations of customer accounts. As of the end of the year, the accounts held $215 million less than the forged bank statement showed.

So what pushed Wasendorf over the edge in 2012?

In the weeks leading up to his attempted suicide, the National Futures Association began to forcefully urge Wasendorf to allow electronic confirmations of Peregrine's bank holdings, according to Brian Fox, founder of, a firm that appears to be practically the only game in town for this type of service. "When he finally agreed to our electronic confirmation process," he knew the gig was up, Fox says.

MORE: Executive pay clawbacks: Just a shareholder pacifier?

In contrast to a paper-based process, electronic confirmations use additional security mechanisms to ensure that whoever confirms an account balance during an audit has the appropriate credentials to do so.  According to Fordham accounting professor Barbara Porco, who has worked on a research project with, "A fraudster may be able to create false verification; however, the electronic process makes it more challenging."   More

  • What's at the core of corporate wrongdoing?

    To believe that the people who commit fraud are different from us might make us feel safe. But real safety comes from building an organization that stops these acts before they can take place.

    By Eleanor Bloxham, CEO of The Value Alliance and Corporate Governance Alliance

    FORTUNE -- Dennis Levine, who lectured an NYU MBA ethics class as part of his community service many years ago, described the mentality that led to MORE

    Dec 29, 2011 9:37 AM ET
  • What we can learn from Jon Corzine

    Quit while you are quietly behind.

    By Shelley DuBois, writer-reporter

    FORTUNE -- Jon Corzine, what were you thinking? It's going to be tough to salvage the good parts of a long, lucrative career in finance after the dust clears from this current mess, even in its rosiest of outcomes.

    Friday, Corzine announced that after about a year holding the job, he is resigning his position as CEO of brokerage firm MF Global (MFGLQ). MORE

    Nov 4, 2011 4:03 PM ET
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by VIP.