[ by Melanie Gretchen ] MF Global has spawned the next generation of problem firms, rather than the next generation of effective regulators.  After the New York brokerage left a loss of $1 billion, the CFTC is looking at another collapse months later – this time, with a $200 million loss in customer cash – despite a commitment to tighten rules, enhance oversight, and crack down on wayward firms. Following the discovery of accounting irregularities, regulators effectively closed down on Monday PFGBest, a futures trading firm, whose CEO, Russell Wasendorf Sr., attempted to commit suicide that morning.  As for the $200 million, that money may be long gone: the National Futures Association said the bank statements from U.S. Bank, where the money was held, might have been faked.  Case in Point: In February 2010, an account that supposedly had some $218 million, in fact held just $10 million. Performance Report: A $200 Million Discrepancy. It doesn't look good for the regulators, and why should it?  After the MF Global scandal, authorities reviewed brokerage firms and found nothing worth investigating.  James Koutoulas, the head of the Commodities Customer Coalition, a group of customers still fighting for the return of their missing money following the collapse of MF Global, expressed disbelief:

"How on earth can a regulated entity can just make up the bank statements for three years?  I don't even know what to say - I'm so shocked that you can forge bank statement for years, and the regulator wouldn't just check the account balance at the bank directly."

Recent Details. Last February, PFGBest faced a $700,000 fine for failing to detect a Ponzi scheme perpetrated by a Minnesota man who used the firm as a broker. Nevertheless, the firm's bigger scheme remained undetected until June 29, when regulators realized that of the $400 million it had in customer money, about $225 million was located at U.S. Bank.  After receiving a tip that the CEO "may have falsified bank records," the CFTC called U.S. Bank, to find that the firm only had about $5 million on deposit. Lack of Trust. In the futures industry, customers' money is not insured, limiting options for cash recovery.  To this end, regulators have proposed a number of fixes, including setting up an insurance fund to guarantee the money.

"We continue to witness circumstances which make a futures insurance fund a needed option.  Such a fund is critically important. Futures customers should be protected like banking and security customers are protected." -- Bart Chilton, a commissioner at the CFTC.

That's not soon enough for Mr. Koutoulas, a hedge fund manager, whose firm held less than $3 million with PFGBest.  He is not alone: before its collapse PFGBest held  more than $5 billion in customer cash.  At PFGBest, no one would be allowed to withdraw their money from the firm for the time being, according to regulators on Monday.

"How do you trust the financial industry." -- Mr. Koutoulas.

For further details, go to [Dealbook, 7/9/12].