By Tom Polansek and Ann Saphir
CHICAGO/SAN FRANCISCO, Jan 23 (Reuters) - Three outspoken
critics of futures-industry oversight won spots on the board of
a key U.S. regulator, vowing more aggressive customer
protections following the stunning collapse of two brokerages
that cost clients hundreds of millions of dollars.
James Koutoulas, chief executive of Typhon Capital
Management; John Roe, president of Roe Capital Management, and
Jeffrey Malec, chief executive of Attain Capital Management were
elected to the National Futures Association's board of
directors, the NFA said on Wednesday.
The trio, who all manage Chicago-based futures firms, were
personally stung by the bankruptcies of MF Global in 2011 and
Peregrine Financial Group in 2012.
Their clients' money was frozen when the now-defunct brokers
dipped into customer accounts in violation of industry rules,
leaving a $1.6 billion hole in MF Global customer accounts and
what U.S. prosecutors say is a $215 million loss at Peregrine
NFA, Peregrine's primary regulator, has tightened some rules
since the failures, including requiring brokers to allow
regulators to check their bank accounts at will, and forcing
brokers to disclose more information about how they keep their
customers' money. The new directors say more is needed.
"The overall goal is to change the culture of the
organization to be more activist," Koutoulas told Reuters in an
Koutoulas and Roe co-founded the Commodity Customer
Coalition in late 2011 to help former customers of MF Global get
their money back, and now want NFA to take the lead as an
advocate for customers.
First on their agenda, they say, is to bar Jon Corzine, MF
Global's former chief executive, from the commodity futures
No one has been charged in the downfall of MF Global,
although U.S. congressional investigators have determined that
Corzine failed to maintain the systems and controls necessary to
protect customer funds.
Meanwhile Peregrine Financial founder and former Chief
Executive Russell Wasendorf Sr. is set to be sentenced next week
after pleading guilty to embezzlement, lying to regulators and
"When people keep trying to steal from your customers like
Corzine and Wasendorf, you have to make them afraid of you,"
Koutoulas said. "We're going to make the NFA a whole lot more
NFA, which is based in Chicago and funded by industry fees,
has traditionally operated in relative obscurity, overshadowed
by better-known market regulators like the Securities and
Exchange Commission and the Commodity Futures Trading
That changed last year, after the attempted suicide of
Peregrine's Wasendorf brought to light a 20-year fraud he had
conducted despite yearly audits by the NFA.
NFA's profile is also on the rise because of tighter rules
for the vast over-the-counter swaps industry, where major
dealers must now register with NFA. The regulator has been on a
hiring spree, adding to its staff to cope with additional
responsibilities on swaps regulation.
The changing of the guard on NFA's board reflects growing
discontent with the status quo in the regulatory world.
The three newly elected directors replace long-serving board
members with a collective 37 years of tenure: George Crapple,
co-chairman of Millburn Ridgefield Corp; Bruce Cleland, Campbell
& Co's vice chairman, and John Vassallo, president of Coquest
The three seats were the only contested ones in this year's
An NFA spokesman declined to comment on what the new blood
means for the direction of regulation, saying only that "we look
forward to working with them."
"GET IT DONE"
Wasendorf said in a suicide note that he duped
"unquestioning" regulators from NFA by falsifying bank
Malec said it was "an embarrassment" the association did not
have electronic access to the broker's bank accounts, which
could have uncovered the fraud.
Attain was one of NFA's biggest critics after Peregrine's
collapse, calling for reforms and for clients to get their money
"People in the industry are looking for a change," Roe said.
"They want to see reform at the NFA. We told them we could do
that. Now we have to do the hard part and get it done."
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