US futures industry investigators are looking into why Iowa-based collapsed brokerage PFGBest used a tiny accounting firm that appears to be operating from inside a suburban Chicago home to audit its books, according to a person familiar with the matter.
Experts said the use of such an auditor should have been a red flag to regulators of a futures brokerage with more than US$500 million in assets and several hundred employees across the US, as well as in Shanghai and Canada.
There are comparisons with the way convicted Ponzi schemer Bernard Madoff used an auditor operating out of a strip mall in suburban New York and convicted swindler Allen Stanford’s investment firm retained a little-known auditor on the Caribbean island of Antigua.
PFGBest’s financial statement ended Dec. 31, 2010, shows that a company called Veraja-Snelling Company, based in Glendale Heights, Illinois, certified that the futures broker was in compliance with federal commodities regulations governing the segregation of customer money.
On Tuesday, the US Commodity Futures Trading Commission (CFTC) accused the now-bankrupt brokerage and its founder, Russell Wasendorf Sr, of misappropriating about US$200 million of customer money in a fraud it said dates back to at least February 2010, and then lying to cover it up.
The CFTC is looking into the role of the auditor as it continues to investigate PFGBest, said the person familiar with the matter, who was not authorized to speak publicly.
When reached at her Glendale Heights home on Tuesday night, Jeannie Veraja-Snelling, who listed herself an officer of the firm when she registered with the Public Company Accounting Oversight Board (PCAOB) in February 2010, said she could not talk about PFGBest.
Another source said on Tuesday that Wasendorf went to great lengths to fabricate PFGBest’s financial statements, saying he intercepted confidential regulatory documents that were mailed by the National Futures Association (NFA) to what the industry self-regulatory group believed was US Bank, the bank used by PFGBest.
Instead, the NFA was sending the documents, used to independently verify a broker’s bank balances, to a post office box that Wasendorf had set up, the source said.
In the 2010 report, Veraja-Snelling & Co wrote that there were no material weaknesses involving internal controls and that the “corporation’s practices and procedures were adequate.”
The NFA confirmed that the accounting firm, which has no disciplinary history with Illinois financial regulators and has not been accused of any wrongdoing, also audited PFGBest’s financial statements last year.
Veraja-Snelling & Co is located on a busy, four-lane street inside a modest house, that is a faded-pink color, in Glendale Heights, about 30 minutes outside of Chicago.
Jeannie Veraja-Snelling has been certified in the state of Illinois since 1999.
However, she does not list having any public company clients in her annual filing with the PCAOB last year.
Little information appears to be publicly available about Veraja-Snelling.
Audit experts say that just because PFGBest hired a small auditor to do its books does not necessarily say anything about the auditor’s competence.
Instead, they said, it speaks more to the management of PFGBest and why the firm did not pick a larger auditor with a more established reputation.