On Tuesday evening, Peregrine filed to liquidate under Chapter 7 of the U. The Chapter 7 filing suggests the company is winding down. As more details of the scandal became clear, the circumstances began to look more like a Bernard Madoff-style fraud than MF Global CEO Jon Corzine's desperate bid to stay afloat. Wasendorf intercepted confidential regulatory documents that were mailed by the National Futures Association to what the industry group believed was U.

Bank, PFG's bank, a person close to the situation told Reuters. Instead, they were 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, who declined to be identified. Wasendorf forged signatures and fabricated bank balances on the documents and simply mailed them back to the Chicago-based NFA, the person said.

The scheme apparently began to unravel as the NFA shifted to electronic confirmations. The NFA "started getting suspicious. He was resisting this new way of confirming the balance," the source said. Wasendorf only recently signed the authorization, a decision that would quickly have led regulators to uncover the discrepancy. While distinct from MF Global's demise in many ways, news that a second broker has violated sacrosanct segregated customer funds threatens to shatter the fragile confidence in an industry that once prided itself on an unblemished record in protecting client money.

Wasendorf, 64, a well-known and mostly well-regarded figure in the industry over a four-decade career as a journalist, trader and executive, was reported to be in a coma, the CFTC said. He was found in his car early on Monday morning in an apparent suicide attempt. A spokesman for University of Iowa Hospitals and Clinics said on Tuesday he was unable to comment on Wasendorf's status due to federal privacy laws. A police report released on Tuesday said he had been found "breathing but incoherent" after running a hose from his exhaust pipe into the car.

A suicide note found with him alluded to some kind of discrepancies with accounts at PFG, the report said, confirming what the broker had told its clients a day ago. The bankruptcy filing showed that Russell Wasendorf Jr, the founder's son, had been empowered to act for Wasendorf Sr in the event the latter became incapacitated, under a power of attorney dated July 3.

A well-known broker for U. In February it posted a notice that the firm "reports daily and monthly to regulators concerning customer segregated accounts". A number of former MF Global customers also moved their accounts to PFGBest.

But the fear is the funds are gone, the regulators have really dropped the ball. But unlike MF Global, which is believed to have misused customer funds in a mad scramble to meet margin calls on proprietary trades in its waning days, PFGBest's abuse seems to have extended back years, according to the complaint.

There is no indication yet of how or why the missing money was used. The CFTC case filed in the U. District Court for the Northern District for Illinois, Eastern Division, alleges that PFG failed to segregate customer funds, committed fraud by misappropriation and reported false data to regulators.

The NFA order said the accounts were held at U.

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On Tuesday, the firm's clearing broker Jefferies Group Inc, which was responsible for clearing trades through exchanges like those run by CME Group, said it had begun unloading positions held on behalf of PFG's clients after it failed to meet a margin call. It said a "substantial portion" had already been closed and it did not expect to incur losses. As a "non-clearing" futures commission merchant FCM , PFGBest acted as a middleman for mostly small-scale or retail traders, passing those trades to Jefferies to clear.

Because it was not a clearing member of the CME, a not-uncommon arrangement for smaller brokers that do not want or are unable to keep enough capital of their own, the regulatory burden falls to the NFA and the CFTC, letting the CME Group -- which suffered harsh criticism as the front-line regulator of MF Global -- off the hook. PFGBest officials have said nothing beyond a notice to clients on Monday confirming an investigation into "accounting irregularities" and advising customers that they could liquidate open trading positions but would not be able to withdraw cash or initiate any new trades.

The shock was twofold for many in the tight-knit trading industry, who struggled to reconcile the apparent suicide attempt with the industry veteran known for his hometown philanthropy and passion for peregrine falcons. Cook is serving 25 years in prison. It was a sizeable investment for an industry that has come under enormous strain lately as ultra-low interest rates sap revenue from holding customer funds and electronic trading threatens the role of middleman.

Reporting By David Sheppard, Frank Tang and Jonathan Stempel in New York, Tom Polansek, Ann Saphir and PJ Huffstutter in Chicago, PJ Huffstutter in Cedar Falls, Chuck Abbott and Alexandra Alper in Washington; Editing by Ryan Woo, Jeffrey Benkoe, Jim Marshall and Chris Lewis. Reuters is the news and media division of Thomson Reuters. Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.

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