Just hours after a former customer of Peregrine Financial called for a U.S. congressional investigation of the NFA, the industry group said it was retaining outside law firm Jenner and Block to review its general practices and their execution in the case of PFGBest, as Peregrine is widely known.

Also responding to the fallout, the CME Group, responsible for regulating 45 of the biggest brokers, will conduct a sweeping review of dozens of firms across the country, a source familiar with the plan said.

The scandal at PFGBest has shaken traders' confidence in the futures industry, coming less than a year after the failure of brokerage MF Global, from which customers are still missing an estimated $1.6 billion.

PFGBest's founder, Russell Wasendorf Sr., admitted last week to a 20-year fraud that has left an over-$200 million hole in client funds.

The NFA was the firm's front-line regulator since 1992.

"This is just the most glaring public display of incompetence at the NFA," Attain Capital Management, a Chicago-based introducing broker that had accounts at Peregrine Financial, said in a press release.

"We hereby call for the CFTC (U.S. government regulator Commodities Futures Trading Commission) and Congress to launch a thorough investigation into the practices, policies and people of the National Futures Association," the broker said.

The CME review will require regulators to obtain independent bank verification that the customer funds that brokers claim to be holding are actually in their bank accounts, the source said. The NFA, which oversees mostly smaller, independent futures operations, will conduct a similar review, according to the Wall Street Journal.

Early last week problems at Peregrine came to light when Wasendorf admitted to tapping into client funds, which are meant to be kept separate from the broker's own cash.

He confessed, in a written note, to using little more than a rented post office box, Photoshop and an inkjet printer to dupe regulators with false bank statements.

NO CONFIDENCE

Attain said there needs to be an immediate review of how futures brokers are regulated, and that it would seek the "revocation" of the NFA's charter as a front-line regulator if it thought the action was necessary. CME, the largest futures exchange, said that the system of allowing brokers to hold their clients' cash needed rethinking.

The NFA has been criticized for missing a number of red flags at PFGBest, including an apparently one-person auditing firm run from a suburban Chicago home.

NFA's non-executive chairman, Chris Hehmeyer, said on Friday that the agency's own auditors eventually caught Wasendorf by pressing him to allow the NFA to verify the firm's bank account balances electronically.

The NFA and CME review of brokers' bank accounts follows a similar series of spot checks conducted together with the CFTC in January, when the industry was given a clean bill of health.

The NFA and CFTC did not immediately respond to calls seeking comment. CME declined to comment.

ATTAIN SPEAKS FOR CUSTOMERS

Attain has emerged as one of the loudest voices demanding the return of customer money from PFGBest, adding to calls for reforming the industry after the second futures broker scandal in nine months.

Attain put forward a number of proposals after the collapse of MF Global last year revealed that the wall separating customer funds from company funds might have been breached in the broker-dealer's dying days. Attain said more now needs to be done.

"The PFGBest scandal has changed the narrative ... from questioning not just whether we have the right rules and laws in place ... to whether we have the right people in place to insure the rules are being followed," it said.

Attain has asked for help from the Commodity Customer Coalition (CCC), which was founded after MF Global's collapse to fight for the speedy release of customer money.

James Koutoulas, chief executive of Typhon Capital Management and co-founder of the CCC, has indicated the group would be willing to provide assistance to PFGBest customers.

"At this stage, we are advising customers to gather their statements and prepare for a claims or account transfer process," a statement on the CCC website said.

(Additional reporting by Tom Polansek in Chicago; Editing by Steve Orlofsky and Michael Urquhart)

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