The CFTC Sniffs Out Another Bad Broker

It's an evergreen of TV news: At least twice a year, the FBI, ATF, DEA or Coast Guard capture huge bales of cocaine and marijuana coming into the US from Mexico. The booty is lined up on a table next to a podium for the beaming government official to declare that the cartels are on notice.

It seems that every one of these press conferences heralds this haul as the largest drug seizure on history.

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If that were only the case. Every drug expert knows that the supply of drugs into the US is continuing unabated. These seizures may be impressive from a law enforcement point of view -- the $3 billion War on Drugs is working! -- but in terms of the overall flow of narcotics, it's the tip of the iceberg. These mounds of drugs maybe destroyed later on but the pipeline keeps flowing.

This depressing image came to me when the CFTC announced that they caught discrepancies within Peregrine Financial Group, the unit inside Iowa broker PFGBest. So far, the estimated shortfall of the broker's client funds is around $200 million.

This recalls when the CFTC approached MF Global for their suspicious use of customer funds to hedge bad trades. Sure, we shouldn't live in an age when we commend federal agencies for doing their job but this is the age we live in: Competency is a rare thing. Many people saw the major Wall Street firm about to fall off the cliff but no one spoke up. If they did, they were summarily ignored.

But this does beg the question, that brings us back to the mountains of illegal drugs that still make it into our cities, suburbs and country counties: What is the CFTC and the SEC missing? For every MF Global, JP Morgan's London Whale, Bernie Madoff and Peregrine, what are other investment firms -- large and small -- hiding and getting away with?

And the second question is: Will we ever know?