The US Commodity Futures Trading Commission (CFTC) has filed and settled charges against Jeannie Veraja-Snelling, d/b/a Veraja-Snelling & Company, a certified public accountant and sole practitioner from Glendale Heights, Illinois, barring her from practicing before the Commission.
The CFTC’s Order charges Veraja-Snelling with failing to audit Peregrine Financial Group in accordance with CFTC Regulation 1.16.
Veraja Snelling was the auditor for Peregrine, a registered Futures Commission Merchant (FCM). On 10 July 2012, the CFTC charged Peregrine and its sole owner and chief executive officer, Russell Wasendorf, Sr with fraud, among other violations, within 24 hours after the discovery that Wasendorf had misappropriated millions of dollars in customer funds. Among the violations that were discovered, Peregrine’s 2011 certified financial statements filed with the Commission were fraudulently overstated by more than USD215m.
According to the CFTC’s order entered today, Wasendorf deceived Veraja-Snelling and others by manufacturing bogus bank statements that overstated Peregrine’s bank balances and by forging documents sent to Veraja-Snelling that purported to provide bank confirmation of the overstated balances.
According to the order, Wasendorf was able to perpetrate and conceal his fraud in part because Peregrine lacked proper internal accounting controls and was not subject to audits performed in accordance with CFTC regulations. The order finds that Veraja-Snelling’s audits of Peregrine’s financial statements were not performed in accordance with generally accepted auditing standards (GAAS) and did not include appropriate review and tests of internal accounting controls and procedures for safeguarding customer assets, as required by CFTC Regulation 1.16.
David Meister, the CFTC’s director of enforcement, says: “As the Peregrine debacle shows, the importance of the independent accountant’s gatekeeper function cannot be overstated. FCMs and, most importantly, their customers, rely on auditors to approach each and every auditing assignment professionally and with due care. There is no place in the CFTC-regulated world for below-standard audits or auditors who do not have a sufficient understanding of the futures industry.”
The order finds that Veraja-Snelling lacked the necessary technical expertise needed to audit an FCM, failed to adequately staff and plan the Peregrine audits, and failed to exercise due care in performing the Peregrine audits. Among other failures, Veraja-Snelling’s review and testing of Peregrine’s internal controls during the Peregrine audits did not identify that Wasendorf had exclusive control over the customer segregated account and its financial reporting, which reflected a material inadequacy in Peregrine’s internal controls, according to the order.
In addition, the order finds that Veraja-Snelling improperly conducted the process to confirm bank account balances, which generally entails an auditor sending a confirmation form to a bank for a bank officer to sign and return to the auditor. Here, Veraja-Snelling relied on Peregrine’s accounting staff to prepare the confirmation request and identify the proper recipient. After Peregrine’s accounting staff provided the confirmation request and envelope to Veraja-Snelling for mailing, she sent the confirmation request to a post office box that was secretly controlled by Wasendorf. Wasendorf responded to the request by forging the signature of a bank employee on the form, confirming the false balance amounts.
The order concludes that Veraja-Snelling’s failure to conduct the Peregrine audits in accordance with Regulation 1.16 constituted improper, unprofessional conduct, and the order permanently bars her from appearing or practicing as an accountant before the Commission. In addition, the order requires her to relinquish her right to receive payment for performing the 2011 audit.
In related actions, the CFTC filed a Complaint on 5 June 2013 against US Bank National Association for unlawfully using and holding Peregrine’s customer segregated funds. Wasendorf was also criminally charged by the United States Attorney’s Office for the Northern District of Iowa, pled guilty, and on 23 January 2013 was sentenced to 50 years in prison and ordered to pay more than USD215m in restitution.