The futures trading industry reeled on Tuesday as federal regulators accused Iowa-based broker PFGBest with misusing over $200 million in customer funds for more than two years, resurrecting the shock of MF Global's collapse.

The Commodity Futures Trading Commission (CFTC), which had give a clean bill of health to the brokerage industry in January, said that the broker's regulated Peregrine Financial Group (PFG) unit and its owner had failed to maintain sufficient capital in segregated accounts since at least February 2010.

It said the shortfall was in excess of $200 million, more than half of the broker's total client funds.

"The whereabouts of the funds is currently unknown," the CFTC said in a complaint against the regulated broker arm and Russell R. Wasendorf Sr., the founder and chairman of PFGBest whose apparent suicide attempt on Monday morning outside the firm's Cedar Falls, Iowa, offices appears to have triggered the crisis.

Click here to read the full text of the complaint.

Wasendorf, a well-known and mostly well-regarded figure in the industry, was reported to be in a coma, the filing said.

The complaint relies on many of the details released on Monday by the National Futures Association (NFA), the broker's first line regulator, which discovered during an audit that a U.S. bank account that PFG reported was holding $225 million in 1,845 customer accounts actually contained only $5 million.

While PFGBest is less than one-tenth the size of MF Global, the fallout may be larger. An industry that long prided itself on an unblemished record of protecting customer funds must now figure out how to restore confidence, with traders quick to say regulators have again been found wanting.

"It's déjà vu all over again," said John Roe, co-founder of the Commodity Customer Coalition (CCC), set up in the aftermath of MF Global's collapse last October to help clients recoup their money. In its dying days, MF Global dipped into customer funds to help meet margin calls, investigators believe.

"Everyone in the industry claimed this couldn't happen again, but if the money really is missing, then it's like a repeat of MF Global. Anyone who thought things don't need to change, well, have to reappraise their position," Roe added.

The PFGBest disclosure came hours after Wasendorf Sr., a 40-year veteran of futures markets, was found in his car after an apparent suicide attempt. He was in critical condition at the University of Iowa Hospitals and Clinics on Monday. A hospital spokesman said he was unable to comment on Wasendorf's status on Tuesday due to federal privacy laws.

JEFFERIES LIQUIDATES POSITIONS

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.

It is not clear what has happened to the missing funds, or how Jefferies' liquidation could affect them. As a "non-clearing" futures commission merchant (FCM), PFGBest acted as a middleman for mostly small-scale or retail traders.

Because it was not a clearing member of the CME, a not-uncommon arrangement for smaller brokers that do not want to or are unable to keep enough capital of their own, the regulatory burden falls to the industry 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 "account irregularities" following the suicide attempt, and advising customers that they could liquidate open trading positions but would not be able to withdraw cash or initiate any new trades.

Local law enforcement officials said the investigation would likely pass to the U.S. Attorney's Office shortly.

"We had personal assurances from Wasendorf Sr. as recently as two weeks ago that they were not like MF Global," said Lauren Nelson, director of communications for Attain Capital, an introducing broker specializing in managed futures in Chicago.

"We've been speaking to other FCMs (Future Commission Merchants) in the hope we can eventually transfer our accounts over. But the fear is the funds are gone, the regulators have really dropped the ball."

The CFTC case filed in the U.S. District Court for the Eastern District of Illinois alleges that PFG failed to segregate customer funds and committed fraud by misappropriation.

REGULATORY IRE, CUSTOMER GRIEF

PFGBest was among the firms that scrambled to reassure customers of the safety of their funds last November, just after MF Global's collapse, posting 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 trading accounts to PFGBest.

Unlike MF Global, which is believed to have misused customer funds in a mad scramble to meet margin calls on proprietary trades, PFGBest was not believed to have placed trades with its own funds and does not seem to have suffered an exodus of customers.

Also unlike MF Global, PFGBest's shortfall may extend back years, raising even larger questions about regulatory oversight. The NFA said on Monday that previous customer account balances from February 2010 and March 2011 reported by the firm may have been inflated by as much as $190 million, with PFGBest only holding $10 million of a claimed $200 million.

In a letter, it said PFGBest's clearing unit, Peregrine Financial Group (PFG), had told the NFA just two weeks ago that it held $400 million in customer segregated funds, of which over $225 million was on deposit at the firm's bank.

But on Monday, after receiving information that PFG's founder and owner may have falsified bank records, the NFA said that only $5 million was on account at the bank days earlier.

Some have advocated adopting a government or industry-backed insurance program that would protect futures traders, similar to a scheme that has long existed for securities investors.

But Iowa Senator Chuck Grassley, a senior Republican and member of the Agriculture Committee, said it was premature to start talking about an indemnity fund or changes to the law.

"Right now, I'd like to concentrate on whether the regulators are doing their job," he told reporters.

Much of the early criticism is already falling to the CFTC, which said it found no "material breaches of customer funds protection requirements" during a joint review of the 70 largest FCMs with the NFA in January.

"We should now move to approving the National Futures Association proposal for greater controls for segregation of customer funds," CFTC Chairman Gary Gensler told a hearing on Tuesday. "We also should take up staff recommendations to further enhance segregation of customer funds."

He said agency staff were working on measures that could improve internal controls and transparency.

In the wake of the MF Global collapse last year, exchange operator CME Group set up an insurance fund that covers farmers and ranchers for up to $25,000 and cooperatives for as much as $100,000 when a clearing member fails.

CME Group could not immediately respond to a question about whether the fund would kick in for PFGBest.

"You would think that the government would be watching these accounts and doing something," one PFGBest employee said.

"The NFA can't regulate this industry."

WASENDORF SHOCK

The shock was twofold for many in the tight-knit trading industry, who struggled to reconcile the apparent suicide attempt with the well-regarded industry veteran known for his hometown philanthropy and passion for peregrine falcons.

"I always thought they were straight shooters," said Mark Melin, an author and futures-industry consultant, who worked for the Wasendorfs at PFGBest for about 2-1/2 years as a managed futures broker.

"I know them personally, I watched them operate. I'm reserving judgment until the officials come out with definitive confirmed information."

Others expressed less shock.

One former employee of the firm said he had grown concerned that Wasendorf did not do more to distance the company from a massive $194 million forex-trading Ponzi scheme run by Trevor Cook in Minnesota, who admitted defrauding more than 700 investors. Cook is serving 25 years in prison.

In February, PFGBest, which had acted as Cook's broker, was fined $700,000 by the NFA for failing to notice the scheme. The company was subsequently sued for $48 million by the receiver rounding up the assets from Cook's scheme.

"They never admitted they were aware of what was going on, but they didn't deny it either," said the former employee.

Wasendorf's son, Russ Wasendorf Jr., briefed employees on Monday. One employee said he sounded "extremely depressed, confused, stunned."

"I would say he probably didn't have any idea this was going on," he said.

Many PFGBest employees contacted by Reuters said they expected the firm to fold. One said PFGBest is "doomed."

FROM BASEMENT TO COMPOUND

PFGBest is far smaller than the big broker-dealers that dominate the futures trading business, but was among a dozen or so well-known independent firms that tended to cater to local traders, farmers, wealthy individuals or smaller retail players.

Wasendorf Sr., who started as a commodities trader in the basement of his Cedar Falls home in 1972, used a windfall profit from the "Black Monday" stock market meltdown in 1987 to expand, formally launching the predecessor of PFGBest in 1992.

The firm grew significantly over the past decade, opening offices in Canada and Shanghai, and buying smaller rivals.

In 2009, Wasendorf moved the firm's headquarters from Chicago back to a facility in his hometown of Cedar Falls -- a 50,000 square-foot, three-story glass headquarters that cost $18 million and was celebrated for its eco-friendly construction, geothermal climate control and four-star employee cafeteria.

The former employee said there was a "messianic" quality to Wasendorf's desire to shift operations to his hometown, describing the new building as a "compound" but also acknowledged a practical aspect to the move.

The industry has come under enormous strain lately as ultra-low interest rates sap revenue from holding customer funds, while electronic trading threatens their role as middlemen.

"A large part of trying to move everything to Iowa was about slashing costs. It's obviously a lot cheaper to hire someone in Iowa than it is in Chicago," he said.