Peregrine’s Wasendorf, Charged With Lying, Seeks Bail
Russell R. Wasendorf Sr., the Peregrine Financial Group Inc. founder charged with lying to regulators about how much client money his commodities brokerage had on deposit, is set to ask a judge to release him on bail.
Wasendorf, 64, admitted stealing at least $100 million from the Cedar Falls, Iowa-based firm, according to an FBI affidavit accompanying a criminal complaint unsealed upon his July 13 arrest. He’s been in U.S. custody since then and is scheduled to appear today before a federal magistrate judge in Cedar Rapids, according to the court’s electronic docket.
The National Futures Association reported July 9 that Peregrine appeared to be missing at least $200 million in client funds. Wasendorf attempted suicide outside the firm’s headquarters that day.
“Having admitted to stealing $100 million and $200 million missing, his chances are one in 100 million of getting released” Steven A. Miller, a former federal prosecutor who is now a white-collar criminal defense attorney, said in a phone interview.
Bail in a large financial fraud case wouldn’t be unprecedented. Bernard L. Madoff, who confessed to deceiving investors for decades and stole an estimated $17 billion, was freed on $10 million bail and confined to his Manhattan apartment where he was monitored by guards and under electronic surveillance before pleading guilty and being sentenced to 150 years in prison.
New York attorney Mark Dreier was also freed on $10 million bail and confined to his home under 24-hour guard before he was sentenced to 20 years in prison for a $400 million fraud.
With so much client cash unaccounted for, prosecutors will probably argue Wasendorf has the financial resources to flee if not jailed before trial, Miller and two other lawyers not involved in the case said in separate interviews.
The founder’s assets were ordered frozen by a federal judge in Chicago who is overseeing a civil enforcement action filed against Wasendorf and his firm by the U.S. Commodity Futures Trading Commission.
Wasendorf is being represented by the Cedar Rapids Federal Public Defender’s office. Attorney Jane Kelly said the office doesn’t discuss its cases with the press.
Assistant U.S. Attorney Peter Deegan, who is prosecuting the case, declined to comment on whether bail terms had been discussed.
Wasendorf established the firm as Wasendorf & Son Inc. in 1980, renamed it Peregrine 10 years later and opened a Chicago office, according to its website. It filed for Chapter 7 bankruptcy protection in that city on July 10.
Before attempting suicide by asphyxiation, the Peregrine chairman and chief executive officer prepared a statement saying he had been embezzling from the firm for almost two decades, according to the affidavit of Federal Bureau of Investigation Special Agent William Langdon.
“I have committed fraud. For this I feel constant and intense guilt,” Wasendorf said, according to Langdon.
The NFA and CFTC each say at least $200 million in client funds are missing from the firm’s accounts at U.S. Bank.
A receiver appointed by U.S. District Judge Rebecca Pallmeyer in the CFTC action said his preliminary investigation revealed Wasendorf or entities he controlled owned an Italian restaurant, two Chicago condominiums, an online bookseller, aircraft, a construction company and property in Romania.
“It is possible assets owned by the Wasendorf entities may have been procured with funds embezzled from PFG,” receiver Michael Eidelman and his attorney, Randall Lending, told Pallmeyer.
“The court is likely to conclude he’s sitting on a fortune somewhere,” said Miller, a partner in the Chicago office of Pittsburg-based Reed Smith LLP.
Because criminal defendants are by law innocent until proven guilty, courts operate under a presumption they’re entitled to bail, said Jeffrey Cramer, another former federal prosecutor.
Still, the amount of missing money in the Wasendorf case and his suicide attempt render his chances of regaining freedom “slim,” Cramer said.
“It’s a hard argument to make he is not a danger to himself and not a flight risk,” said Cramer, now a managing director in the Chicago office of Kroll Advisory Solutions, an international investigative firm.
Courts will typically try to find some set of conditions -- such as some combination of home confinement, electronic monitoring and a high bond -- to ensure a defendant’s return to court, said Cramer.
“You don’t have that here,” he said. Confinement and monitoring can’t ensure Wasendorf won’t attempt suicide again. Bail would need to be set high enough to deter his disappearance.
“If he’s sitting on $100 million, does he care about $1 million?” Cramer asked.
Miller, too, said the suicide attempt is a complicating factor.
“When you sign a release order, you’re agreeing to appear in court and face the charges,” Miller said. “When you attempt to take your life you’re going to abort the legal process in its tracks.”
Attorney Kurt Stitcher, who served as a federal prosecutor in Miami, worked as a Central Intelligence Agency analyst and is now in private practice with Fagre Baker Daniels LLP in Chicago, said he sees a way out for Wasendorf.
“The weight of the evidence, of course, is very strong but for what crime(s)?” he said in an e-mail.
“The government can argue about the fraud, but it hasn’t charged it yet, so the court could push back on the actual crime charged,” which carries only a five-year maximum sentence, Stitcher said.
Madoff and Dreier had extreme conditions imposed on their release, he said. “That happened in Manhattan. Is Iowa too down-to-earth to treat Wasendorf like that? That’s the $200 million question.”
The criminal case is U.S. v. Wasendorf, 12-mj-00131, U.S. District Court, Northern District of Iowa (Cedar Rapids).
The regulatory case is U.S. Commodity Futures Trading Commission v. Peregrine Financial Group Inc., 12-cv-05383, U.S. District Court, Northern District of Illinois (Chicago).
The bankruptcy case is In re Peregrine Financial Group Inc., 12-27488, U.S. Bankruptcy Court, Northern District of Illinois (Chicago).
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