July 13 (Bloomberg) -- Peregrine Financial Group Inc. Chief Executive Officer Russell Wasendorf Sr. said in a signed statement linked to his suicide attempt that he committed fraud for two decades at his Cedar Falls, Iowa-based company, according to a federal complaint.
Wasendorf, 64, charged by U.S. prosecutors with making false statements to federal regulators, was ordered to be held in custody today by U.S. Magistrate Judge Jon Scoles at an initial appearance in a Cedar Rapids, Iowa, federal court, Assistant U.S. Attorney Peter Deegan said in a telephone interview. Scoles set a detention hearing for July 18.
Wasendorf appeared in court with Assistant Federal Defender Jill Johnston, Deegan said. Johnston didn’t immediately reply to a voice-mail message seeking comment on the proceeding.
Peregrine filed for bankruptcy a day after the National Futures Association said it identified a shortfall of about $200 million in customer funds on deposit. Wasendorf told the Federal Bureau of Investigation that the estimated amount of loss from his fraud exceeded $100 million.
Its bankruptcy petition lists more than $500 million in assets and more than $100 million in liabilities. The broker estimates it has more than 10,000 creditors, according to the filing.
“Wasendorf made false statements to the United States Commodity Futures Trading Commission regarding the value of customer segregated funds held by Wasendorf’s company, Peregrine Financial Group Inc.,” from 2010 to July 2012, Cedar Rapids U.S. Attorney Stephanie Rose said today in press statement announcing the charges.
The commodities regulator, in its own complaint filed at the U.S. courthouse in Chicago on July 10, accused Wasendorf and his firm of misappropriating at least $200 million in customer money. “The whereabouts of the funds is currently unknown,” the agency said.
Wasendorf attempted to commit suicide outside the firm’s Cedar Falls office building on July 9, according to a Black Hawk County, Iowa, sheriff’s report.
“I have committed fraud. For this I feel constant and intense guilt,” Wasendorf said in a signed statement detailing his fraud that was found with a suicide note with him in his car, according to an affidavit by FBI agent William F. Langdon filed on July 11.
“Through a scheme of using false bank statements I have been able to embezzle millions of dollars from customer accounts at Peregrine Financial Group Inc.,” Wasendorf wrote, according to the signed statement. “The forgeries started nearly 20 years ago and have gone undetected until now.” He even learned to deceive regulators by forging online bank statements, he said in his statement.
Wasendorf left a copy of that statement for his son in the company office before trying to kill himself. He verified that he wrote the statement, according to the complaint.
Starting with Firstar Bank, which became U.S. Bank, and Harris Bank, Wasendorf forged the company’s bank statements, “the very core of PFG,” the futures brokerage, he said. He also made forgeries of official letters and correspondence from the bank, along with trade confirmation statements. He used Photo Shop, Excel, scanners, laser and ink jet printers to produce “convincing forgeries” of almost every bank document.
After closing the Harris Bank account, Wasendorf “only had to falsify” one set of statements, he said.
The key to his 20-year fraud was maintaining sole access to the company’s accounts at U.S. Bank, the Peregrine founder said. The statements were always delivered to him directly when they arrived by mail. Within a few hours he had made counterfeit statements and gave the forgeries to his accounting department, he said.
“No one else ever saw an actual U.S. Bank statement,” he said.
Wasendorf, who started the futures brokerage as a one-man shop working out of the basement of his home, hid his fraud from his employees “with careful concealment and blunt authority,” he said.
As the company grew, he added workers, making sure “everyone knew I was the guy in charge,” he said. “If anyone questioned my authority I would simply point out that I was the sole shareholder.”
He was the only one with online access to PFG’s account, and instructed the bank’s representatives to “interface” only with him. He would establish such “rules and procedures as each new situation arose,” he said.
Forged statements and account confirmation forms contain “purported” signatures of authorized U.S. Bank representatives that were sent to regulators, according to the affidavit.
Wasendorf’s son, referred to in the affidavit as Russ Jr., first examined a forged Peregrine bank statement on July 9, obtaining it from Peregrine’s accounting department on the day of his father’s suicide attempt, he told law enforcement officers.
Financial statements based on a forged bank statement showing Peregrine’s customer accounts at U.S. Bank with a balance of $221.8 million as of Dec. 31 was sent to regulators including the CFTC, according to the affidavit. The account actually held only $6.3 million, it said.
“I had no access to additional capital and I was forced into a difficult decision: Should I go out of business or cheat? I guess my ego was too big to admit failure,” Wasendorf said in his statement.
The criminal case is U.S. v. Wasendorf, 12mj131, U.S. District Court for the Northern District of Iowa (Cedar Rapids). The bankruptcy case is Peregrine Financial Group Inc., 12-27488, U.S. Bankruptcy Court, Northern District of Illinois (Chicago). The regulatory case is U.S. Commodity Futures Trading Commission v. Peregrine Financial Group Inc., 12-cv-5383, U.S. District Court, Northern District of Illinois (Chicago).
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