July 14 (Bloomberg) -- Russell Wasendorf Sr. started Peregrine Financial Group Inc. as a one-man firm in the basement of his home and eventually grew the Cedar Falls, Iowa-based futures brokerage to include 241 employees.
Now Wasendorf, 64, is in custody, charged on July 11 by U.S. prosecutors with making false statements to federal regulators. He confessed to a 20-year fraud in a signed statement linked to his suicide attempt, according to a federal complaint unsealed yesterday.
Wasendorf, a onetime trader, started hosting seminars for commodity firms in 1972. He launched Wasendorf & Son Inc. in 1980 and renamed it Peregrine in 1990.
Along the way, he used his authority as sole shareholder to control access to the company’s bank statements and forged documents using inkjet printers and online that even deceived regulators, he said in the confession.
He adopted a “my way or the highway” attitude to make Peregrine grow.
“Everyone knew I was the guy in charge,” he said in the statement the FBI said was found with his suicide note on July 9 in his silver Chevrolet Cavalier. “If anyone questioned my authority I would simply point out that I was the sole shareholder,”
“With careful concealment and blunt authority I was able to hide my fraud from others” at the firm, he’s quoted saying in the statement. He even dictated to representatives of U.S. Bancorp, where he kept customer money, to “interface” only with him, Wasendorf said in his statement.
As his fraud advanced, Wasendorf opened an Italian restaurant after moving the brokerage from Chicago to Cedar Falls in 2009. He took a group of restaurant employees to Italy for a week, staying at luxury hotels and visiting local wineries, built a “green” building adjacent to the Beaver Hills Country Club, and donated money to local hospitals to care for children with rare diseases.
He sat on the board, chaired by billionaire Lee Bass, of the unrelated Peregrine wild bird conservation organization and the president committees of the University of Iowa and the University of Northern Iowa, according to his and other websites. He gave Northern Iowa’s athletics department $2 million.
“I had no access to additional capital and I was forced into a difficult decision,” he wrote in his confession, using a computer at home, according to prosecutors. “Should I go out of business or cheat? I guess my ego was too big to admit failure.”
Peregrine is liquidating in bankruptcy after the U.S. Commodity Futures Trading Commission sued, claiming that more than $200 million of client money was misappropriated. While in the hospital, Wasendorf told the Federal Bureau of Investigation his fraud had cost clients more than $100 million, according to an FBI agent’s affidavit.
The restaurant on Main Street, myVerona, which offers braised rabbit cacciatore and crispy calamari fritti, posted a sign this week stating it was “closed until further notice.” Peregrine Charities, donor since 2004 of more than $1.5 million to hospitals, canceled a 2012 triathlon on July 10 owing to “a suicide attempt yesterday morning and subsequent investigations into the corporate sponsor of the charities,” according to its website.
The bankruptcy petition lists more than $500 million in assets and more than $100 million in liabilities. The brokerage estimates it has more than 10,000 creditors, according to the filing. Peregrine had 241 employees, of which 56 were retained to help liquidate, a bankruptcy trustee said yesterday.
“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, U.S. Attorney Stephanie Rose in Cedar Rapids said yesterday in a statement announcing the charges.
Wasendorf tried to asphyxiate himself by funneling tailpipe exhaust into his car outside the firm’s Cedar Falls office building, authorities said.
“I have committed fraud. For this I feel constant and intense guilt,” Wasendorf said in the confession, which he confirmed he had written, 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 statement. “The forgeries started nearly 20 years ago and have gone undetected until now.”
Wasendorf left a copy of that statement for his son in the company office before trying to kill himself.
Starting with the Firstar Bank, which became U.S. Bank, and the Harris Bank, he began forging 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 inkjet printers to produce “convincing forgeries” of almost every bank document.
After closing the Harris Bank account, he “only had to falsify” one set of statements, he said, according to the document the FBI identified as his confession.
The key to his 20-year fraud was maintaining sole access to the company’s accounts at U.S. Bank, he 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.
“No one else ever saw an actual U.S. Bank statement,” he wrote in the confession.
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. A post office box, which he opened in 2006 after presenting his driver’s license and a car registration renewal form, has U.S. Bank Fund LLC as a recipient of mail. That helped him trick regulators into thinking they were dealing with U.S. Bancorp, a person with direct knowledge of the inquiry said.
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, according to the FBI.
The criminal case is U.S. v. Wasendorf, 12-mj-131, 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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