Peregrine CEO charged with making false statements

Developments in the case of Peregrine Financial Group Inc. have come fast and furious since the Commodity Futures Trading Commission accused the brokerage firm of misappropriating funds and its founder tried to asphyxiate himself.

In the latest twist, founder and CEO Russell Wasendorf Sr., 64, has been charged with making false statements after he admitted to embezzling more than $100 million from the company's clients.

According to a criminal complaint made public July 13, Wasendorf was charged with the crime just after attempting suicide on July 9. Wasendorf was arrested July 13 by FBI agents, according to a statement from the U.S. Attorney's Office for the Northern District of Iowa. (Earlier reports had indicated that the CEO lay in a coma.)

Chief Magistrate Judge Jon S. Scoles of the U.S. District Court for the Northern District of Iowa signed an order of temporary detention on July 13. A preliminary hearing in the case is set for July 27.

A police report from the Black Hawk County Sheriff's Office in Waterloo, Iowa, indicates that Wasendorf was found on July 9 "breathing but ... incoherent" inside a vehicle. When police arrived at the scene, "the engine was running on the vehicle and one end of a hose had been attached to the exhaust and the other placed inside the vehicle," the report said.

According to the July 11 complaint, Wasendorf had a suicide note addressed to his wife and a signed statement in which he detailed fraud that he had committed over the past 20 years.

In the statement, Wasendorf detailed how he had falsified records for the Chicago debtor. (PFG president and COO Russell Wasendorf Jr. on July 9 authorized a Chapter 7 filing for PFG with his father's power of attorney. The company filed the following day.) The elder Wasendorf had bank statements delivered directly to him, unopened, and indicated to the bank that he should be the only point of contact at PFG. Wasendorf admitted that no one else at the company ever saw an original US Bank NA statement.

Wasendorf wrote that "using a combination of Photoshop, Excel, scanners and both laser and ink jet printers," he was able to make "very convincing forgeries of nearing [sic] every document" that came from the bank.

Wasendorf also allegedly admitted to falsifying online bank statements and establishing a post office box in the name of US Bank so that he could intercept documents from auditors.

In the statement, he said that when it became common practice for auditors of regulators to mail balance confirmations to banks holding customer funds, Wasendorf established a P.O. box in the name of Firstar Bank.

When auditors would mail confirmation forms to the bank's false address, Wasen­dorf said he would retrieve the form, type in the amount he needed to show, forge a bank officer's signature and mail the form back to the regulator or auditor, the statement said.

The complaint shows that he first opened the box on Oct. 11, 2006. Wasendorf later changed the name on the box when Firstar Bank became US Bank.

PFG's most recent falsified bank statement, for 2011, showed a balance of $221.77 million for the account holding customer funds. A statement obtained from US Bank for the same date indicated an actual balance of $6.34 million, the complaint said.

In the signed statement, Wasendorf wrote that he felt "constant and intense guilt" for the fraud he had committed. "The forgeries started nearly twenty years ago and have gone undetected until now."

Later in his statement, Wasendorf indicated that his hubris had led to his fraud.

"I had no access to additional capital, and I was forced into a difficult decision: Should I go out of business or cheat?" the CEO wrote. "I guess my ego was too big to admit failure. So I cheated, I falsified the very core of the financial documents of PFG, the bank statements."

Assistant U.S. Attorneys Peter Deegan and Matthew Cole are prosecuting the criminal case, according to the statement from the U.S. Attorney's Office. (Deegan declined comment on the case.)

Wasendorf appeared in court on July 13 with Assistant Federal Defender Jill Johnston. Federal Defender Jane Kelly was appointed to represent Wasendorf on Tuesday, court papers show.

Meanwhile, Judge Carol Doyle of the U.S. Bankruptcy Court for the Northern District of Illinois in Chicago on July 12 signed an order granting Chapter 7 trustee Ira Bodenstein of Shaw Gussis Fishman Glantz Wolfson & Towbin LLC permission to retain 57 key employees to liquidate the debtor. Before the petition date, the debtor employed 241 people.

Bodenstein now has authority to operate the business so that he can "effectively facilitate the liquidation of the debtor's assets," court papers said. The trustee had requested permission to conduct the business operations on July 12.

Bodenstein had been tapped to serve in the role one day earlier after initial trustee Allan J. DeMars of Spiegel & DeMars resigned from the case for unknown reasons.

Peregrine Financial Group, which did business as PFGBest, filed for bankruptcy on July 10 following the CFTC's allegations and just a day after Wasendorf was hospitalized in Cedar Falls, Iowa, following his suicide attempt.

In its complaint, filed July 10 in the U.S. District Court for the Northern District of Illinois in Chicago, the CFTC alleged PFG and Wasendorf had failed to maintain customer funds in segregated accounts and that Wasendorf had falsified financial records.

Founded in 1990 by Wasendorf, PFG describes itself on its website as one of the "largest nonbank [futures commission merchants] in the United States." The brokerage firm specialized in electronic trading, futures, forex, options, managed accounts and precious metals.

In court papers, PFG reported $500 million to $1 billion in assets and $100 million to $500 million in liabilities.