The fraud at Peregrine Financial Group Inc. began at least sometime between 1993 and 1994 with an unlawful $250,000 transaction involving customer funds and grew to consume more than $215 million, federal prosecutors said while asking a federal judge to put Russell Wasendorf Sr. behind bars for 50 years.
Wasendorf, 64, tried to kill himself with carbon monoxide in July 2012, after the monumental fraud was exposed. But he recovered, and pleaded guilty in September to mail fraud, embezzlement and making false statements to regulators. The company was placed in bankruptcy, with Wasendorf’s fraud destroying jobs in Iowa and making the U.S. heartland town of Cedar Falls the scene of an outrageous financial crime that devastated clients.
Prosecutors in the Northern District of Iowa now say an early backer of Wasendorf identified as “J.C.” wanted to pull out his capital contribution in 1993 or 1994, but Wasendorf already was in over his head. To buy out J.C. and keep the Peregrine scheme afloat, Wasendorf “stole the required capital — at least $250,000 — from PFG’s customer segregated funds,” according to prosecutors.
“Moreover,” prosecutors said, “in order for the fraud to be effective and sustainable for years, defendant routinely created and used false certifications and forged documents to deceive his customers, his accounting department, his fellow corporate officers, an outside auditor, and multiple regulatory agencies whose core function was to detect and prevent exactly the type of criminal activity defendant perpetrated.”
To evade detection by his employees, Wasendorf used “blunt authority to establish rules and procedures at PFG so that he was the only one to examine actual” statements from U.S. Bank.
Chief U.S. District Judge Linda R. Reade is scheduled to sentence Wasendorf Jan. 31.
PFG conducted business online as PFGBest at PFGBest.com. At one time, the website featured a photo of PFG’s glistening headquarters building in rural Cedar Falls. The site now redirects to the site of the PFG bankruptcy trustee.
EDITOR’S NOTE: The PP Blog first became aware of reports about the suicide bid of Russell R. Wasendorf Sr. last night, after being contacted by a reader who was defrauded in the Trevor Cook Ponzi scheme. Wasendorf apparently sought to take his own life on the sparkling Cedar Falls, Iowa, property of Peregrine Financial Group Inc., the company he founded in 1990 in Chicago. A deeply disturbing, multipronged mystery has emerged . . .
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Russell R. Wasendorf Sr.
After a reported suicide bid yesterday, Russell R. Wasendorf Sr. is said to be comatose today. Regulators now say that more than $200 million in customer funds is missing from Peregrine Financial Group Inc. (PFG). By law, the customer money was supposed to have been segregated and separately accounted for.
“The whereabouts of the funds is currently unknown,” the CFTC said today in a court filing in Chicago that accused Wasendorf and PFG of fraud and sought an asset freeze.
Those alarming words followed on the heels of an emergency enforcement action yesterday by the National Futures Association, which alleged that Wasendorf “may have falsified bank records” to create the impression that PFG had about $400 million in segregated accounts in late June.
Of the $400 million, $225 million purportedly was held at U.S. Bank.
But when NFA checked with U.S. Bank yesterday, it learned that only about $5 million was on deposit, according to the emergency filing.
Wasendorf is a member of NFA’s Futures Commission Merchant Advisory Committee with a term ending in February 2015, according to NFA’s website. He’s now effectively been accused of fraud by the same organization he purportedly served as a committee member.
Whatever fraud was taking place at PFG, NFA and CFTC now say, appears to date back at least to February 2010. And that fraud, according to the NFA filing, appears to have carried over into both this year and last.
PFG does business online as PFGBest at PFGBest.com. The website features a photo of PFG’s glistening headquarters building in rural Cedar Falls, Iowa.
The building near the small city of about 40,000 nestled in America’s heartland, however, may belie the reality at PFG.
In February 2012, R.J. Zayed, the court-appointed receiver in the Trevor Cook Ponzi scheme case in Minnesota, sued PFG. Among the allegations was that the company turned a blind eye to Cook’s Forex fraud and checkered history with NFA.
Cook’s Ponzi scheme gathered about $194 million and rendered some investors destitute. About $30 million of that sum was lost in trading accounts at PFG, according to the receiver’s lawsuit.
PFG, according to the lawsuit, permitted Cook to open, manage and maintain trading accounts “in the face of overwhelming red flags of fraud or insolvency.”
Cook is now two years into a 25-year prison sentence for his Ponzi scheme, which has led to criminal charges and convictions of pitchmen Jason Bo-Alan Beckman, Gerald Durand and former radio huckster Pat Kiley.
During the same month Zayed sued PFG, the company agreed to settle an earlier NFA complaint in which it was accused of failing to diligently supervise introducing brokers. One of the respondents in the case was Russell R. Wasendorf Jr., Wasendorf’s son. Wasendorf Jr. is the president and chief operating officer of PFGBest and founded its Forex division, according to the PFGBest website.
The company agreed to pay $700,000 to settle the case with no acknowledgment of wrongdoing, according to NFA.
About five months later, Wasendorf Sr. was accused of fraud. Details remain sketchy. It is unclear how much — if any — of the fraud for which he now stands accused is related to the Cook fraud.
What is clear is that Cook himself was in trouble at least two prior times with NFA, with the self-regulatory organization alleging in 2005 that he manipulated an elderly woman and caused her to liquidate a $100,000 annuity with which she already was earning an annual return of 8.75 percent.
Cook told her she could earn more through him, according to the NFA complaint.
NFA documentation in that case references an entity known as Private Financial Group which, curiously, also used the acronym PFG, the same acronym used by Peregrine Financial Group.
