CEO of Iowa brokerage charged over alleged $200M fraud scheme

(AP) CEDAR RAPIDS, Iowa - The chief executive of an Iowa-based brokerage firm admitted in a suicide note that he carried out an elaborate fraud scheme in which he embezzled more than $100 million from customers over nearly two decades, federal investigators said Friday.

FBI agents arrested Peregrine Financial Group Inc. Russell Wasendorf Sr. on Friday and he appeared in federal court later in the day on charges that accuse him of falsifying bank records.

Assistant U.S. Attorney Peter Deegan said during the hearing in Cedar Rapids that the 64-year-old executive could face "a wide range of criminal charges" for what investigators say was a $200 million scheme in which Wasendorf embezzled customer funds for 20 years.

How to protect against financial scams
Jefferies doesn't expect loss tied to Peregrine
CEO of troubled Iowa brokerage arrested, charged

Federal prosecutors unsealed a criminal complaint charging Wasendorf and released documents detailing a wide-ranging fraud scheme that apparently fooled colleagues, customers and regulators for years.

Wasendorf had been hospitalized after attempting suicide outside the company's headquarters in Cedar Falls on Monday by hooking up a tube to his car's tailpipe. He appeared healthy and was wearing street clothes during his brief court appearance Friday, and the judge scheduled a hearing for Wednesday to determine whether Wasendorf should be held in jail pending his trial.

His company filed for bankruptcy Tuesday, the same day the industry's top regulator filed civil fraud charges alleging the firm misused customer money and falsely claimed a bank account contained more than $220 million when it actually had about $5 million. The money in that account belonged to customers, and was supposed to be kept separate from Peregrine's own money.

Officials from another industry regulator, the Financial Industry Regulatory Authority, were on site at Peregrine's Cedar Falls offices to examine the firm Friday. The agency regulates broker-dealers that buy and sell stocks. The losses apparently are centered in the part of Peregrine that sold commodity options and futures.

An affidavit by FBI agent William Langdon, made public with the criminal complaint, says authorities found Wasendorf unresponsive Monday in his vehicle, along with a suicide note addressed to his wife and a signed statement in which he detailed his fraud.

"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. The forgeries started nearly twenty years ago and have gone undetected until now. I was able to conceal my crime of forgery by being the sole individual with access to the US Bank accounts held by PFG," he wrote in the note, according to court documents.

Wasendorf said that he faced "a difficult decision" when his access to capital was limited earlier in his career.

"Should I go out of business or cheat? I guess my ego was too big to admit failure," he wrote. "So I cheated, I falsified the very core of the financial documents of PFG, the bank statements."

Wasendorf said he used computer software, scanners and printers to "make very convincing forgeries of nearly every document that came from the bank," including statements, letters and other correspondence, the affidavit says.

"I could create forgeries very quickly so no one suspected that my forgeries were not the real thing that had just arrived in the mail," he wrote.

He said he used "careful concealment and blunt authority" as the company's founder and sole shareholder to hide the fraud. He said he ordered bank statements be delivered directly to him unopened, that he was the only person with access to the firm's online bank account, and he told the bank that he was the only representative they should call, according to court documents.

Wasendorf said he also fooled regulators checking how much money his company held by opening a Cedar Falls post office box in 2006 in the name of US Bank, an address he put on the counterfeit bank statements he created. Auditors mailed confirmation forms to the address, and he sent phony documents back showing the accounts contained "the amount I needed to show."

"When online banking became prevalent, I learned how to falsify online bank statements and the regulators accepted them without question," he added.

Wasendorf confirmed that he wrote the statement and that it was true during an interview with investigators Monday at the hospital in Iowa City, Langdon wrote. He estimated "the amount of loss due to his fraud exceeded $100 million," Langdon added.

The criminal complaint alleges that Wasendorf made false statements to the U.S. Commodity Futures Trading Commission about the value of customer funds held by his company from 2010 until recently.

In his statement, Wasendorf claimed he acted alone by creating counterfeit statements hours after receiving the real ones, giving forgeries to the accounting department, the affidavit says. A PFG employee responsible for reconciling the firm's customer fund accounts told investigators that she used account balances that were already entered in an internal accounting system, the affidavit said.

Wasendorf's son, Russ Wasendorf, Jr., the company's president and chief operating officer, also received a copy of the statement from his father admitting to the fraud at his office Monday, the FBI affidavit said. He told authorities he checked his father's claims by obtaining a bank statement that showed a balance of $6.3 million - an account that regulators were told had $221.7 million as of December.

The criminal charges are a stunning downfall for Wasendorf, who was well known in Chicago and Iowa financial circles. He ran the company for years from Chicago before moving the company in 2009 to a $24 million new headquarters in Cedar Falls, where he was a highly regarded businessman and philanthropist.

In its bankruptcy filing, the firm listed assets of between $500 million and $1 billion and liabilities between $100 million and $500 million. The firm said that it had at least 10,000 creditors. It filed under Chapter 7, which means the firm intends to liquidate its assets to pay creditors. The company had about 70 employees.

Comments

Market Data

Market News

Stock Watchlist