Iowa brokerage founder pleads not guilty to fraud
CEDAR RAPIDS, Iowa (AP) — The founder of an Iowa-based brokerage pleaded not guilty Friday to fraud charges in a suspected $200 million embezzlement scheme that drove his firm to bankruptcy and left thousands of customers without their money.
Peregrine Financial Group, Inc. CEO Russ Wasendorf Sr. was charged with 31 counts of lying to regulators.
"At this time, he pleads not guilty to each count," Wasendorf's attorney, public defender Jane Kelly, told the judge in a Cedar Rapids federal courtroom packed with reporters.
The 64-year-old Wasendorf, who faces a maximum prison term of 155 years and a fine of $7.7 million if convicted on all counts, appeared remarkably upbeat and relaxed. Wearing an orange jail jumpsuit and shackles on his hands and legs, he joked and made casual small talk with Kelly.
"I snuck in," Wasendorf said with a smile, as the lawyer joined him at the defense table.
U.S. Magistrate Judge Jon Scoles scheduled the trial for Oct. 15, and set a status conference for next month.
Wasendorf's image as a prominent businessman and philanthropist crumbled last month when he was found in his car outside Peregrine's headquarters in Cedar Falls, unconscious after attempting suicide by hooking a tube up to the exhaust pipe. Investigators say they found a suicide note in which he confessed to a 20-year fraud scheme and admitted during an interview from his hospital bed hours later to stealing at least $100 million from customers.
Regulators say more than $200 million in customer funds are missing. The U.S. Commodity Futures Trading Commission has shut down the company, which did business under the name PFGBest. It filed for bankruptcy to liquidate its assets the day after Wasendorf's suicide attempt.
Investigators say more than 24,000 customers have been unable to access funds in their Peregrine accounts. Regulators and the company's bankruptcy trustee have been searching across the world for company funds and Wasendorf's personal assets that can be sold to reimburse customers. One expert has estimated that customers are likely to get at least half of their funds back.
In his suicide note, Wasendorf said he started forging bank records to prop up his struggling firm nearly 20 years ago because his "ego was too big to admit failure," according to court documents. Wasendorf said he used computer software, scanners and printers to make convincing forgeries of bank statements to fool regulators about how much customer money, which is supposed to be segregated from other company funds, the company had.
In an indictment returned by a grand jury Monday, Wasendorf is charged with submitting false financial documents to the U.S. Commodity Futures Trading Commission that overstated the value of Peregrine's customer money by "at least tens of millions of dollars." The 31 counts represent the number of false monthly reports and year-end financial statements that Peregrine submitted between January 2010 and May 2012.
The case has led to criticism of the industry's regulators, the National Futures Association and the U.S. Commodity Futures Trading Commission, for failing to catch the fraud. Commission Chairman Gary Gensler has acknowledged the regulatory system failed to protect Peregrine's customers.
Wasendorf operated Peregrine for years in Chicago before relocating in 2009 to the now-vacant state-of-the-art headquarters in Cedar Falls. Wasendorf also opened an upscale Italian restaurant that abruptly closed last month. More than 200 workers in Iowa and Chicago lost their jobs after the collapse.