Wasendorf gets 50 years for Peregrine Financial embezzlement
By Ryan J. Foley January 31, 2013 12:16PM
Russell Wasendorf Sr. in front of the Peregrine Financial Group Inc. last year in Cedar Falls, Iowa. | Rick Chase~Waterloo Courier
Updated: March 2, 2013 12:06PM
CEDAR RAPIDS, Iowa — A judge sentenced the founder of Peregrine Financial Group, Inc. to 50 years in prison on Thursday for stealing $215 million from investors over 20 years in what a prosecutor called the biggest fraud in Iowa history.
The sentence means 64-year-old Russell Wasendorf Sr., who was once a prominent figure in financial circles, will likely die behind bars because he’ll have to serve at least 42½ years. He appeared in fragile health in the courtroom, having lost weight and suffering from health problems that made him look like a shadow of the successful businessman he once appeared to be.
Wasendorf’s brokerage, which operated under the name PFGBest, had a large presence in Chicago.
Acting U.S. Attorney Sean Berry said the sentence was the longest ever given to a white-collar criminal in the northern district of Iowa and was fitting because Wasendorf’s fraud was unparalleled in Iowa.
“This is a just sentence for a con man,” he said at a news conference.
U.S. District Judge Linda Reade gave Wasendorf the maximum prison sentence available for the fraud and embezzlement charges to which he pleaded guilty in September. She cited the “staggering losses” his theft caused to 13,000 commodities investors who lost money and hundreds of employees who lost jobs.
The brokerage collapsed last summer after investigators found Wasendorf unconscious after having attempted suicide in his vehicle outside its headquarters in Cedar Falls. He left a suicide note in which he confessed to a fraud in which he stole customer funds, and forged bank statements to fool his colleagues, auditors and regulators.
He attempted suicide after learning that regulators were insisting on electronic access to Peregrine’s bank accounts, which meant they would soon find that more than $215 million in customer funds was missing. Prosecutors said Wasendorf’s theft started after he founded Peregrine in the early 1990s, when he needed money to prop up the business after an investor pulled out.
Instead of having the courage to admit his company was a failure then, Reade said Wasendorf continued to steal clients’ money and spent it on a lavish lifestyle to make himself look like “a big shot” in the community.
Reade said she hoped the sentence “sends a message that white-collar criminals may serve long prison sentences for stealing money from other people.”
She ordered Wasendorf to pay $215 million in restitution, but said it was “highly unlikely” the victims would ever be fully compensated.
Wasendorf, who has been kept in an isolation unit at a county jail since last summer, looked weak and thin in his orange jail jumpsuit. His attorney said he’d lost substantial weight and had health problems, including a tumor on his pancreas that doctors are testing for cancer.
Wasendorf apologized before he was sentenced.
“I just want to say I’m very, very sorry for the financial and emotional damage I have caused to investors and employees of Peregrine Financial Group,” Wasendorf said.
Wasendorf told Reade any sentence she imposed would be less severe than the punishment of being estranged from his son, Russ Wasendorf, Jr., who was Peregrine’s president and has been described as stunned by the fraud. Prosecutors said they don’t anticipate bringing charges against anyone else.
“I’ve lost the love of my son, and I’ll never see my grandchildren again,” Wasendorf said, breaking up.
Assistant U.S. Attorney Peter Deegan read statements from victims, who wrote about losing life savings or money they set aside to care for a relative. Some never meant to do business with PFG, which bought their accounts while it fraudulently expanded, he said.
Wasendorf used their money to build a business empire that included a publishing company that churned out his books, a corporate jet, the nicest restaurant in Cedar Falls, a development company in Romania, and a charity known for donations to universities and hospitals. He owned a mansion that included a $1 million swimming pool and a Chicago condominium, among other real estate.
Wasendorf has said he managed to get away with the theft because he became adept at making “convincing forgeries” of bank statements using copiers, computers, printers and scanners. His company sent in daily reports to regulators showing falsely inflated numbers in its accounts.
For years, he duped auditors with the National Futures Association, a regulator, into sending forms to a post office box he opened; they thought they were going to Peregrine’s bank. Wasendorf sent back the documents with inflated figures. When an audit almost uncovered the theft in 2011, Wasendorf convinced the bank and his employees they were mistaken.
Wasendorf’s attorney, public defender Jane Kelly, had urged Reade to impose a more lenient sentence than the 50-year term recommended by guidelines and requested by prosecutors.
She said Wasendorf was cooperating with investigators to help customers maximize their refunds and had made significant contributions to charity. Wasendorf wants to help regulators prevent a similar fraud in the future, she said.
But Reade said Wasendorf cooperated only after he was caught. And she said all of his good acts built up his reputation with others’ money — allowing him to victimize more people.
“It is easy to be generous with other people’s money,” she said.