Advocate for futures trading, PFGBest boss accused of fraud
BY DAVID ROEDER Business Reporter July 10, 2012 12:15PM
Russell Wasendorf Sr. in front of the Peregrine Financial Group Inc. last year in Cedar Falls, Iowa. | Rick Chase~Waterloo Courier
Updated: August 12, 2012 6:25AM
Time and again, the father-and-son team that runs PFGBest has defended the integrity of the futures brokerage, the same company now crawling with regulators who have shut it down and leveled charges that more than $200 million in customer funds are missing.
After the Halloween 2011 bankruptcy filing of MF Global and the related disappearance of $1.6 billion, PFGBest President Russell Wasendorf Jr., the founder’s son, reassured clients, saying: “I would like to reaffirm the absolute dedication of PFGBest to protect you and your PFGBest accounts.”
A similar communication went out in 1998 when the firm was known as Peregrine Financial Group Inc. A Hong Kong bank with “peregrine” in its name went belly-up, and Chairman Russell Wasendorf Sr. reported sending “several thousand” letters to customers stating there was no connection.
With more than 40 years’ experience, the elder Wasendorf has been an ambassador for trading financial futures. He has authored or co-authored six books about trading strategies and organized conferences and charitable drives within the industry.
But he now lies in a hospital in Iowa City, Iowa, after what his company and local police said was an attempted suicide Monday morning. Investigators said a note was found with him indicating accounting trouble at PFGBest. Wasendorf, 64, was found unconscious in a car parked outside his company’s headquarters in Cedar Falls, Iowa, his hometown.
Tony Thompson, sheriff of Black Hawk County, said Wasendorf had run a tube from the car’s exhaust to the interior and left the engine running. He said Wasendorf was taken to a local hospital and that the content of his note was “significant” and drew the attention of federal agents.
The CFTC said in its complaint against Peregrine that Wasendorf was in a coma. However, a company spokeswoman said she understood that he was conscious.
Regulatory agencies swung into action after Wasendorf was found, but some customers with money tied up at the brokerage argue that they were lazy watchdogs. The FBI also is investigating.
The scandal is a new blot on a business still feeling the affects of the MF Global collapse. “We’re all scratching our heads over this,” said Charles Carey, a trader and vice chairman of CME Group Inc., which owns the Chicago Mercantile Exchange and the Chicago Board of Trade. “How did this get through the regulators and go on for so long?”
At issue are accounts at U.S. Bank that were supposed to have about $225 million in customer money. The National Futures Association said its check Monday showed only $5 million was on deposit.
The NFA, the industry’s in-house overseer, froze accounts at the brokerage, forbidding it to process trades except to liquidate customer positions. Tuesday, the U.S. Commodity Futures Trading Commission piggybacked on the action, filing a complaint that accused Peregrine Financial, the corporate parent, and the elder Wasendorf of fraud by not keeping customer funds separately and by filing false financial statements.
The NFA said the falsehoods started in February 2010, which left customers wondering why the problem wasn’t caught earlier.
Chicago-based Attain Capital Management said it has accounts with PFGBest. “The regulators must have been asleep at the wheel,” said Attain’s communications director, Lauren Nelson. She said regulators had the power in earlier audits to verify bank deposits.
An NFA official did not return calls Tuesday.
In a blog post, Attain Capital voiced outrage about the situation. “We were misled by senior leadership we trusted in business. We were let down by regulators. We were failed by our government,” Attain wrote.
Among associates, Wasendorf was known as brash, driven and prone to spending binges. He was often critical of industry regulators and the exchanges.
A CFTC report lists Peregrine as a mid-sized firm among those it categorizes as futures commission merchants. The CFTC’s data showed that as of April 30, Peregrine was the 68th largest of 116 such firms that it lists, with adjusted net capital of $30.7 million.
But trouble had been brewing at the company. In February, the NFA fined PFGBest $700,000 for failing to supervise certain brokers who bring it business.
Also, the firm has been accused of profiting from a Ponzi scheme run out of Minnesota by Trevor Cook. A receiver rounding up assets for Cook’s victims in February filed suit against Peregrine Financial seeking $48 million for allegedly facilitating fraud. Cook is in prison.
While PFGBest is headquartered in Iowa, about half its 200 employees work in Chicago out of 311 W. Monroe, a spokeswoman said. She said all are now out of work.
Associates said Wasendorf had losses in other businesses, including a Chicago restaurant and a Romanian construction company, both closed.
But they also said they were hoping he was headed into happier times. Wasendorf was planning a wedding in August.