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Shakespearean themes in Peregrine’s demise

Russell Wasendorf Sr. front Peregrine Financial Group Inc. last year Cedar Falls Iowa.  |  Rick Chase~Waterloo Courier

Russell Wasendorf Sr. in front of the Peregrine Financial Group Inc. last year in Cedar Falls, Iowa. | Rick Chase~Waterloo Courier

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roeder report

David Roeder reports on real estate at 6:22 p.m. every Thursday on WBBM-AM (780) and WBBM-FM (105.9). The reports are repeated at 10:22 p.m. Thursday and 7:22 a.m. Sunday

Updated: August 26, 2012 2:46AM

It’s possible that Russell Wasendorf Sr. finally came clean and told the absolute truth in early July, as he realized that regulators were getting wise to what he would describe as his own financial fraud.

Wasendorf was the chairman of futures brokerage Peregrine Financial Group Inc., which authorities shut down after discovering an apparent shortfall of more than $200 million in customer accounts. He survived a suicide attempt on July 9, the day of the first regulatory action, but left notes that amounted to a confession.

He recovered from trying to asphyxiate himself with car exhaust and has since been indicted on 31 counts of lying to regulators. Wasendorf has pleaded not guilty, which some experts see as a tack for plea-bargaining negotiations to reduce the prison term for a 64-year-old man. He’s at a jail in Linn County, Iowa, about an hour away from Peregrine’s former headquarters in Cedar Falls.

Since the scandal broke, many in the Chicago futures community, where Peregrine was prominent, have wondered how one person could control such a massive fraud. Weren’t others involved? Wasendorf’s note said he controlled it all as Peregrine’s sole shareholder and that he used “careful concealment and blunt authority” to keep others away from the firm’s accounts.

But what about his son, Russell Wasendorf Jr., Peregrine’s president? His Chicago lawyer, Nicholas Iavarone, said the son was a victim as well. Iavarone said Wasendorf Jr. had no access to company accounts even though he ran daily operations. “He did run things to the extent he wasn’t vetoed by his father,” Iavarone said.

Iavarone said investigators have advised Wasendorf Jr. that he is not a target in the criminal probe. The son testified before the grand jury that returned the indictment against his father. Peter Deegan Jr., assistant U.S. attorney in Iowa’s northern district, declined to comment.

Wasendorf Jr. chafed under his father’s rule and was opposed to his 2009 decision to move the company’s base from Chicago to Cedar Falls, Iavarone said. He said Wasendorf Jr. had privately decided to either set up a Peregrine office in Australia later this year or go out on his own.

Now, he’s trying to help a bankruptcy trustee and receiver locate any company assets while facing a future with a tainted name. Wasendorf Jr. “realized his father lied to him for 20 years. He feels betrayed. His future has been destroyed,” his lawyer said.

Even before the scandal, the two had a “very strained relationship,” Iavarone said. But now it’s so ruptured that Iavarone said the son has seen his father only once since the attempted suicide, a brief hospital visit two days later. “He has no desire to talk to him and doesn’t intend to,” the lawyer said.

There’s something Shakespearean about all this.

Wasendorf Jr. also feels himself victimized by poor regulatory oversight, Iavarone said. Wasendorf Sr. allegedly falsified records by intercepting regulators’ letters to his bank and generating his own bogus statements. His confession said he used Photoshop, Excel and high-quality printers to produce “convincing forgeries.”

In 20 years, regulators “never made a direct contact at the bank” to verify account balances, Iavarone said.

For futures traders, that’s the part that goes beyond Shakespeare. The Peregrine scandal and last year’s MF Global collapse look more like a horror film.

MUTUAL FRIEND: Chicago-based Kovitz Investment Group, long-term value investors who advise wealthy individuals, is applying its approach to a mutual fund, Green Owl Intrinsic Value Fund (GOWLX). (A green owl is the firm’s symbol.) An account can be opened for a minimum $2,500.

“As we always strive to ‘eat our own cooking,’ investments by [Kovitz] and its employees currently make up over 25 percent of the fund’s assets,” the firm reported. Its top holdings include Berkshire Hathaway (BRK-B) and Wells Fargo (WFC).

NOT IN THE FAMILY: Naperville-based fund management firm Calamos Investments (CLMS) is becoming a little less, well, Calamos. It announced that Nick Calamos, nephew of founder and CEO John Calamos, is stepping aside to “pursue personal interests.” Nick had served with his uncle as co-chief investment officer. He will remain as an adviser to the company and a member of its board.

Central to the change is an expansion of the Calamos product line. Replacing Nick is Gary Black, who was CEO of Janus Capital Group from 2006 to 2009. He brings with him his own firm, which has a long-short equity investment product.

Morningstar said Black had a positive but controversial tenure at Janus, cutting compensation for so-called “star” fund managers. Some left as a result.

CLOSING QUOTE: “The notion that the middle class always enjoys a rising standard of living is a big part of America’s sense of itself. And in modern times, it’s always been true — until now.” — Paul Taylor, executive vice president, Pew Research Center, in an AP interview after releasing a study showing that the middle class’ share of Americans’ income is shrinking

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