PFGBest mystery deepens with Vegas marriage as Iowa brokers pack

CEDAR FALLS, Iowa (Reuters) - Employees emptied their desks and a local charity collected food from the cafeteria of failed broker PFGBest's Iowa offices on Wednesday, most still seeking answers to the expanding scandal that has shaken the industry.

Two days after the attempted suicide of founder and chairman Russell Wasendorf Sr, regulators are piecing together the alleged fraud that caused more than $200 million of the broker's client funds to vanish -- and the cover-up that hid the fact the money was missing for more than two years. Peregrine Financial Group, the firm's regulated unit, filed for bankruptcy late on Tuesday.

The mystery deepened on Wednesday with news that Wasendorf, who had initially invited guests to a local wedding planned for next month, had actually married his fiancée Nancy Paladino in Las Vegas on June 30, according to a county filing.

That detail added to a series of potentially key events that occurred in the past weeks. On July 3, the 40-year industry veteran signed over power of attorney to his son, Russell Wasendorf Jr, according to the bankruptcy filing. Wasendorf Sr had also recently agreed to allow regulators to confirm his bank balances electronically, a change that would quickly expose his deceit.

Wasendorf, airlifted to a hospital in Iowa City in critical condition on Monday after being found with a hose pumping exhaust into his car, may soon provide more clues.

Two employees -- out of the dozens who were still coming into work, hoping they might yet be paid for helping answer clients' questions -- said they were told that he was awake and had expressed remorse for his actions. Neither the hospital nor his family has confirmed his current condition.

ANGER, SHOCK

As a new wave of anger washes over an industry that is still bruised by the failure of MF Global, employees of the company -- some of whom had relocated to this small Iowa town three years ago when Wasendorf moved the broker's headquarters from Chicago -- were initially more shocked than hurt.

"The whole thing was a shock," said one employee as he drove up to PFGBest's shining, modern $18 million complex outside of town, a building Wasendorf touted as an example of the "back to the heartland" economic invigoration he celebrated.

The employee, who described himself as a director of wealth management for the company, said he was "best friends" with the founder's son, who ran day-to-day operations.

"I'm frustrated. I know there's a lot of frustration for Russ Jr. He told me yesterday that there were no signs, no indications," said the man, who declined to give his name.

Moments later, a white truck from the Northeast Iowa Food Bank pulled in; the driver said he had been called to go in and gather the excess food from the cafeteria and common area.

Several miles to the south is the central post office where Wasendorf is alleged to have diverted confidential National Futures Association (NFA) documents meant to verify his bank holdings, according to copies of the documents filed with PFGBest's Chapter 7 bankruptcy late on Tuesday.

A few steps inside the 24-hour lobby, a wall of post office boxes fronted by ornate brass panels includes one marked 706 -- the destination, according to the filings, of an NFA request to verify PFGBest's funds meant to be sent to U.S. Bank, a large regional bank. It is not clear who rented the box.

Wasendorf intercepted the letter and returned it to the NFA with forged signatures and falsified bank statements, according to a person familiar with the investigation. Instead of the over $200 million that he reported PFG was holding, the account had less than $10 million, according to a lawsuit by the Commodity Futures Trading Commission (CFTC).

PFGBest's offices, hailed as one of the most eco-friendly in Iowa, were built for expansion with plans to house up to 300 employees. Several hundred worked there until now, but only a dozen or so employees showed up to work on Tuesday.

"I'm not sure how many people sold their homes in Chicago to relocate here," said Jon Crews, the mayor of Cedar Falls, population approximately 40,000. "They have a specialized job, they can't just move across town and get a new job."

Mike Leska, a trade clerk who worked at PFG in Chicago for six years, said he had been told that Wasendorf Sr was conscious and had apologized. He said a "loyal" group of employees was working to help clients for the moment.

Unlike the collapse of MF Global last October, which entered a quickening downward spiral over a period of weeks after bad bets triggered margin calls, PFGBest's failure was a bolt out of the blue. The Friday before, it had been business as usual, many said.

"It's really disgusting," said Leska, his voice quavering. "We all thought he was different."

(Addtional reporting by Tom Polansek in Chicago; Writing By Jonathan Leff; Editing by Phil Berlowitz)