* Peregrine shortfall contrasts with outlook for MF Global
* Romanian venture, once worth $1 bln, has little value
* Wasendorf's receiver asks IRS to put firm's clients first
By Tom Polansek and Ann Saphir
CHICAGO/SAN FRANCISCO July 3 Russell Wasendorf
Sr., who is serving a 50-year prison sentence for embezzling
$215 million from clients of his failed futures brokerage,
appears to have told the truth about one thing: he spent nearly
all the money.
Almost a year after Wasendorf's Peregrine Financial Group
imploded in the wake of his fraud, the receiver in charge of
selling the disgraced CEO's assets has netted just $3.6 million
for bilked customers, according to court documents filed in the
bankruptcy of his firm.
The total is disappointing for former Peregrine customers
just a week after U.S. regulators said that clients of MF
Global, another bankrupt futures brokerage, would recover all of
their missing money.
To drum up money for customers, Peregrine's receiver
liquidated nearly all of Wasendorf's property - his two homes
and a flashy corporate headquarters, his wine and his cars, his
boat and plane, his restaurant and his life insurance policy.
Even that sum will be docked in coming months to pay some of the
"He lived very big and very showy, and unfortunately there
is very little left," Wasendorf's receiver, Michael Eidelman,
said in a telephone interview on Wednesday.
"You wouldn't have thought it would be possible to spend
$200 million, but there was a succession of absolutely horrible
The bad deals included a "Taj Mahal" of a corporate
headquarters built for $21 million at the end of a dirt road in
Iowa, a now insolvent Romanian real estate venture, and a
sprawling home with cramped rooms and a pool that costs $10,000
a month just for upkeep.
All told, Eidelman made about $5.8 million selling
Wasendorf's properties, a fraction of what they cost to acquire,
the court filing showed. Peregrine's headquarters sold for just
$2.4 million. Some of the proceeds then had to be paid to the
bank that financed the properties, reducing the total take.
Peregrine's customers had been holding out hope that more of
the missing money was tucked away in property that could be
sold. The firm's 24,000 customers have so far received a total
of about $123 million, amounting for most of them to about a
third of what they had in their accounts.
Customers had about $376 million at Peregrine before it
failed, according to records the firm submitted to regulators
that Wasendorf later admitted were falsified.
The broker's bankruptcy trustee, Ira Bodenstein, has $134
million left, a cash summary from mid-June shows, a sum that
includes money that had been the firm's own. The figure suggests
customers may eventually get back as much as two-thirds of their
Bodenstein has said he will continue trying to round up
money for customers.
Peregrine Financial filed for bankruptcy protection in
Chicago on July 10, 2012, after Wasendorf, the firm's founder
and chief executive, botched a suicide attempt at the firm's
Cedar Falls, Iowa, headquarters. Wasendorf was arrested and
later pleaded guilty to embezzling his clients' money.
Wasendorf, 65, in February began serving what is expected to
be a life sentence in a high-security federal prison in Terre
Haute, Indiana. At the time, his pastor said he was in poor
health. He has not responded to letters from Reuters requesting
MF Global failed in October 2011 under the weight of
aggressive bets on European sovereign debt. The Commodity
Futures Trading Commission last week charged former chief Jon
Corzine over the collapse and settled with MF Global Inc, which
agreed to pay a $100 million penalty and funds still owed to
Regulators and futures firms have debated the merits of an
insurance policy to cover such losses in the future, but many
say the costs would be too high.
ROMANIA OR BUST
Wasendorf hid his fraud for nearly 20 years, fooling
regulators with doctored bank statements and using clients'
money to keep the company afloat and fund a lavish lifestyle,
according to his confession and statements from federal
investigators. In a signed statement left at the scene of his
attempted suicide last July, Wasendorf said "most" of the
embezzled funds were gone.
Eidelman's report, filed late on Tuesday in federal court in
Chicago, shows the lengths to which he has gone to try to prove
Wasendorf wrong. On May 1, he and Bodenstein traveled to Romania
for 2-1/2 days to assess the potential value of Wasendorf's
stake in the 32 parcels of property that make up his venture
there, according to the filing.
At its height in 2007, the company, Avrig 35 Group, was
valued at more than $1 billion.
Now, there is "little to no value to be extracted" from
Wasendorf's interest in the Romanian company because of a weak
property market and the company's defaults on bank loans,
Eidelman said. He is negotiating with two parties that may be
interested in acquiring the stake.
Eidelman said there may be some money he can recover from
people who received payouts from Wasendorf's charity and other
funds before Peregrine's bankruptcy. However, he concedes
there's little chance his pool of funds will do much to dent the
huge losses Peregrine Financial's former clients have suffered.
"My contribution ... is going to be modest," he told
Eidelman expects to finish all his work in the bankruptcy by
the end of the year and to propose a final distribution of
assets to creditors of Wasendorf's estate.
The size and date of Eidelman's last distribution depend on
the outcome of talks with the IRS over how to report Wasendorf's
embezzled income to the government, according to the filing.
Eidelman wants the IRS to agree that former Peregrine customers
will be first in line to receive payouts from the estate.
Determining Wasendorf's tax liability in itself is a
gargantuan task. The cost for simply determining how much he
owes would likely surpass the amount of money left in the
receiver's accounts, Eidelman said.