(Adds details from the report, background)
By Ann Saphir
SAN FRANCISCO Jan 31 Regulators of Peregrine
Financial, whose former CEO on Thursday was sentenced to 50
years for stealing $215 million from his customers, lacked the
skepticism needed to assess the risk of fraud at the now-defunct
futures brokerage, a study showed.
Although regulatory audits of Peregrine were conducted in a
"competent and proper fashion" and were "dutifully" implemented,
the auditors did not look closely enough at the firm's financial
losses, the way it handled its financing, and its internal
controls, according to the study by Berkeley Research Group LLC
released on Thursday.
The study was commissioned by the National Futures
Association (NFA), the regulatory body responsible for auditing
many of the smaller U.S. futures brokerages, including Peregrine
Critics have blamed NFA for not catching the fraud, which
CEO Russell Wasendorf Sr conducted and concealed for nearly the
entire 20 years he ran the company.
NFA said in a statement that it would adopt an extensive
list of recommendations by the consulting firm, including better
training of its auditors to instill more skepticism.
The study stopped short of blaming NFA for missing the
fraud, which Wasendorf confessed to last July and for which he
will spend the rest of his life in jail. [ID: L1N0B0B3F]
But it did note note a series of serious deficits.
It found that NFA auditors were duped by ruses that included
a faked fax from Peregrine Financial CEO Russell Wasendorf Sr.
"correcting" a bank statement to show the firm's main bank
account had $211 million more than an earlier statement had
shown, the study said.
Auditors also failed to question losses at the firm, which
had totaled $21 million from 2000 to 2011, and did not
scrutinize the fact that Wasendorf made $69 million in capital
contributions over that period, the study said.
They did not pay attention to the fact that the firm's chief
financial officer, Brenda Cuypers, had no formal education
beyond a two-year community college degree, or notice that the
firm's auditor was a one-person shop run from a suburban Chicago
(Reporting by Ann Saphir; Editing by Bernard Orr and Richard