| CHICAGO/CEDAR FALLS, Iowa, July 12
CHICAGO/CEDAR FALLS, Iowa, July 12 Russell
Wasendorf Sr., the founder and CEO at failed futures brokerage
PFGBest who now stands accused of a massive fraud, has a giant
smile and a jeweled pinky ring, a private jet and a temper.
"You could have not sent me a more clear message of the low
regard you hold me and my firm," Wasendorf wrote in a letter,
dated October 20, 2000, to Jack Sandner, a former chairman of
the Chicago Mercantile Exchange. "I guess I should have taken
the hint when you refused to take my phone calls or when you
refused to write a foreword in my latest book."
Wasendorf, in the letter, said that Sandner, who ran a
brokerage called RB&H that provided clearing services to PFGBest
and other smaller brokerages, was charging him $1 million a year
more than another firm would. Wasendorf, whose firm was then
only a fraction of its current size, soon took his business
Sandner, a current CME Group Inc board member and pillar of
the Chicago futures community, declined this week to elaborate
on the letter from 2000, saying that it can "speak for itself."
The letter and conversations with half a dozen senior
industry executives who have worked with or competed against
Wasendorf over the past two decades provide a portrait that
tempers the image of benevolent benefactor, cultured
restaurateur and rural economic champion that he cultivated in
bucolic Cedar Falls, Iowa -- the town where his firm was
headquartered after relocating from Chicago in 2009.
No one responded to visits this week to the houses of Russ
Sr. or his son, Russell Wasendorf Jr., the 42-year-old president
and chief operating officer of the company.
A lawyer in the Chicago office of PFGBest, which is legally
known as Peregrine Financial Group Inc., referred calls to the
firm's spokeswoman, who did not return calls.
At the heart of the often rough-and-tumble U.S. futures
industry in Chicago, where Wasendorf ran the company he owned
for nearly two decades, the Marion, Iowa, native was an outsider
trying to push his way in.
As he built an unusual empire that included a Romanian
property company and a glossy magazine, the 64-year-old became a
leading industry figure, writing occasional op-ed pieces and
proudly pulling big guests to industry events.
PFGBest grew through the acquisition of a series of rival
brokers, including one accused by regulators of falsely
inflating its capital and another fined for mishandling customer
money. Within the industry he was still seen as a striver with
an "inflated" ego, according to two former executives at
brokerages who declined to be named.
But Wasendorf also worked to boost Chicago's futures
industry, including championing the 2007 merger between the two
Chicago futures exchanges, a deal that many Wall Street banks
opposed but that Leo Melamed, another prominent former CME
chairman, has said helped turn Chicago from world's hog butcher
to "world's risk manager."
And his move to Cedar Falls brought an estimated annual
boost of $125 million to the region, said Steve Dust, CEO of the
Greater Cedar Valley Alliance & Chamber, on whose board
"The events of the week are tragic personally and to a
community that had come to appreciate the economic and civic
contributions of PFG and the Wasendorf family," Dust said.
In the letter to Sandner, Wasendorf boasted about how he and
his chief financial officer had recently taken on business from
First Commercial Financial Group, a brokerage that had been
accused by regulators of falsely reporting capital levels, and
"made it into a first class operation."
"You can get rid of the firm you disdain and I can have a
chance to get a return on my investment," he wrote. Other firms
would be "proud to do business with us."
Another former head of a brokerage firm told Reuters he had
set up a meeting in Chicago with Wasendorf and Russ Jr. at their
headquarters in the hopes of securing PFGBest's clearing
business. PFGBest was not a member of the major futures
exchanges, meaning it had to route its trades through another
firm for clearing.
After an hour with the two seated at an imposing board room
table, the former executive got an uneasy feeling and dropped
NOT SEEN IT COMING
While rivals and erstwhile business partners may not have
liked or trusted Wasendorf, none said they ever suspected that
he would commit the kind of fraud he is accused of by
regulators: pilfering half his clients' funds and covering it up
for more than two years.
Peregrine Financial Group filed for bankruptcy protection on
Tuesday, and the Commodity Futures Trading Commission and the
National Futures Association have accused the firm and Wasendorf
of misappropriating more than $200 million in customer funds,
and then hiding the missing funds for more than two years.
Those developments follow a series of events leading up to
Wasendorf's attempted suicide on Monday: an unannounced marriage
in Las Vegas on June 30, a month before a local church wedding
he had planned (Wasendorf and his first wife had divorced in
2010 after 24 years of marriage); signing over power of attorney
to his son on July 3; and a decision to relent to regulators'
demands that he switch to an electronic system for verification
of PFGBest's bank balances.
On Monday, one week before PFGBest would celebrate 20 years
in business, Wasendorf was found, incoherent but breathing, near
his Cedar Falls office in a closed car with a hose pumping in
exhaust, a note nearby indicating "possible discrepancies" in
PFGBest's financials, the sheriff's report said.
He was airlifted to a hospital in Iowa City, and was
reportedly in a coma. Neither the hospital nor his family has
confirmed his current condition.
The move to Cedar Falls, in 2009, took Wasendorf 300 miles
from Chicago, where the National Futures Association had for
years audited his firm yearly to vouch for its compliance with
While a handful of other Midwest brokers are also based far
from the famed La Salle Street, the move was unusual -- and the
$18 million construction of a new headquarters there, said some,
was reflective of Wasendorf's grand ambitions.
His reception in Cedar Falls was a warm one. The town of
some 40,000, reliant on a small university and John Deere
factories, gained dozens of new, professionals jobs.
None of the dozens of people interviewed there had anything
but glowing words for Wasendorf.
"We're shocked, absolutely shocked," said Jim Mudd Jr.,
whose family went in jointly with Wasendorf Sr. to buy a Hawker
Beechcraft private jet around the time PFG moved to Cedar Falls.
"We didn't see this coming."
Mudd said his family sold its stake in the plane about 18
months ago to Wasendorf. It is parked at Livingston Aviation in
Waterloo, said to be for sale.
Cedar Falls Mayor Jon Crews told Reuters the company and
family were key figures in the community and donated millions of
dollars to local institutions, including the University of
Northern Iowa athletic department.
But looking back there may have been some signs. Two weeks
ago he noticed work had stopped on Wasendorf's latest project,
the construction of a sauce bottling plant on Main Street.
"At the time all I could think was, 'huh, that's a little
strange, maybe they are having problems with their contractor,'"
he said. "Now I think it might have been a clue."
BOUGHT CHECKERED FIRMS
Wasendorf began his career as a futures trader in 1972, and
built his brokerage on the back of a fortune made after advising
clients to sell stock just before Black Monday in 1987,
according to a timeline on his firm's website.
He was an early advocate of electronic trading and
specialized in small accounts. He had a full-time person to deal
with reporters, rare for a brokerage his size.
"When I met him he always had an entourage around him," said
Phil Flynn, a broker who left PFGBest on May 31.
He also bulked up his firm by absorbing the customers of at
least three futures brokerages with checkered disciplinary
histories that added client funds, if not cachet. PFGBest's
customer base nearly doubled between 2008 and 2010 to more than
$400 million in segregated client funds, making it one of the
country's 10 largest independently owned brokers.
The takeover of First Commercial accounts more than a decade
ago does not appear on the company's official timeline, though
Wasendorf boasted to Sandner in the 2000 letter about converting
its "corrupt corporate culture" into an "attractive culture as
to entice superlative industry talent."
The CFTC had fined First Commercial, its CEO and another
employee in 1999 for undertaking a "calculated, long-term
scheme" to evade capital requirements, according to a regulatory
order. The pair used checks they knew were bad to fool
regulators into believing the firm had more money than it did.
In 2009, Peregrine acquired most of the accounts of Chicago
rival Alaron Trading Corp, faced with bankruptcy after losing
millions in the 2008 bankruptcy of Sentinel Management.
Alaron often had run-ins with the regulators. In 2010, the
CFTC fined the firm $260,000 for a 2008 incident in which it
failed to supervise its customers' trades adequately, and
"allowed" it to withdraw its broker registration.
PFGBest itself has been fined four times, most recently for
$700,000 by the NFA for failing to notice a massive $194 million
forex-trading Ponzi scheme run by Trevor Cook in Minnesota, who
used a PFGBest account. Cook is serving 25 years in prison. The
receiver has sued PFGBest for $48 million.
Wasendorf's empire also gained some unusual outposts.
Together with several former Chicago options traders, he helped
found one of Romania's largest property development companies,
Avrig 35, which grew to have investments estimated at more than
$1 billion by 2007 before the global financial crisis.
He also owned several restaurants, including the elegant
Allen's in Chicago as well as the now shuttered MyVerona
Restaurant, which carried 240 varieties of wine, in Cedar Falls.
HIS, BOUGHT AND PAID FOR
Wasendorf Sr.'s favorite quote, according to his Facebook
page: "If I wanted patience, I would buy it."
The page, which had been removed from the site by Wednesday,
featured what he called "Brush with Greatness" photos of himself
with former Federal Reserve chief Alan Greenspan and former
First Lady Barbara Bush.
Both spoke at industry events after being sponsored by SFO
(Stocks, Futures and Options), a glossy "vanity" magazine about
the industry that Wasendorf started in 2001. It was shuttered on
Last October Wasendorf ushered former President George W.
Bush and his family on stage at CME Group Inc's annual
Leadership Conference in Naples, Florida.
A CME Group spokeswoman Wednesday declined to comment on
Wasendorf's involvement in the event.
With Russ Sr. now the focus of the investigation, the task
of helping dismantle what remains of the firm falls to Russ Jr.,
who friends and insiders say was caught as much by surprise as
the rest of the industry.
Russ Jr. sounded "like he was in another world" when he told
employees of his father's suicide attempt on a call Monday
afternoon, one of the firm's brokers told Reuters.
On Wednesday, an executive at the firm's Iowa headquarters
said Russ Jr. had told him personally that there were "no signs,
On Tuesday morning, Russ Jr. called to cancel his family's
membership at the Beaver Hills Country Club in Cedar Falls,
where they had belonged since 2007, general manager Chad Hoffman
The homes of father and son in Cedar Falls underscore the
two men's differences: Russ Sr.'s a large, elegant property
surrounded by a tall metal fence, complete with a rolling front
lawn and a small pond, the largest and nicest home on the block.
Russ Jr.'s, on the opposite side of town in a
upper-middle-class neighborhood, is a modest faux brick affair
on a cul-de-sac, near his mother's house, Wasendorf's ex-wife,
At Runner's Flat, where Russ Jr. and his wife, Amber, buy
their running shoes, the phone has been ringing with customers
asking whether a weekly open swim at George Wyth State Park in
nearby Waterloo would go on as planned, owner Scott Gall said.
The open swims, attracting as many as 70 participants, were
sponsored by PFGBest's charitable arm, and onsite childcare was
provided by the firm's staff. The swims will go on, he said he
told them, but there may not be anyone to look after the kids.
"They are just normal people," he said of Russ Jr. and his
wife, who works for Peregrine Charities. "They are just a couple
of people who like to run and buy their shoes here."