CHICAGO (Reuters) - Russell Wasendorf Sr., the sole owner and chairman of stricken futures broker Peregrine Financial Group, Inc., intercepted and forged bank documents for more than two years to cover up hundreds of millions of dollars in missing money, a person close to the situation told Reuters.
The National Futures Association on Monday froze the funds of the Iowa-based brokerage, which does business as PFGBest, after discovering an estimated $220 million shortfall in PFGBest’s customer accounts. The NFA had said in an affidavit that Wasendorf “may have falsified bank records.”
Wasendorf, 64, is reported to be in a coma after a suicide attempt Monday morning, according to a complaint filed by the Commodity Futures Trading Commission on Tuesday that accuses Wasendorf and Peregrine of fraud.
The source offered new details on how Wasendorf allegedly carried out the deceit, which involved the forging of confidential documents that the NFA uses to verify a broker’s cash balance with its depository institution.
Wasendorf intercepted these documents after they were mailed by the NFA, the broker’s first-line regulator, to U.S. Bank, where PFGBest had said it had well over $200 million on deposit, the person said. The NFA has said the account actually held just $5 million this week.
Wasendorf had set up a post office box in Cedar Falls, Iowa, according to a second person involved in the matter. It was to that post office box that NFA sent the documents, which were addressed to the bank.
The post office box was neither in Wasendorf’s name nor registered to the bank, the second person said.
Wasendorf then forged signatures and fabricated bank balances on the documents and simply mailed them back to the Chicago-based NFA, the person said.
Calls to spokespeople for PFGBest and NFA were not returned. A woman who answered the phone at the home of Wasendorf declined to comment.
In a complaint filed on Tuesday alleging fraud, misuse of customer funds and making false statements to regulators, the Commodity Futures Trading Commission said the discrepancy between PFGBest’s reported balance and its actual cash had been going on since at least February 2010.
The scheme apparently began to unravel after the NFA began to press Wasendorf, who was an early advocate of electronic trading, to allow the regulator to confirm balances electronically and directly with the bank, rather than in a hard copy via mail, the person said.
NFA “started getting suspicious. He was resisting this new way of confirming the balance,” the source said.
Wasendorf only recently signed the authorization, a decision that would quickly have led regulators to uncover the discrepancy, the person said. PFGBest’s total segregated funds requirement was around $400 million, meaning more than half is missing.
While news that a second broker in less than a year appears to have misappropriated customer funds drew immediate comparisons to the MF Global failure in October, the source said the prolonged nature of the apparent deceit drew a more fitting parallel to the Ponzi scheme run by Bernard Madoff, though the size of the funds missing from PFGBest is tiny by comparison.
Additional reporting by P.J. Huffstutter in Cedar Falls, Iowa; Editing by Leslie Adler