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Prosecutor: CEO in Iowa fraud should stay in jail

Trish Mehaffey, CR Gazette –

CEDAR RAPIDS — Former Peregrine Financial Group founder Russell Wasendorf Sr. should remain jailed pending his formal guilty plea in a $200 million fraud case, a federal prosecutor argued Tuesday.

Wasendorf doesn’t have the “character or mental condition” to show up for court, Assistant U.S. Attorney Peter Deegan said.

Wasendorf, 64, of Cedar Falls, intends to plead guilty to mail fraud, embezzlement of customer funds and making false statements in connection with the scheme that left his futures brokerage firm bankrupt, according to details of the plea revealed at a detention hearing Tuesday in U.S. District Court.

Wasendorf faces up to 50 years in prison on the charges, but his attorney, Jane Kelly, said he hasn’t agreed to the prison term.

Kelly argued Wasendorf should be released because he has cooperated with authorities and never attempted to flee, even when he found out the Commodity Futures Trading Commission was going to monitor the company’s accounts. She said Wasendorf could have left the country but didn’t.

Deegan argued Wasendorf should not be released, pointing to his failed suicide attempt after learning of the commission’s plans.

“He had a plan and it was unsuccessful,” Deegan said. “It’s a risk that he will flee now. There are assets unaccounted for that he could access. … He has no ties to the community.”

Deegan said Wasendorf remains under suicide watch at the Linn County Jail.

Linda Livingston, a pastor and friend, testified that Wasendorf could stay with her and her husband if released.

Livingston, who has known Wasendorf since high school, said she believed he was remorseful for his actions and wants to change. She has given Wasendorf pastoral care during his time in jail and doesn’t believe he will attempt suicide again because he’s now glad to be alive and has had a change of attitude. she said.

U.S. Magistrate Jon Scoles said he would rule by Friday on the detention issue. A date has not been set for a hearing on the plea and sentencing.

Wasendorf was indicted last month on 31 counts of making and using false statements. Between February 2010 and June 2012, according to the indictment, he’s accused of causing false year-end financial statements to be submitted to the futures commission, along with overstating the value of the company’s customer segregated funds by at least tens of millions of dollars.

Peregrine filed for bankruptcy July 10 after the commission sued the brokerage claiming the firm and Wasendorf “used customer funds for purposes other than those intended by its customers, and consequently, have misappropriated these funds.” False reports on customer funds were also filed with the commission, the suit said.

Wasendorf was arrested June 13 at University of Iowa Hospitals and Clinics in Iowa City, where he was taken June 9 after he was found trying to asphyxiate himself in his car in the Peregrine parking lot in Cedar Falls, according to court documents.

Wasendorf admitted in a suicide note and signed statement that he stole millions from his customers for more than 20 years, according to court documents.

Wasendorf told authorities most of the money went to keep the business running and fees and fines to regulators but he admitted more than $100 million was missing, court documents state.

FBI Agent William Langdon testified Tuesday that the agency had corroborated the information from Wasendorf’s suicide note and signed statement.

He said the agency had recovered false documents and false reports to regulators and banks. Among the documents was a bank statement for the company for Jan. 31, 2010, which showed a balance of $12.3 million and a false statement which showed a balance of more than $206 million, Langdon said.

There was evidence that customer funds had been transferred into Wasendorf’s accounts for his My Verona restaurant in Cedar Falls and a construction company, Langdon said.

However, not all of the missing assets can be accounted for, Langdon said. For example, he said, a wire transfer of $250,000 made to Romania in June has not been recovered.

Langdon said there are some properties in Romania that Wasendorf owned with others that could be worth $100 million and haven’t been seized.

On cross examination by Kelly, Langdon said Wasendorf did not have access to any of his homes, cars or car titles, a plane, credit cards, bank accounts or to his passport.

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