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Cedar Falls broker pleads guilty in fraud scheme

Trish Mehaffey, CR Gazette –

CEDAR RAPIDS — Peregrine Financial founder Russell Wasendorf Sr. pleaded guilty Monday in federal court to four charges in connection with embezzling about $200 million from customer accounts and making false statements to regulators.

Wasendorf, 64, of Cedar Falls, pleaded guilty to mail fraud, embezzlement of customer funds, and making false statements to the Commodity Futures Trading Commission and a futures trading association. He faces up to 50 years in prison, if a judge runs the sentences for the charges consecutively, along with $3.2 million or more in fines, an undetermined amount of restitution and $100 million in forfeitures, according to the plea agreement.

There is also a stipulation in the plea that Wasendorf can’t profit from the crime through, for example, a book or movie deal.

Wasendorf admitted to stealing more than $200 million from customer funds over more than 20 years, as described in a suicide note police recovered last month and signed statements to authorities after being charged. Also under the plea deal, he admitted to overstating the value of customer funds in a monthly report in May 2012 and to forging bank account information submitted to regulators in May 2011.

In the suicide note and signed statements, Wasendorf said he was able to conceal the crime by being the only person to have access to the company’s bank accounts as well as the only person who saw the actual bank statements.

According to the plea, more than 250 customers were victimized by Wasendorf’s scheme.

Assistant U.S. Attorney Peter Deegan said Wasendorf will face life in prison if the sentencing guidelines are followed.

Jill Johnston, Wasendorf’s federal public defender, said he could be sentenced to 25 to 30 years if other guideline considerations are resolved in Wasendorf’s favor, such as acceptance of responsibility and his status as a first-time offender.

U.S. Magistrate Jon Scoles told Wasendorf the sentencing judge would have the discretion to deviate from the guideline range in determining a reasonable sentence.

Scoles issued an order last week granting Wasendorf’s request for release pending sentencing, but the government appealed early Monday and Chief Judge Linda Reade ordered him kept in custody until she has time to consider the appeal.

Johnston formally resisted the appeal during the plea hearing.

In granting Wasendorf’s release last week, Scoles said Wasendorf was not a flight risk because his assets had been frozen or relinquished to a trustee or receiver and he no longer had his passport.

In their appeal, prosecutors argued that Wasendorf had committed “one of the most lengthy and egregious frauds in the history of this district” and noted that he’d recently tried to kill himself rather than face the consequences of his crimes. They said there was a serious risk that Wasendorf would flee, and no conditions of release would reasonably guarantee his appearance for sentencing.

The prosecution’s appeal points out that while Wasendorf’s domestic assets have been frozen or seized, he has foreign assets and could have other assets that are not known. Wasendorf provided answers to questions about his assets, but given the nature of his crimes, “none of what he says can be taken at face value,” according to the appeal.

The government has proved $200 million is missing, and Wasendorf is the only person to know where the money went, according to the appeal. If even a small portion is hidden away, it could be an incentive and means for him to flee, the prosecutors argued.

Scoles said he didn’t know when Reade would rule on the detainment appeal.

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