FBI describes Cedar Falls CEO Wassendorf’s $215 million scam

From the FBI –

He was a successful CEO of his own futures brokerage firm and a respected member of his community, creating jobs and supporting local charities.

Or so it seemed. For years, Russell Wasendorf, Sr. —as Acting U.S. Attorney Sean R. Berry of the Northern District of Iowa recently put it— was really a “con man who built a business on smoke and mirrors.”

It all fell apart in July 2012 when Wasendorf—after an unsuccessful suicide attempt—admitted stealing millions from more than 13,000 investors who had entrusted their hard-earned money to him and his company, the now bankrupt Peregrine Financial Group (PFG), based in Cedar Falls, Iowa. Last month, Wasendorf was sentenced by a federal judge to 50 years in prison—the maximum sentence allowed by law—and ordered to pay restitution to his victims.

How it started. In the early 1990s, Wasendorf’s Peregrine partner pulled his money out of the operation, and Wasendorf didn’t have the funds to keep the company going. So he helped himself to at least $250,000 of Peregrine’s customer funds in accounts at an outside bank. To conceal the theft, he used a copy machine to fabricate a phony bank statement.

For the next 20 or so years, Wasendorf continued to steal from customer funds while his company incurred tens of millions of dollars in losses. He carried out this scheme through a series of complex actions designed to conceal his activities and the deteriorating state of the company. For instance:

– He maintained exclusive control of monthly bank statements by instructing PFG personnel to make sure they were delivered to him unopened. He then used a copy machine—and later, computer software—to create phony monthly statements in place of the real statements.
– He sent the phony statements to PFG’s accounting department, knowing they’d be used in various reports required by oversight bodies—the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA).
– He intercepted account verification forms from NFA and CFTC auditors mailed to the bank used by PFG. Wasendorf changed the address of the bank to a post office box that only he had access to; once the forms came into that post office box, he would mail back to the auditors a forged form—supposedly from the bank—that contained an inflated dollar amount of what was in the corresponding bank account.

What did Wasendorf do with the misappropriated funds? He created the appearance that PFG was legitimate and successful in order to ward off the suspicions of regulators and auditors. He also funded his own outside business interests—for example, he opened two restaurants in Cedar Falls. And finally, he lived quite luxuriously—he owned a private jet and a huge estate that included a million dollar indoor swimming pool and a 1,000-bottle wine cellar.

The case began when the Blackhawk County Sheriff’s Office, first on the scene of Wasendorf’s attempted suicide, contacted the FBI after discovering notes left by the executive admitting his illegal deeds. The ensuing federal investigation—which involved multiple searches, reviews of thousands of electronic and paper documents, and numerous interviews—culminated in September 2012 with Wasendorf’s guilty plea.

Special thanks as well to our partners at the U.S. Postal Inspection Service and the U.S. Attorney’s Office for the Northern District of Iowa for their assistance in this case.