Peregrine Financial Group

Peregrine Financial Group Inc., commonly known as PFGBest,[1] was an Iowa-based financial firm that operated for over 20 years. It was shut down in July 2012[2] after it was put under investigation for a $200 million shortfall in customer funds.[3] Peregrine’s chief executive, Russell R. Wasendorf Sr., was arrested and charged with making false statements to the Commodity Futures Trading Commission (CFTC).

The firm filed for bankruptcy on July 10, while listing more than $500 million in assets and over $100 million in liabilities.[4]

Company history

During the mid to late-1990s, Peregrine Financial Group's office at the Chicago Mercantile Exchange had closed-circuit security cameras on the sales floor which is not and was not a common practice in the Chicago futures brokerage community while also recording all broker telephone lines.

Embezzlement of customer funds

Wasendorf attempted to commit suicide before his arrest and wrote in a confession letter that he had been "using a scheme of false bank statements to embezzle millions of dollars from customer accounts over a period of about 20 years." Congressional hearings questioned why the CFTC had not caught the embezzlement earlier and "the agency’s failure to adequately oversee the National Futures Association, the self-regulatory organization directly responsible for overseeing Peregrine."[1] The firm had been moved by Wasendorf from Chicago in 2009 to a new 18 million dollar building in Cedar Falls, Iowa.[5]

In August 2012, Wasendorf was indicted on "31 counts of lying to regulators.... [He] ... could face up to 155 years in prison and a $7.8 million fine. [He] allegedly stole as much as $215 million from customers over a 20-year period."[6] He pleaded guilty to all charges, and in January 2013 federal judge Linda Reade sentenced him to 50 years of prison.

Litigation

The CFTC filed a criminal complaint in Cedar Rapids against the Cedar Falls firm[5] Peregrine Financial Group, Inc., and Russell R. Wasendorf, Sr.[7]

Wasendorf was also sued on July 13 by Michael LaSalvia of Naperville, Illinois, who sought class action status for his suit against the CEO and his son. LaSilvia also alleged that Wasendorf had mixed client and firm money.[4] Another client separately sued Wasendorf as well as other company executives in Chicago.[8]

On July 27 attorneys for the 1970s rock band The Knack sent a cease and desist letter to Wasendorf and his already shut Italian restaurant MyVerona in Cedar Falls, Iowa, demanding he stop using a recording of the band's smash hit "My Sharona" in the restaurant's advertising. The song, with a chorus modified to "M-M-M-My Verona," had been used for years as a theme song on the company website. "The Composition is one of the most popular songs of all time, and companies pay our client significant sums for the right to obtain a license for the use of the composition," the letter said.[9]

Liquidation

Michael Eidelman, the receiver for Wasendorf in the bankruptcy of PFGBest, is tracking assets which may be linked to Wasendorf's corporate actions including a $100,000 personal wine collection, a high-end Italian restaurant in Cedar Falls, a jet, and two residences with $1 million estimated value.[10]

The bankruptcy filing specified between 10,000 and 25,000 creditors.[11] The trustee for the firm, Ira Bodenstein, started with the court by identifying 11 clients, primarily owners of warehouse receipts for precious metals, of about 24,000 futures customers with specifically identifiable property eligible to be returned to them.[8]

Recovery of Customer Funds

As of December 2014, customers were in line to recover 44% of funds held at the firm.[12]

Media Coverage

Peregrine Financial Group CEO's attempted suicide and his confession to a massive fraud was covered as a documentary on CNBC's American Greed show as Episode 87 under the title "The Falcon & the Con Man" [13]

gollark: Unless they have a warrant, you can apparently just tell them to go away and they can't do anything except try and get one based on seeing TV through your windows or something.
gollark: But the enforcement of it is even weirder than that:- there are "TV detector vans". The BBC refuses to explain how they actually work in much detail. With modern TVs I don't think this is actually possible, and they probably can't detect iPlayer use, unless you're stupid enough to sign up with your postcode (they started requiring accounts some years ago).- enforcement is apparently done by some organization with almost no actual legal power (they can visit you and complain, but not *do* anything without a search warrant, which is hard to get)- so they make up for it by sending threatening and misleading letters to try and get people to pay money
gollark: - it funds the BBC, but you have to pay it if you watch *any* live TV, or watch BBC content online- it's per property, not per person, so if you have a license, and go somewhere without a license, and watch TV on some of your stuff, you are breaking the law (unless your thing is running entirely on battery power and not mains-connected?)- it costs about twice as much as online subscription service things- there are still black and white licenses which cost a third of the price
gollark: Very unrelated to anything, but I recently read about how TV licensing works in the UK and it's extremely weird.
gollark: "I support an increase in good things and a reduction in bad things"

References
  1. Orol, Ronald D., "Lawmakers grill CFTC chief over broker failures", MarketWatch, July 17, 2012. MW misidentified the firm's hometown as Cedar Falls. Retrieved 2012-07-17.
  2. Ahmed, Azam & Peter Lattman. "At Peregrine Financial, Signs of Trouble Seemingly Missed for Years". New York Times. Retrieved 2012-07-13.
  3. Leising, Matthew & Andrew Harris (July 9, 2012). "Peregrine Sued By CFTC, Investigated After Suicide Try". Bloomberg. Retrieved 2012-07-13.
  4. Harris, Andrew, Peregrine’s Wasendorf Sued for Mixing Firm, Client Funds, Bloomberg News, July 16, 2012.
  5. Porter, Caroline, "Brokerage Scandal Shakes Small Iowa Town", Wall Street Journal, July 12, 2012. Retrieved 2012-07-18.
  6. Witkowski, Wallace, "Peregrine chief Wasendorf indicted on 31 counts", MarketWatch, August 13, 2012. Retrieved 2012-08-13.
  7. United States District Court of the Northern District for Illinois Eastern Division, U.S. Commodity Futures Trading Commission v. Peregrine Financial Group, Inc., and Russell R. Wasendorf, Sr., Case: 1:12-cv-05383, accessed July 18, 2012
  8. Harris, Andrew "Peregrine Trustee To Have Payout Estimate In 14 Days", Bloomberg, July 19, 2012.
  9. Huffstutter, P.J., Russell R. Wasendorf Sr., Disgraced CEO, Told To Stop Using The Song 'My Sharona', Reuters, 07/27/2012
  10. Saphir, Ann, "Peregrine CEO's bail hearing delayed, receiver eyes assets", Reuters via Chicago Tribune, July 18, 2012. Retrieved 2012-07-18.
  11. "Peregrine Financial files for liquidation after fraud lawsuit and founder's suicide attempt", Daily Telegraph, 11 July 2012.
  12. Palank, Jacqueline (2014-12-08). "Peregrine Customers in Line to Recover Millions More". Wall Street Journal. ISSN 0099-9660. Retrieved 2019-03-17.
  13. "American Greed Episode 87 The Falcon & The Con Man"
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