Peregrine Founder Arrested; Authorities Cite Confession

Jul 16 2012 | 1:08pm ET

The founder of collapsed futures brokerage Peregrine Financial Group has confessed to running a more than $100 million fraud and has been charged by federal prosecutors.

Russell Wassendorf was arrested on Friday, four days after his suicide attempt precipitated his firm's downfall. He did not enter a plea at a court hearing later Friday and is being held in prison at least until another hearing this week.

Charges of lying to regulators against Wassendorf were unsealed on Friday. That document reveals that Wassendorf, who was found in his car in Peregrine's parking lot after a failed attempt to asphyxiate himself with the vehicle's exhaust, left a signed statement confessing to the crime.

"I have committed fraud," Wassendorf wrote in the statement, a copy of which he left for his son. "For this I feel constant and intense guilt."

"I had no access to additional capital and I was forced into a difficult decision: Should I go out of business or cheat?" he wrote. "I guess my ego was too big to admit failure. So I cheated."

Wassendorf confirmed the contents of the statement in an interview with a law enforcement official a week ago, while he was in the hospital. But much remains unclear, primarily that Wassendorf admits to defrauding investors of about $100 million, just half of the roughly $215 million that is missing from Peregrine's account.

Wassendorf did say that the fraud had been ongoing for almost two decades—far longer than the roughly two years that the National Futures Association suggested last week when it froze Peregrine's customer accounts. And he explained the simple way in which he was able to conduct the scam.

Peregrine's U.S. Bank statements "were always delivered to me when they arrived in the mail," Wassendorf wrote. "I made counterfeit statements within a few hours of receiving the actual statements and gave the forgeries to the accounting department."

"Using a combination of Photoshop, Excel, scanners, and both laser and ink jet printers I was able to make very convincing forgeries of nearly every document that came from the bank," he explained.

Wassendorf also cast further doubt about regulators' ability to do their job, saying he fooled the NFA and others with a simple post office box in U.S. Bank's name—a P.O. box in Peregrine's hometown of Cedar Falls, Iowa, that was actually his.

The NFA, for instance, sends confirmation forms directly to firms' banks, but in the case of Peregrine was sending them right to Wassendorf. He also said he was able to create phony online bank statements that "the regulators accepted… without question."

At Friday's hearing, prosecutors said that they planned to add new charges against Wassendorf, and that the 64-year-old faces decades in prison. Authorities are also moving to seize Wassendorf's property, as the Federal Bureau of Investigation has done with his personal computer.

In his statement, Wassendorf said that he ran the fraud alone, and that none of Peregrine's roughly 150 employees, which include his son, also Russell Wassendorf, the firm's president and chief operating officer, were aware of it. "With careful concealment and blunt authority, I was able to hide my fraud from others at PFG."

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