[ by Melanie Gretchen] Peregrine Financial Group founder and CEO Russell Wasendorf Sr. has an explanation for the $200 million or so in customer funds missing from his commodities trading firm.  He allegedly embezzled the money from customers and spent most of it - that, according to a criminal complaint unsealed in federal court last week. In previously disclosed parts of letters by the former executive, meant to be found after his attempted suicide, Mr. Wasendorf said he spent most of the funds to pad his trading firm's capital, fund a new corporate headquarters, and pay regulatory fines and fees [CI Note: A paradox or a protection measure?] The Beginning. The signed notes notes detail the CEO's alleged fraud.  In 1993, regulators' examination of Peregrine's use of client funds prompted him to start the alleged illegal activity.  CFTC investigator Robert Agnew in Kansas City began investigating what the regulator believed was a potential violation involving customer funds.  In his letters, Mr. Wasendorf remembered the CFTC "harassed" Mr. Wasendorf, and carried out 6 on-site audits over a 5-month period, until the agency found a "technical violation" and raised his firm's capital requirements. What Mr. Wasendorf took from the experience was that he forced to either go out of business or cheat.  Since then, he used most "of the misappropriated funds to maintain the increasing levels of Regulatory Capital to keep [Peregrine] in business and to pay business [losses]."  In addition, the funds were used to build Peregrine's $18 million headquarters in Cedar Falls, Iowa, and to "pay Fines and Fees charged by the regulators," the letters said. Former CFTC examiner, Mr. Agnew, retired some 11 years ago and now lives in Arizona.  He was contacted  last week and confirmed that he worked for the CFTC in its Kansas City office and examined Iowan firms at the time in question;  he could not, however, immediately remember the Peregrine case. A Different Perspective. In his signed notes, Wasendorf also wrote that the role of villain in this case should be assigned to "mean spirited" regulators that dogged Peregrine - and not himself, even though it was he who overstated the company's deposit records by more than $200 million.  Wasendorf claims the examiners were looking to put firms out of business rather than protect commodities investors.

"I have to say I don't feel bad about deceiving the regulators.  They made the decision to be my enemy." -- The Wasendorf-signed note.

Nevertheless, the former CEO accepted some of the blame in a separate note to his son, asking for his forgiveness.  In addition, he informed his son that Mr. Wasendorf already had married his fiancée (to whom Mr. Wasendorf also left a note), in secret, weeks before a scheduled wedding in Iowa, according to federal authorities. What's Next. Wasendorf faces criminal charges, the firm is in liquidation, and both the CFTC and the NFA have filed separate enforcement actions against Wasendorf and Peregrine. For further details, go to [WSJournal, 7/18/12].