[ by Howard Haykin ]

For most of his life, Russell Wasendorf, Sr., CEO of now-defunct futures brokerage firm Peregrine Financial Group, ran a successful financial brokerage business in the heartlands of Amerida - Cedar Falls, Iowa.  Now, Mr. Wasendorf, Sr., will be nobody's Chief Executive and most likely will spend the remainder of his life in prison. 

Wasendorf was sentenced to 50 years in prison for embezzling from his customers and defrauding banks for the better part of 2 decades.  Over that time, he stole more than $215 million in customer funds, prosecutors allege. 

Discovery Last Summer.    Whether through sleight of hand maneuvers or regulator incompetence, Wasendorf carried out his crime for about 20 years without detection.  And in a small Midwest town where most people typically would not suspect businessmen like Wasendorf of committing a crime and instead would give him the benefit of the doubt.

In fact, Mr. Wasendorf was a celebrity in Cedar Falls.  He started his business there in the late 1960s after graduating from the University of Northern Iowa. He eventually moved his business to Chicago, the epicenter of the futures industry, but in 2009 returned to Cedar Falls, building a gleaming new headquarters there.  He also owned one of the most popular restaurants in town

Federal Judge Linda Reade of U.S. District Court in Cedar Rapids, IA, ignored requests for leniency and agreed with the government, which had requested a 50-year sentence.

Carrying out the Crime.   For nearly 2 decades, Mr. Wasendorf forged false account statements from U.S. Bank, enabling him to steal millions of dollars from his customers at Peregrine.  The company also did business as PFGBest.  Mr. Wasendorf insisted that he acted alone, keeping his scheme from his roughly 240 employees.  He said that he was able to hide his fraud by being the only PFG employee with access to the firm's customer accounts held at the bank, and then forging the statements before delivering them to customers.

"With careful concealment and blunt authority, I was able to hide my fraud from others at P.F.G.," Wasendorf wrote in his suicide note.

Coming on the heels of the collapse of MF Global, a commodities and futures brokerage firm where about $1 billion in client money went missing, the Peregrine fraud raised new questions about oversight failures in the futures industry.  Futures brokerage firms like Peregrine match buyers and sellers of contracts for commodities, charging a small commission for the service. 

The Peregrine fraud also recalled Bernie Madoff's Ponzi scheme perpetrated by Bernard L. Madoff, the former New York money manager now serving a 150-year prison sentence. 

For further details, go to:   [ Dealbook, 1/31/13 ].