CEDAR RAPIDS, Iowa --- The government has recommended that the founder of Peregrine Financial Group be sentenced to 50 years in prison for raiding customer accounts and deceiving regulators.
In a sentencing memo filed Tuesday, prosecutors said Russell Wasendorf Sr.’s scheme stretched back to the early 1990s and resulted in the loss of an estimated $215,530,547.
The defense hasn't filed sentencing recommendations, but court records show Wasendorf’s attorney disputes the government damage tally, claiming the loss to be more than $100 million but less than $200 million.
Sentencing is scheduled for Jan. 31 in U.S. District Court in Cedar Rapids.
In recent weeks, the prosecutors and the defense have been picking through a pre-sentence report compiled by federal probation officials.
Wasendorf, 64, remains detained in the Linn County Jail.
As part of the argument for a higher sentence, Assistant U.S. Attorney Peter Deegan Jr. pointed to the total loss from the scheme.
The government calculated its figure using inflated customer funds at US Bank, where investors were supposed to have $376,999,120 as of July 9 — the day the scheme came to light with Wasendorf’s suicide attempt — but which really contained only $5,114,110.
It also took into consideration PFG’s in-house ledgers showed it had $382,223,056 in segregated customer funds, for an excess of $5,223,935.
Prosecutors also referred to the complexity behind the plot, which they said was a “mechanism to gather investors and then steal their money from the start."
Wasendorf’s “scheme was far more sophisticated than the typical fraud. Indeed, since the early 1990s, defendant operated PFG as little more than a complex mechanism to fraudulently obtain and misuse investors’ funds,” the government’s sentencing memo stated.
The government referred to an incident in 1993 or 1994 when a person identified only as “J.C.” who financed PFG’s Futures Commission Merchant registration attempted to pull his money out of the operation.
Wasendorf lacked the capital to keep PFG afloat, so instead of closing, he took at least $250,000 from customer funds to buy out J.C. and used a copy machine to make a fake bank statement to hide the theft, court records state.
The business took tens of millions in losses over the next 20 years, but Wasendorf used misappropriated funds to create the appearance it was legitimate and successful.
“If he could make himself appear rich, the auditors and regulators wouldn't be concerned with the state of his personal finances and not discover it was all a fraud,” the government quoted the pre-sentence report as saying.
Wasendorf created fake documents to fool regulators, auditors, customers and his staff. He then used his authority to set up rules so he was the only one at PFG to see the real bank statements.
He produced paperwork that hid bank transfers to keep them off the PFG books, and he forged paperwork showing large deposits. This made PFG’s books appear to have an extra money in the client account, extra money that was transferred to the firm’s house account to run the business.
According to court records, the scheme almost unraveled during a 2011 National Futures Association audit where two PFG employees became involved in the verification system. To keep the truth about the firm’s condition hidden, Wasendorf personally flew from Chicago to Iowa to convince a PFG worker that a clerk had used the wrong balance from the account.
He also convinced US Bank employees that the confirmation form they received had the wrong address on it.
He then used an altered confirmation form to inflate the balance and fixed his home fax machine to print “US Bank, Cedar Falls, IA” in the header and sent the fax form to the NFA.