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The owner of Peregrine Financial Group may have deceived company officials including his own son as he made up false bank statements to hide a $200m gap in customer accounts, people familiar with the investigation into the shortfall said.
The account deficit this week led to civil government fraud charges against Russell Wasendorf Snr and Peregrine, the broker he founded in 1990. The emergence of the shortfall raises new questions about the security of futures trading in the aftermath of last year’s failure of MF Global.
Mr Wasendorf, 64, was found unconscious in a car outside Peregrine’s Iowa headquarters on Monday after a suicide attempt, a sheriff’s report said. The National Futures Association self-regulatory body afterwards received information he may have falsified bank records pertaining to customer accounts, the Commodity Futures Trading Commission said.
The forged bank records looked so legitimate that they may have tricked not only the NFA, the broker’s frontline auditor, but officials including Russell Wasendorf Jr, Mr Wasendorf’s son and Peregrine’s president, one of the people familiar with the matter said. The CFTC said the fraud dated at least to February 2010.
Authorities suspect Mr Wasendorf Snr used a post office box to intercept records between the NFA and US Bank, which held his personal account, an account for a restaurant he owned, and Peregrine customer funds, a second person familiar with the matter said. They believe Mr Wasendorf may have forged the documents to show a $200m balance in the account when it actually held about $5m, this person said.
Investigators are looking at the role of all the entities that touched the futures broker, including US Bank, Peregrine’s auditor and company employees, this person said. A judge granted the CFTC expedited discovery on Tuesday, giving the agency authority to issue subpoenas for documents and interviews.
“Given that we provided banking services to Peregrine Financial, we will co-operate fully with authorities,” said a spokesman at US Bancorp, which owns US Bank. Calls to Mr Wasendorf Jr’s office in Cedar Falls, Iowa, were not returned. His father was in a coma, the CFTC said on Tuesday. A Peregrine spokeswoman did not respond to calls.
Dan Roth, NFA chief executive, declined to discuss the investigation. He said self-regulatory organisations such as his were exploring online access to information on bank accounts at which brokers hold customer segregated funds.
NFA had already begun requiring an online service called Confirmation.com to confirm bank statements for the brokers it audits, one of the people briefed on the investigation said. The regulator had been pushing Mr Wasendorf Snr to adopt the new system and he finally did so right before his suicide attempt, the person added.
The shift to electronic reporting came after a difficult period for Peregrine. In February, a court-appointed receiver sued for $48m over losses customers suffered in a Ponzi scheme whose principal had accounts with the broker.
In June the company cut salaries by 10 per cent, according to an internal memo obtained by the Financial Times. The broker called off a second cut on the Friday before its bankruptcy, saying the company would “be able to run at break even”, the memo said.
James Koutoulas, head of Typhon Capital Management, said his commodity trading advisory had entrusted about 4 per cent of its assets with Peregrine after the collapse of MF Global. “This is my own impression, but I have to say this Russ Jr didn’t know what was going on,” he said.
CME Group, the US exchange operator, said it would provide access to a pool of up to $100m in insurance to qualifying Peregrine clients. It will offer up to $25,000 per customer account to those who suffer losses from the insolvency.
FIA, the leading US futures industry trade body, said in a statement on Wednesday: “The futures industry is outraged at what appears to be an extensive fraud carried out on futures customers of this firm and is appalled that customers may be victims of this deceit. Any violations of the law should be vigorously pursued and prosecuted.”