WASHINGTON — Employees of an Iowa-based brokerage firm that has been unable to account for $220 million in customer money found their boss in his car at company headquarters, with a tube connecting the vehicle's tailpipe to the interior, authorities said Tuesday.
Peregrine Financial Group filed for bankruptcy protection Tuesday, a day after founder and Chairman Russell Wasendorf Sr. was discovered with a suicide note that prompted investigators to notify the FBI, which is conducting a preliminary inquiry.
Black Hawk County Sheriff Tony Thompson declined to discuss the contents of the note, except to say it was "a form of documentation that caused alarm, at least concern for us to get federal authorities involved."
Emergency crews were not sure how long Wasendorf had been in the running car. A police report said he was breathing but incoherent when rescuers took him to an Iowa City hospital, where he was reportedly in a coma.
The day after Wasendorf's suicide attempt, the Commodity Futures Trading Commission, the company's top federal regulator, filed fraud charges that accused him and his firm of misusing customer funds and failing to keep them separate from company money. Later Tuesday, the company filed for Chapter 7 bankruptcy protection in federal court in Chicago. The bankruptcy filing was signed by Wasendorf's son, Russell Wasendorf Jr. The younger Wasendorf was the company's president and chief operating officer.
The events are sure to bring more scrutiny to an industry still smarting from the implosion of MF Global, former New Jersey Gov. Jon Corzine's futures firm, which was missing billions in customer cash when it collapsed in October.
Peregrine customer Kevin Davey said the allegations, if true, violate a bedrock principle of futures trading. Traders are confident in their brokerages because they believe that nobody will touch the money in customer accounts.
"The whole industry is based on that," Davey said.
Peregrine helped customers buy, sell and trade foreign currency and futures and options – investments whose value changes based on the expected future price of food and energy commodities and other investments.
The commission said Peregrine falsely reported to the agency that it held $220 million in customer funds when it actually had only $5.1 million. The agency is asking the court to freeze the firm's assets and appoint a receiver to take over Peregrine. Regulators forced Peregrine to freeze customer accounts on Monday.
In a statement to clients, the firm acknowledged the elder Wasendorf's suicide attempt but provided no information on his condition, saying only that his actions provoked investigation of "some accounting irregularities."
Neither a spokeswoman for Peregrine nor the firm's attorneys responded to a call seeking comment.
FBI spokeswoman Sandy Breault said the bureau is gathering facts on the matter as a first step before launching a possible full investigation.
Peregrine was sued in February in federal court in Minnesota over the company's relationship with customer Trevor Cook, who is now serving a 25-year sentence for his role in what the lawsuit called "one of the largest Ponzi schemes in Minnesota history."
The receiver accused Cook and his confederates of stealing more than $190 million from more than 1,000 investors, many of whom were completely ruined financially. Wasendorf's company allowed Cook to open and manage trading accounts "in the face of overwhelming red flags of fraud or insolvency," the lawsuit said.
Cook and his associates ultimately lost more than $30 million.
The suit alleged that Peregrine should have known since Cook became a customer in 2006 that he was "a suspicious and high-risk customer and business partner." In 2001, Cook was sanctioned by the National Futures Association for "conduct reflecting a lack of honesty." The suit is pending in federal district court.
Also in February, the company and its executives paid $700,000 to settle charges by the futures association, the regulator that shut it down this week. The association alleged that Peregrine had failed to supervise brokers that made deceptive sales pitches and sought big commissions at the expense of customers.
That helped convince Phil Flynn, at the time a broker with Peregrine, to leave the firm after five years.
"For me, that was a big red flag to start looking for another firm," said Flynn, who now works with Price Futures Group in Chicago. "My only regret is that I didn't act faster."
Flynn said there were other strange things about working for Peregrine: He learned about the company's problems in newspapers, not directly from management.
And he said Wasendorf Sr. gave an awkward, rambling speech at the company's most recent Christmas party about his early business career and what it takes to become a success.
"It was kind of a downbeat thing for a Christmas party, kind of out of place and weird," he said.
Flynn said some firm employees referred to Wasendorf's inner circle as "Wasendorfians." He said the chairman was often surrounded by underlings who treated him "like he was the rock star of the firm, with great deference."
Wasendorf built an $18 million headquarters for the company that included a daycare center, a Montessori School for employees' kids and free breakfast and lunch, Flynn said.
"It was almost unbelievable," he said of the facility's opulence.
After the failures of MF Global and Peregrine, Peregrine customer Davey said traders are beginning to lose faith in regulators' ability to safeguard their money.
MF Global filed for bankruptcy protection in October after it was crippled by disastrous bets on European debt. A bankruptcy trustee is still trying to recover $1.6 billion in money missing from MF Global's client accounts.
"People's confidence was shaken last October," Davey said. "Now it's really put a dagger into a lot of people's hearts."
He said he has talked to people who might stop trading because they don't know whom they can trust with their money.
"The effect is going to be on some of these smaller retail accounts that provide a fair amount of volume and money to the markets," he said. "They might dry up and say `I'm not even going to try playing this game.'"
Peregrine had assets of $500 million to $1 billion and liabilities of $100 million to $500 million, according to its bankruptcy filing. It had between 10,000 and 25,000 creditors.
Flynn said he was amazed that regulators failed to catch the problem earlier, given the scrutiny of firms like Peregrine after MF Global's downfall.
"It's mind-boggling to me," he said. "They're talking about new regulations, but that doesn't get to the crux of the problem. The crux of the problem is, where's the money? You say you have X amount of dollars. Where is it?"
Suhr reported from St. Louis. Associated Press writers Pete Yost and Marcy Gordon in Washington contributed to this report.
Daniel Wagner can be reached at . www.twitter.com/wagnerreports