* Wasendorf married in Vegas weeks before planned Iowa wedding
* Employees pack up as founder said to emerge from coma
* Hometown cancels triathlon, mayor fears for jobs
* Futures Industry Association "outraged"
* Citigroup gives clients access to collateral data
By P.J. Huffstutter
CEDAR FALLS, Iowa, July 11 (Reuters) - Employees emptied their desks as a local charity collected food from the cafeteria of failed broker PFGBest's Iowa offices on Wednesday, most still seeking answers to the expanding scandal that has shaken the industry.
Two days after the attempted suicide of founder and chairman Russell Wasendorf Sr, regulators are piecing together the alleged fraud that caused more than $200 million of the broker's client funds to vanish -- and the cover-up that hid the fact the money was missing for more than two years.
Peregrine Financial Group, the firm's regulated unit, filed for bankruptcy late on Tuesday, setting off an exodus of employees and howls of outrage over regulators who failed to prevent another broker from tapping into client funds, following in MF Global's footsteps just eight months later.
The mystery deepened on Wednesday with news that Wasendorf, who had initially invited guests to a local wedding planned for next month, had actually married his fiancée Nancy Paladino in Las Vegas on June 30, according to a county filing.
On July 3, the 40-year industry veteran signed over power of attorney to his son, Russell Wasendorf Jr, according to the bankruptcy filing. Wasendorf Sr had also recently agreed to allow regulators to confirm his bank balances electronically, a change that would quickly expose his deceit.
Wasendorf, airlifted to a hospital in Iowa City in critical condition on Monday after being found with a hose pumping exhaust into his car, may soon provide more clues.
Two employees -- out of a few dozen who were still coming to work, hoping they might yet be paid for helping answer clients' questions -- said they were told that he was awake and had expressed remorse for his actions. Neither the hospital nor his family has confirmed his current condition.
Wasendorf's family could not be reached by phone nor by visits to their homes in Cedar Falls.
The fallout reverberated across this small, classic Midwestern town of 40,000. An annual triathlon sponsored by PFG was cancelled. Wasendorf's restaurant myVerona, where his wife was to work, was shut tight. And the local university, still drawing on a record $2 million donation he made to the athletics department in 2009, may drop his advertising.
"I'm not sure how many people sold their homes in Chicago to relocate here," said Jon Crews, the mayor of Cedar Falls, where Wasendorf moved his headquarters in 2009. "They have a specialized job, they can't just move across town and get a new job."
As a new wave of anger washes over an industry that is still nursing the wounds caused by MF Global, employees of the company were initially more shocked than hurt.
"The whole thing was a shock," said one employee as he drove up to PFGBest's shining, modern $18 million complex outside of town, a building Wasendorf touted as an example of the "back to the heartland" economic invigoration he celebrated.
The employee, who described himself as a director of wealth management for the company, said he was "best friends" with the founder's son, who ran day-to-day operations.
"I'm frustrated. I know there's a lot of frustration for Russ Jr. He told me yesterday that there were no signs, no indications," said the man, who declined to give his name.
Moments later, a white truck from the Northeast Iowa Food Bank pulled in; the driver said he had been called to gather the excess food from the cafeteria and common area.
Several miles to the south is the central post office where Wasendorf is alleged to have diverted confidential National Futures Association (NFA) documents meant to verify his bank holdings, according to copies of the documents filed with PFGBest's Chapter 7 bankruptcy late on Tuesday.
A few steps inside the 24-hour lobby, a wall of post office boxes fronted by ornate brass panels includes one marked 706 -- the destination, according to the filings, of an NFA request to verify PFGBest's funds meant to be sent to U.S. Bank, a large regional bank. It is not clear who rented the box.
"Given that we were providing banking services to Peregrine, we are cooperating fully with authorities," said Tom Joyce, a spokesman for U.S. Bancorp.
Wasendorf intercepted the letter and returned it to the NFA with forged signatures and falsified bank statements, according to a person familiar with the investigation. Instead of the over $200 million that he reported PFG was holding, the account had less than $10 million, according to a lawsuit by the Commodity Futures Trading Commission (CFTC).
Up to a dozen investigators were in the firm's Chicago office on Wednesday, an employee said.
Mike Leska, a trade clerk who worked at PFG in Chicago for six years, said he had been told that Wasendorf Sr was conscious and had apologized. He said a "loyal" group of employees was working to help clients for the moment.
Not all were prepared to slog on. One former employee has sued the company, claiming that he and others in its Chicago and Iowa offices were fired en masse on Monday without cause or 60 days notice, violating federal law. According to the complaint, it is unclear how many workers were let go.
Unlike the collapse of MF Global last October, which entered a quickening downward spiral over a period of weeks after bad bets triggered margin calls, PFGBest's failure was a bolt out of the blue. The Friday before, it had been business as usual.
"It's really disgusting," said Leska, his voice quavering. "We all thought he was different."
The sentiment was widely shared, but some reserved the harshest words for regulators, including the NFA, for having failed to spot more than two years of trickery.
The Futures Industry Association, an industry body that unlike the NFA has no regulatory duties, said it was "outraged" by the deceit.
"While an individual bent on fraud can confound even the most sophisticated compliance framework, measures to mitigate the risk of fraud must continue to be vigorously pursued," it said.
Since MF Global, the topic of client security has been a constant theme. Citigroup, one of the top-tier brokers that dominate the industry, said on Wednesday that it had just begun giving its customers daily Internet access to details about how their collateral is invested.
"Clients want transparency," said Christopher Perkins, Global Head of OTC Clearing at Citigroup. "They want confidence that segregation is working, particularly after MF Global and yesterday's events."
PFGBest's offices, hailed as one of the most eco-friendly in Iowa, were built for expansion with plans to house up to 300 employees. It never was filled near to capacity, and only a dozen or so employees showed up to work on Tuesday -- most having packed up a day ago, as it grew clear the company was in dire straits.
The University of Northern Iowa in Cedar Falls is considering dropping paid advertisements at its sporting events from PFGBest and myVerona restaurant in light of the allegations, school spokesman Jim O'Connor said.
"We would have to make decisions based on events as they occur," he said. "The University of Northern Iowa takes very seriously its relationship with the community and its friends and donors. We want to make sure that we're cognizant of what's going on in our community."
Once an avid marathoner, Wasendorf championed an active lifestyle. PFG Charities sponsored a triathlon and a weekly open swim in nearby Waterloo, even providing child care for participants, said Scott Gall, owner of Runner's Flat, where Russ Jr and wife Amber buy their running shoes.
But Amber phoned on Tuesday to say this year's triathlon, slated for Aug. 19, had been cancelled, he said.
She was "as calm as could be expected". Asked how she was, Amber told him: "We're just doing what we can."
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