When Leon Bressert first heard that his former employer, Peregrine Financial Group, had collapsed amid fraud allegations, he was not surprised. “I was waiting for something like that to happen,” he said.
Bressert, who worked at the Iowa-based commodities brokerage in IT and business development from 1998 to 2001, said that even back then, he had his doubts about the way PFG did business. “I thought their business practices were suspect. The way they treated their employees was suspect. The spending habits were weird,” said Bressert, who eventually joined rival commodities broker REFCO, which suffered its own financial scandal and closed its doors in 2005.
On Friday, PFG founder Russell Wasendorf Sr. was arrested and charged with making false statements to regulators after admitting that he embezzled more than $100 million in customer funds from the firm over decades.
Earlier in the week, Wasendorf was discovered unconscious in a car parked near PFG's headquarters following a suicide attempt. Police also found a confession signed by Wasendorf in the car which said for years he intercepted financial audit documents from regulators using a Post Office box then, with "a combination of Photo Shop, Excel, scanners, and both laser and ink jet printers," forged the bank documents he sent back.
"I had no access to additional capital and I was forced into a difficult decision: Should I go out of business or cheat? I guess my ego was too big to admit failure,” the note read. "I have committed fraud."
PFG filed for bankruptcy Tuesday, the same day that the Commodity Futures Trading Commission filed a civil complaint against Peregrine, accusing the firm of a massive shortfall in its customer accounts.
Since PFG's implosion, former employees are painting a picture of a troubled workplace in which finances were questionable and ethical boundaries pushed.
Jerome Bressert, Leon Bressert’s brother, first started working with PFG in 1998, helping to develop its online futures trading platform known as BEST, or Bressert Electronic System Trading. While Jerome Bressert cannot talk about his experiences at the company due to a settlement with the firm, Leon Bressert said his brother came to PFG with Wasendorf's promise of a major stake in the BEST online trading division.
Despite the fact that Bressert helped develop the software that ultimately lent the company part of its name [Peregrine's online futures brokerage became known as PFGBest], Leon Bressert said his brother never received the stake he was promised. Ultimately, Jerome Bressert was pushed out in 2001, agreeing to leave the technology behind.
Some time after he left PFG, he was fined for inappropriately accessing PFG's client data. Leon Bressert said he still feels as though the company stole his brother's software.
Travis Cochran, who worked as a broker at PFG from 1997 to 2001 in the Winter Park, Fla., branch (and later went on to work with Jerome Bressert post-PFG) confirmed Bressert's account and said that this was oft-repeated with PFG workers. "The pattern with employees was the same thing over and over again," said Cochran. "As soon as you came in and you were a significant producer commission-wise, Wasendorf would try to take your business and squeeze you out."
"Russ [Wasendorf] acts like your best friend until you sign into a deal with him; then, all of a sudden, he's king of the hill and he could get pretty nasty," agreed John Indelicato, who worked closely with Wasendorf at PFG between 1998 and 2001, and is now developing a computerized trading system.
Bob Cihlar, who worked as business development manager at PFG between 2000 and 2002, said it wasn't uncommon for the firm to do the same with its introducing brokers -- middlemen between the firm and clients looking to trade commodities -- even after those brokers no longer did business with PFG.
Cihlar, who now works in business development at futures trading firm Dorman Trading, said that this is far from standard industry practice. "When they severed the relationships [with the introducing brokers], in several instances they made attempts to keep the customers' accounts," he said, adding that the practice made a number of employees uncomfortable. "They're not PFG's accounts."
"In some instances, they would go after the [introducing brokers'] customers," agreed Werner Maevski, who worked at PFG from 2000 to 2002 in business development, leaving for a similar job at its larger, but ultimately similarly troubled competitor MF Global. "Which is simply wrong."
And after the firm severed its relationship with employees, PFG would often follow up in the courts, according to numerous former employees who spoke to The Huffington Post. Wasendorf "would use the court system to do his talking," said Cochran, often fighting to enforce cease-and-desist and non-compete agreements against former employees.
Questionable behavior also occasionally extended to clients, according to one former employee. "Sometimes, mistakes were made by employees" that would result in losses, said the former employee, who asked to remain anonymous on the subject. "PFG would pass the cost of those mistakes along to clients. That should never happen. If you make a mistake, [the firm] should cover it every time. But I saw times when Peregrine wouldn't take responsibility for losses."
Though the former employees who spoke to The Huffington Post said they never witnessed outright fraud, some agreed that firm finances seemed off.
"They spent money like it was going out of style, and I know they didn't have a [lot] of income, so where's the money coming from?" said Maevski, who worked at an independent brokerage firm in Chicago until this past April and is now interviewing for a new job. "You have to justify it with the business. But the business did not justify the amount of expenditures they had."
Maevski pointed to such red flags as PFG's lavish, multimillion-dollar headquarters in Cedar Falls and a trade magazine Peregrine published called SFO that Maevski said had few subscribers, but on which the company focused a great deal of attention. "We assumed that PFG was breaking even and that Wasendorf was making money from other business dealings," said Cochran.
Repeated calls to PFG were requesting comment on these allegations were not returned.
In his signed confession, Wasendorf said that he had acted alone in embezzling client funds. Authorities are investigating whether others at the firm were involved in the fraud, according to Dow Jones Newswires.
CORRECTION: Bob Cihlar's name was misspelled in a previous version of this story. We regret the error.