On a slow midsummer news day two years ago an industry friend had called me up and asked if I heard the news about Russ Wasendorf Sr., head of Peregrine Financial Group (PFG) or PFGBest? I did not but was perhaps one of the first industry news sources that did -- other than the Cedar Rapids Ia. reporters working the police beat -- because my friend and occasional contributor was a customer of PFG who spoke to an employee as the news broke and received a press release from the firm matter of factly stating that accounts were frozen and accounting irregularities were being investigated following a suicide attempt by Wasendorf Sr.
Wow. In the days that followed we learned that Wasendorf had been embezzling money from his firm for more than 20 years in one of the most audacious, if not largest, frauds of all time.
I also recalled feeling foolish as Wasendorf spent lavishly at industry events; well beyond what one would expect from the 33rd largest Futures Commission Merchant (FCM). In hindsight we should have been investigating just how a relatively minor futures broker be sponsoring industry event featuring high level speakers commanding six-figure fees. And Wasendorf, a frequent source to futures (who actually worked as a sales manager in the early days of the magazine under fellow Iowan Merrill Oster) was beginning to show the stress of carrying on a 20-year fraud.
For those now familiar with the futures space, FCMs are brokers and they range for the large investment banks to smaller firms targeting retail and agricultural hedgers. PFG was probably in the second tier of the smaller retail focused FCMs.
This was no small fraud. Coming on the heels in the MF Global debacle, it threatened the entire futures industry structure. One fraud and violation of customers segregated funds is an anomaly, two might be considered a trend. Never mind that the two situations were vastly different, this meant our industry that held itself above the fray during the credit crisis would be in the regulatory crosshairs. And while the frauds were different: one involving a firm playing musical chairs with customer funds in order to prop up a large and costly proprietary position, the other outright theft cleverly hidden over 20 years; they were also similar in that they came down to greed and hubris. Jon Corzine wanted to recreate Goldman Sachs but would do it with other people's money. He led Goldman and was first a senator and then Governor of New Jersey. He simply acted as if the rules did not apply to him, and given the lack of a criminal prosecution, he could be right. Wasendorf was a wannabe who felt slighted by the major players in the industry. He bought his way to the lead table.
The biggest difference is that Wasendorf is in jail and Corzine can be seen on the beaches of Martha's Vineyard.
Wednesday June 11, CNBC premiered an episode of "American Greed" highlighting the PFG fraud. The episode title is "The Falcon & the Con Man," and Futures former Editor-in-Chief Darrell Jobman contributed to the piece.
It will be interesting to see how this comes out. It may not be the last time a futures industry fraud is highlighted on a program like this.