If Russell Wasendorf Sr. had carried out his years-long, $200 million-plus fraud in New York City instead of what is sometimes described too loosely as “flyover country,” he might have become a household name by now, given the scope of his crimes.
Federal prosecutors in the Northern District of Iowa want Wasendorf, who was 64 when he pleaded guilty in September, to get 50 years in prison when he is sentenced in Cedar Rapids on Jan. 31. He admitted dozens of counts of mail fraud, embezzlement and making false statements to the U.S. Commodity Futures Trading Commission and a futures association.
Arrested last July, Wasendorf had been expected to remain free on bail pending resolution of his case. But not many days after his arrest, whether out of guilt or fear of spending the rest of his days in prison or both, he tried to kill himself by running a hose from the exhaust pipe to the inside of his car, where he was sitting in the parking lot of the headquarters of his Peregrine Financial Group in Cedar Rapids.
“I have committed fraud,” said a note written by Wasendorf and found by police, according to The New York Times. “For this I feel constant and intense guilt.”
In view of what is now known, a photograph of a smiling, seemingly optimistic Wasendorf standing in the sunshine outside the Peregrine building a few years ago is rather chilling. As he was flashing his teeth for the camera, he was already years deep into a scheme that stole vast sums from his customers. One is reminded of Bernard Madoff posing in his Manhattan office, the personification of careful, prudent investing, until his business and his life were revealed to be one big lie.
When Wasendorf was posing — posing in every way — outside his building, he was something of a local hero in Cedar Rapids, having moved the headquarters of Peregrine from Chicago. But he was already deep into a fraud operation in which he would steal money from customers that was supposed to be used to buy them futures and options, according to a 17-page document in which Wasendorf pleaded guilty.
Wasendorf acknowledged in his plea agreement that he faked paperwork to convince investors and regulators that he was keeping his and his clients’ money separate, when in fact he was raiding customer accounts.
“Using a combination of Photoshop, Excel, scanners, and both laser and ink jet printers I was able to make very convincing forgeries of nearly every document that came from the bank,” he said, according to The Times. He used a phony post office box and, when on-line banking became common, he learned how to create fake on-line statements.
“The regulators accepted them without question,” he said, according to the Times account.
Wasendorf was apparently able to carry out his fraud for so long because he was the only one of the 150 or so people at the now defunct Peregrine, which he founded in the 1960’s, to have access to the firm’s most sensitive documents. He has said he was the only one to commit fraud, although it remains unclear whether he had help.
It is also unclear what happened to all his clients’ money, but it does not seem that Wasendorf was driven by a desire to have mansions, yachts and rare artwork. Rather, he was trying to cover his own bad investments. “I had no access to additional capital and I was forced into a difficult decision: Should I go out of business or should I cheat?” he said, according to The Times. “I guess my ego was too big to admit failure. So I cheated.”
This much seems clear: the damage caused by Wasendorf will not be repaired soon. “The fact that regulators did not catch this earlier is likely the final nail in the coffin in eviscerating public trust in the commodities market,” Andrew Stoltmann, a securities lawyer in Chicago, said in The Times.