Russell Wasendorf Sr. – Peregrine Financial Group
He built an financial empire by tricking regulators with a copy machine
Long before crypto exchanges vaporized customer money with exotic algorithms, the founder of Cedar Falls, Iowa-based commodities broker Peregrine Financial Group discovered that one of Wall Street’s greatest vulnerabilities was office equipment.
For nearly two decades, Russell Wasendorf Sr. stole more than $215 million from customer accounts while convincing regulators everything was perfectly fine.
His master weapon? A photocopier. Then, as technology progressed, he advanced to Photoshop.
Wasendorf quietly siphoned money out of customer-segregated accounts beginning in the early 1990s after his business partner pulled out with all his money, according to federal prosecutors. Each time he took money, he simply created fake bank statements showing balances that didn’t exist.
Instead of hacking computers or manipulating high-frequency trading algorithms, he allegedly intercepted bank confirmations, forged signatures, fabricated statements and even established a post office box that appeared to belong to U.S. Bank. Regulators mailed verification forms there. Wasendorf filled them out himself, signed someone else’s name, and mailed them back.
And nobody thought to pick up a telephone?
Wasendorf used most of the money to create the appearance of success when he was in fact failing. He also opened two restaurants in Cedar Falls and lived in luxury with a private jet and an estate that included a million-dollar indoor swimming pool and a 1,000-bottle wine cellar.
The deception continued year after year while Peregrine grew into one of America’s largest independent commodities and futures brokers – at least on paper.
Then came July 2012.
Facing an unexpected regulatory audit that required direct electronic confirmation from the bank rather than paper statements, Wasendorf realized the game was over.
He attempted suicide outside company headquarters, leaving behind a confession that detailed decades of fraud.
Investigators discovered that Peregrine claimed to be holding more than $220 million in customer funds. The real balance? About $5 million.
More than 13,000 customers ultimately lost money, and prosecutors said the fraud exceeded $215 million.
In 2013, a federal judge sentenced Wasendorf to 50 years in prison, the maximum allowed by law. He also ordered more than $215 million in restitution.
Acting U.S. Attorney Sean R. Berry of the Northern District of Iowa called him “a con man who built a business on smoke and mirrors.”
“By lying to investors and regulators, Wasendorf defrauded thousands of innocent investors out of a staggering $215,000,000,” Berry said.
And that’s the bigger embarrassment, a regulatory system that enabled such an unsophisticated fraud.
For nearly twenty years, regulators, auditors and financial institutions accepted paper documents created on a copy machine.
They might as well have sent the arrest warrant by fax.