eMini Trading

CEDAR RAPIDS, IA. — Russell Wasendorf Sr., the Cedar Falls commodities broker and philanthropist arrested Friday for pilfering millions in customer funds, left what was intended to be a suicide note detailing in eloquent terms how he pulled off the scam.

The founder and CEO of the bankrupt Peregrine Financial Group said in a signed statement found at the scene of his failed suicide attempt that he has been stealing his investors’ money for nearly 20 years. He described how he used Photoshop and Excel computer software and high-quality printers to fool regulators. He also used “blunt authority” to prevent anyone from questioning him, he said.

The disgraced Cedar Falls businessman faces federal charges and potentially decades in prison for allegedly stealing millions from customer accounts at the company he founded.

The 64-year-old Wasendorf was arrested by the FBI on Friday. He appeared in a Cedar Rapids federal court later in the day, wearing handcuffs, jeans and a T-shirt. He is accused of making and using false statements to the U.S. government. He could still face more charges.

The U.S. Attorney’s office used Wasendorf’s suicide note to outline how he kept federal regulators from discovering the theft, which he told investigators during a hospital interview this week totaled at least $100 million. In his note, Wasendorf also claimed he acted alone, bragging about quickly adapting to new technology and his talent for quickly producing forgeries.

The revelation that Wasendorf avoided discovery for nearly two decades rattled market watchers, prompting them to both question oversight of the nation’s financial system and whether the former industry leader and community icon could have accomplished it alone.

Peter Deegan, an assistant U.S. attorney, declined Friday to answer whether charges might be filed against others in the case.

An attorney representing Peregrine President Russell Wasendorf Jr. said Wasendorf’s son and family were devastated by the actions detailed in the suicide note. Hundreds of workers are without jobs, and thousands of investors have been swindled.

Wasendorf Jr. “found out his father betrayed him — and has been living a lie for 20 years — and the company he ran is insolvent. It’s devastating,” said Chicago attorney Nicholas Iavarone. Wasendorf’s note was addressed to his wife, and a copy was left for his son.

“The business was his future and now it’s gone,” said Iavarone, who added that Wasendorf Jr. is not under investigation in connection with the alleged corporate theft.

On Friday, Wasendorf answered the judge’s questions coherently and succinctly just four days after allegedly trying to commit suicide via asphyxiation. Wasendorf, found unconscious near his Cedar Falls headquarters, had connected a hose to his vehicle’s exhaust pipe.

“I’m taking antidepressants, your honor,” Wasendorf replied after being queried about his medication. The owner of Peregrine, which markets itself under the brand PFGBest, indicated the drugs didn’t hinder his judgment.

Wasendorf’s bail will be discussed Wednesday when he appears in the court again for detention and preliminary hearings.

Wasendorf, whose years of embezzlement left him with “constant and intense guilt,” began forging documents to stay in business, he wrote.

“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. So, I cheated. I falsified the very core of the financial documents of PFG.”

Wasendorf said he worked alone all those years, using his sole ownership of the company to hide his secret.

“By taking full responsibility it looks like he’s trying to protect people at PFG from criminal liability, but I just don’t think he could bully his CFO from not ever communicating with the bank,” said John Roe, co-founder of the Commodity Customer Coalition, a watchdog group established following the collapse of MF Global last October to help clients regain their money.

“It’s not as simple as ‘Oh, I gave everybody the bank statements in-house,’ ” said Roe. “At some point, somebody had to have requested funds from that account. He’s not going to be there all the time to intercept those requests.

“Someone had to have discovered the money they thought was there was not there,” said Roe, adding he believes additional charges will be filed against others at the company. “This is just the tip of the iceberg.”

Wasendorf said he used “careful concealment and blunt authority” to hide his fraud from others.

“PFG grew out of a one-man shop, a business I started in the basement of my home. As I added people to the company, everyone knew I was the guy in charge,” he wrote.

Wasendorf said no one else at the company ever saw “an actual US Bank statement. The statements were always delivered directly to me” when they arrived in the mail.

“I made counterfeit statements within a few hours after receiving the actual statements and gave the forgeries to the accounting department,” he wrote.

Iavarone, the Chicago attorney representing Wasendorf Jr., said he and his client initially doubted the note’s contents.

“Everyone assumed that regulators were watching and everything was fine,” he said. “Regulators were looking at the books, but they never walked over to the bank to confirm the information. If you have a spreadsheet and a crayon you can fool regulators.”

Wasendorf also described his son’s role as limited to running the daily operations and removed from any financial oversight. “He decided who to hire, who to fire, what programs to market, what business plans to expand, what lines of business to curtail. He had nothing to do with the financial reporting.”

Wasendorf admitted to opening a post office box to intercept customer fund confirmation reports from banks intended for regulatory auditors. “I would intercept the form, type in the amount I needed to show, forge a bank officer’s signature and mail it back to the regulator or certified auditor,” he wrote.

Wasendorf said he used a combination of “Photo Shop, Excel, scanners and both laser and ink jet printers,” crowing that he could make “very convincing forgeries” of nearly every document the bank sent.

“I could create forgeries very quickly so no one suspected that my forgeries were not the real thing that had just arrived in the mail,” he said. “When online banking became prevalent, I learned how to falsify online bank statements and the regulators accepted them without question.”

The complaint covers Wasendorf’s activities from 2010 through July 2012. It alleges he made false statements to the U.S. Commodity Futures Trading Commission regarding the value of customer-segregated funds held by Wasendorf’s company.

The commission and National Futures Association forced the Cedar Falls company to cease operations on Tuesday.

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