FBI: Russell Wasendorf Arrested After Admitting Fraud

A prominent futures-industry executive was arrested on Friday after confessing to embezzling from clients and defrauding banks over nearly two decades.

Russell Wasendorf Sr., the chief executive of the futures brokerage firm Peregrine Financial Group, admitted that he stole more than $100 million from his customers, prosecutors say. The formal charges, brought by federal prosecutors in Iowa, accuse him of lying to government regulators.

The criminal charges cap compelling events that played out this week in Cedar Falls, Iowa, a small town of 40,000, where Peregrine was based. Local police found Mr. Wasendorf unconscious in his car in the company parking lot. He had tried to kill himself, and the criminal complaint contained lengthy excerpts from a suicide note and statement that detailed his crimes.

“I have committed fraud,” said the note. “For this I feel constant and intense guilt.”

Mr. Wasendorf, 64, made his first court appearance late Friday in Federal District Court in Cedar Rapids after F.B.I. agents arrested him at an Iowa City hospital. He entered no plea and is being detained pending another court hearing next week. A prosecutor said that Mr. Wasendorf could face additional charges.

In his note, Mr. Wasendorf laid out how for nearly 20 years he had forged false account statements from U.S. Bank to embezzle millions of dollars from his customers at Peregrine, which also did business as PFGBest. Though it had nearly 150 employees, Mr. Wasendorf said that he alone committed the crime.

“With careful concealment and blunt authority, I was able to hide my fraud from others at P.F.G.,” he said.

Mr. Wasendorf was a local hero in Cedar Falls. He started his business there in the late 1960s after graduating from the University of Northern Iowa. Peregrine migrated to Chicago but in 2009, Mr. Wasendorf moved the headquarters back to Iowa.

After Mr. Wasendorf’s unsuccessful suicide attempt — he had run a hose from the car’s tailpipe into its interior — regulators discovered about $215 million in customer money was missing.

Peregrine’s supposed bank statement with U.S. Bank said it had $221 million in customer funds, but when law enforcement officials checked with U.S. Bank, there was only $6.3 million in the firm’s account.

The Commodity Futures Trading Commission filed civil fraud charges against Peregrine and effectively shut the firm.

Futures brokerage firms like Peregrine match buyers and sellers of contracts for commodities, charging a thin commission for the service. Peregrine’s clients include farmers who use such contracts to protect themselves from large price fluctuations.

Those clients have been fleeced by Mr. Wasendorf, whose extraordinary confession details his brazen crime. He said that he was able to conceal his fraud by being the only P.F.G. employee with access to the firm’s customer accounts held at U.S. Bank.

“The bank statements were always delivered to me when they arrived in the mail,” he wrote. “I made counterfeit statements within a few hours of receiving the actual statements and gave the forgeries to the accounting department.”

He said that he became an expert in forging the statements.

“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.

To evade regulators, he used to using a false post office box to intercept requests from the National Futures Association. When Internet banking became common, he learned how to create sham online statements.

“The regulators accepted them without question,” he said.

Coming on the heels of the collapse of MF Global, a commodities and futures brokerage firm where about $1 billion in client money went missing, the Peregrine fraud has raised new questions about oversight failures in the futures industry.

“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,” said Andrew Stoltmann, a securities lawyer in Chicago.

Mr. Wasendorf’s suicide note echoed some of the admissions made by Bernard L. Madoff, the former New York money manager who is serving 150 years in prison after confessing to a decades-long fraud. Mr. Madoff said that he started operating a Ponzi scheme when his investment business started to falter and he couldn’t acknowledge defeat.

Mr. Wasendorf expressed a similar sentiment.

“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 wrote. “I guess my ego was too big to admit failure. So I cheated.”