The encyclopedia · Legal & Compliance · Financial decision · 2012
Peregrine Financial's CEO stole $215M in customer funds over 30 years
For two decades Wasendorf forged the bank statements auditors checked. The shortfall was $215M: PFG claimed $220M in customer funds and held $5.1M.
Peregrine Financial Group · 2012-07
What happened
Russell Wasendorf Sr. founded Peregrine Financial Group, an Iowa futures brokerage, and took roughly $215 million from customer segregated accounts over nearly two decades, using it to fund other businesses, his own spending and trading losses.
The fraud held because Wasendorf controlled the paper. He rented a PO box, intercepted the bank's statements and produced forged replacements on a home printer, so the balances auditors verified were balances he had written himself. Regulators checked documents, not banks.
In July 2012 the National Futures Association moved to electronic confirmation, asking banks directly for the balances instead of accepting statements from the firm. The CFTC complaint filed that month put the gap plainly: PFG represented that it held over $220 million of customer funds and held about $5.1 million. Wasendorf was sentenced to 50 years.
Why it happened
- One person controlled both the customer funds and the documents that proved the funds existed.
- Auditors verified balances against statements supplied by the firm, never against the bank.
- A rented PO box let Wasendorf intercept the real statements before anyone else saw them.
- The controls only failed open: nothing in the process was designed to catch a forged document.
The lesson
If the party being audited supplies the evidence, the audit tests their honesty, not their books. Confirm balances with the institution holding them.
Aftermath
PFG was liquidated and Wasendorf sentenced to 50 years. The NFA made electronic bank confirmation standard for futures commission merchants, closing the gap that let a forged statement pass for two decades.
Sources
- CFTC complaint against Peregrine Financial Group and Russell R. Wasendorf, Sr. (Release 6300-12)
- Peregrine Financial Group — Wikipedia
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