Russell Wasendorf — twenty years of forged statements, one post office box

In Cedar Falls, Iowa, on July 9, 2012, a nearly two-decade fraud ended with its author unconscious in his car. Russell R. Wasendorf Sr., founder and chief executive of Peregrine Financial Group, the futures brokerage that traded as PFGBest, had for roughly twenty years stolen money from the segregated accounts that were supposed to hold his customers’ funds inviolate. He hid the theft by forging the firm’s bank statements, intercepting the auditors’ and regulators’ verification letters through a post office box he secretly controlled, and reporting balances that did not exist. By the end, the gap between the reported and the actual customer funds was about $215 million.

The outcome was conclusive. After a failed suicide attempt outside the firm’s headquarters, Wasendorf was found with a signed statement confessing in detail to the fraud. He was arrested on July 13, 2012, and on September 17, 2012, he pleaded guilty in the U.S. District Court for the Northern District of Iowa to mail fraud, embezzlement of customer funds, and making false statements to the Commodity Futures Trading Commission. On January 31, 2013, Judge Linda R. Reade sentenced him to 50 years in federal prison, the maximum allowed for his offenses, and ordered restitution of $215,530,041.39 to more than 13,000 victims, along with a $100 million forfeiture.

The mechanics were as low-technology as the sum was large. Wasendorf did not run a Ponzi scheme of fabricated returns; he simply withdrew customers’ segregated money and lied to everyone empowered to check. For years his lie defeated the system meant to catch it because that system relied on mailing a confirmation request to the bank and trusting the reply, and Wasendorf had made himself the reply. A forged December 31, 2011 statement showed roughly $221.8 million on deposit; the real figure was about $6.3 million.

What distinguished the Wasendorf case was its endurance and its single point of failure. A futures broker’s customer funds are protected by a bright-line rule, they must be kept segregated and reconcilable to bank records, and the fraud lived entirely in the space between the records and their verification. For two decades one man controlled that space by controlling the mail. The scheme did not collapse under its own weight or a market shock. It died the moment the verification moved somewhere he could not reach.