Peregrine Financial Group (PFG), Inc. and Russell Wasendorf SR

 10-36.
Peregrine Financial Group (PFG), Inc. and Russell

Wasendorf Sr.
FRAUD
ETHICS
PROFESSIONAL SKEPTICISM
LO 2, 3, 4, 8, 11 Refer to the Why It Matters feature at the beginning of
the chapter. On July 14, 2012, Russell Wasendorf Sr. attempted to
commit suicide inside his vehicle in the parking lot of Peregrine
Financial Group, Inc.’s (PFG) corporate offices, leaving a remarkable
suicide note in his vehicle detailing a fraud scheme in which he
embezzled over $200 million from PFG’s brokerage clients over a 20-
year period. Wasendorf led a very interesting and affluent lifestyle and
ran the business in some unusual ways. Examples include:
1. In addition to owning PFG, he also owned an Italian restaurant,

My Verona, in Cedar Rapids, Iowa, along with publishing
companies (SFO Magazine and W&A Publishing/Trader’s Press)
and a real estate operation in Bucharest, Romania.
2. He married his fiancée, who works at My Verona, in the Bellagio
Hotel in Las Vegas on June 30, 2012.
3. His son, Russell Wasendorf Jr. ran the operations of PFG and was
the president and chief operating officer of the company, but did
not have detailed access to important financial records of the
company. Instead, Russell Wasendorf Sr. had sole control of the
company’s bank accounts.
4. He flew his private jet to Chicago often for business, but was also
known to take the jet all around the world to attend Lady Gaga
concerts.
5. He recently pledged a $2 million donation to the Athletic
Department at the University of Northern Iowa.
6. He attempted, but failed, to commit suicide by hooking up a tube
to his car’s tailpipe when suspicions of the fraud were revealed.
An empty bottle of vodka was next to his body. He was
subsequently hospitalized at the University of Iowa Hospitals and
Clinics in Iowa City, and was removed from his hospital bed by
FBI agents while simultaneously speaking to his Chicago-based
lawyer, Thomas Breen. Later that day, he appeared in federal
court related to charges of lying to federal regulators and was
considered a flight risk.
Here are quotes from Wasendorf’s suicide note:
“I have committed fraud. For this I feel constant and intense guilt. I am
remorseful that my greatest transgressions have been to my fellow
man. Through a scheme of using false bank statements I have been able
to embezzle millions of dollars from customer accounts at Peregrine
Financial Group, Inc. The forgeries started nearly twenty years ago and
have gone undetected until now. I was able to conceal my crime of
forgery by being the sole individual with access to the US Bank
accounts held by PFG. No one else in the company ever saw an actual
US Bank statement. The Bank statements were always delivered
directly to me when they arrived in the mail. I made counterfeit
statements within a few hours of receiving the actual statements and
gave the forgeries to the accounting department.
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, the Bank Statements. At first I had to make forgeries
of both the Firstar Bank Statements and the Harris Bank Statements.
When I chose to close the Harris Account I only had to falsify the Firstar
statements. [Note: Firstar eventually became U.S. Bank.] I also made
forgeries of official letters and correspondence from the bank, as well
as transaction confirmation 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. 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.
With careful concealment and blunt authority I was able to hide my

fraud from others at PFG. 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. If anyone questioned my
authority I would simply point out that I was the sole shareholder. I
established rules and procedures as each new situation arose. I ordered
that US Bank statements were to be delivered directly to me unopened,
to make sure no one was able to examine an actual US Bank Statement.
I was also the only person with online access to PFG’s account using US
Bank’s online portal. On US Bank side, I told representatives at the Bank
that I was the only person they should interface with at PFG.
When it became common practice for Certified Auditors and the Field
Auditors of the Regulators to mail Balance Confirmation Forms to
Banks and other entities holding customer funds I opened a post office
box. The box was originally in the name of Firstar Bank but was
eventually changed to US Bank. I put the address “PO Box 706, Cedar
Falls, IA 50613–0030” on the counterfeit Bank Statements. When the
auditors mailed the Confirmation Forms to the Bank’s false address, 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. When online Banking became prevalent I learned how to
falsify online Bank Statements and the Regulators accepted them
without question.”
At about the same time that emergency officials responded to the 911
call in the parking lot of PFG’s offices, Russell Wasendorf Jr. arrived at
his office inside the building and found an exact copy of the suicide
note. Immediately thereafter, he contacted U.S. Bank and obtained a
bank statement with an ending balance as of December 31, 2011,
equaling $6,337,628.14. The ending balance reported by his father on
the falsified bank statement was $221,770,946.18.
PFG is a futures trading firm. Futures trading firms match buyers and
sellers of contracts for commodities like wheat, oil, and aluminum and
charge a commission for the service. Companies use futures contracts
to protect themselves from price fluctuations. PFG is a privately held
entity, so it is not subject to oversight by the SEC or PCAOB. Instead, the
U.S. Commodities Futures Trading Commission (CFTC) is the regulatory
agency responsible for the oversight of the industry, and the NFA is the
industry association that operates under the supervision of the CFTC.
The NFA is responsible for monitoring and auditing PFG for compliance
with financial reporting requirements of the domestic exchanges, of
which PFG was a member. The NFA never required electronic
verification of PFG’s bank statements.
In 2004, a PFG client complained to the NFA that PFG was misusing
customer funds. In 2009, an anonymous complaint was filed with the
NFA asking for a review of PFG’s bank account information. What, if
anything, the NFA did about the complaint was not known.
Interestingly, Wasendorf Sr., serves on an advisory committee of the
NFA. Veraja-Snelling Co. is PFG’s audit firm. The firm is operated out of
a home in Glendale Heights, Illinois. Jeannie Veraja-Snelling is the sole
practitioner and has never performed any public company audits, even
though she did register her audit firm with the PCAOB in 2010. On the
December 31, 2010, financial statements, Veraja-Snelling certified that
PFG was in compliance with federal commodities regulations governing
the segregation of customer money.
What likely prompted the timing of Wasendorf’s attempted suicide was

the fact that the NFA had just implemented a change to its online
system whereby bank statement information was directed
electronically from the banks directly to the NFA (the system can be
viewed at www.confirmation.com). The NFA started receiving
confirmations through that system one day before Wasendorf’s
attempted suicide.
PFG filed for bankruptcy almost immediately after Wasendorf’s

attempted suicide and subsequent arrest. In addition, all the other
businesses that Wasendorf ran immediately ceased operations, firing
all employees. These businesses began the process of immediate
liquidation. All customer accounts at PFG have been frozen, so investors
have no access to their assets. Because PFG is a futures trading firm, not
a traditional brokerage firm, investors do not have access to the
protections normally provided by the Securities Investor Protection
Corporation, which returns assets held in accounts of traditional
brokerage firms that fail.
1. Describe any inherent, fraud, or control risks that are evident

from the facts in the case.
2. Comment on your perceptions of the quality of the NFA’s
oversight of PFG.
3. Do you think it is ethically problematic that Wasendorf served on
an advisory committee of the NFA? Why might NFA have wanted
Wasendorf to serve on its advisory committee? What conflict
might that have caused?
4. Comment on your perceptions of the quality of Veraja-Snelling’s
certification of PFG’s compliance status. Is a sole practitioner
likely capable of sufficiently overseeing a large, complex entity
like PFG? Was it acceptable for Veraja-Snelling to accept a paper
copy of the bank confirmation, which she would have believed
came directly from U.S. Bank? Why might Veraja-Snelling have
lacked professional skepticism for this engagement?
5. Having the CEO personally involved in receiving bank statements
and in limiting the bank’s access to other individuals within the
company would be very unusual for a large company such as
PFG. U.S. Bank should have expected to receive an auditor’s
confirmation request annually, but did not because Wasendorf
circumvented the process. Using the ethical decision making
framework from Chapter 1, comment on whether you think that
U.S. Bank is responsible in any way for this fraud. Explain. Recall
that the steps are:
 identify the ethical issue,

 determine the affected parties and identify their rights,
 determine the most important rights for each affected party,
 develop alternative courses of action,
 determine the likely consequences of each proposed course of
action on each affected party,
 assess the possible consequences, and
 decide on an appropriate course of action.

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 10-36.

Peregrine Financial Group (PFG), Inc. and Russell

1. In addition to owning PFG, he also owned an Italian restaurant,

I had no access to additional capital and I was forced into a difficult

Using a combination of PhotoShop, Excel, scanners, and both laser and

With careful concealment and blunt authority I was able to hide my

What likely prompted the timing of Wasendorf’s attempted suicide was

PFG filed for bankruptcy almost immediately after Wasendorf’s

1. Describe any inherent, fraud, or control risks that are evident

 identify the ethical issue,

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