A U.S. judge on Thursday sentenced the founder of Peregrine Financial Group (PFGBest) to 50 years in prison for looting hundreds of millions of dollars from the brokerage, saying his customers would probably never recover the money they lost.
Russell Wasendorf Sr., who had tried to kill himself just before the fraud was uncovered last year, received the maximum sentence allowed by law and was ordered to pay $215.5 million in restitution for his nearly 20-year scheme (all figures US$).
A local hero in Iowa known for his charitable work and lavish lifestyle, Wasendorf triggered the collapse of the brokerage through his fraud. The scam shook investors' confidence in the U.S. futures industry, already rattled by the failure of larger rival MF Global less than a year earlier.
"I'm very sorry for the financial and emotional damage I've caused to investors and employees of Peregrine Financial Group," Wasendorf said in a feeble voice at a sentencing hearing in Cedar Rapids, Iowa.
"I feel I fully deserve whatever sentence I am given."
Chief Judge Linda Reade of the U.S. District Court of the Northern District of Iowa said former Peregrine customers will probably never get all their money back.
Wasendorf, 64, admitted last July that he had bilked tens of thousands of clients over a period of two decades. He used little more than a rented post office box, Photoshop and inkjet printers to fake bank statements and lie to federal regulators, employees and his closest family members.
As regulators closed in on the fraud, Wasendorf made a botched suicide attempt outside his $24 million headquarters in Cedar Falls, Iowa, which investigators say was financed with money siphoned from customers.
PFGBest quickly collapsed, and 24,000 former customers are still missing most of the money they had invested with the firm.
PFG boasted customers, affiliates and brokerage offices in more than 80 countries. Its PFG Canada arm, set up in 2002 and headquartered in Mississauga with a separate Bay Street branch in Toronto, billed itself as the "premiere futures and options firm in Canada."
The Investment Industry Regulatory Organization of Canada (IIROC), which suspended PFG Canada in July, said in August that PFG Canada client accounts are not affected by the U.S. firm's collapse, and "it appears that all client monies and assets are accounted for at the Canadian subsidiary."
"Shiv in neck"
Wasendorf pleaded guilty in September to embezzling more than $100 million, used to fund a life of luxury that included a private jet, extensive wine collection and lakefront condo in Chicago. Prosecutors said the amount stolen was more than $215 million.
"The lengthy prison sentence imposed today is just punishment for a con man who built a business on smoke and mirrors," said Acting U.S. Attorney Sean Berry.
Supporters of the disgraced executive had asked Reade for leniency, arguing that Wasendorf is in frail health and had helped others even in the midst of his 20-year fraud.
Despite his misdeeds, Wasendorf "did do some positive things for the community," said former U.S. Congressman David Nagle from Iowa, who spoke up for the fallen CEO in court.
"Who wants to defend the magnitude of the crimes Mr. Wasendorf committed?" said Nagle, who helped Wasendorf win zoning approval for Peregrine's environmentally-friendly headquarters. "But good people do bad things."
Wasendorf was well known for donating to local charities before his empire came crashing down.
However, he built his reputation for generosity using money stolen from his customers, Judge Reade said, adding that the donations likely eased Wasendorf's feelings of guilt.
"It is easy to be generous with other people's money," she said.
U.S. prosecutors said the large financial loss, the sophisticated nature of the crime, and the sheer number of victims justified Wasendorf spending the rest of his life behind bars.
Prosecutors said the government doesn't anticipate filing further criminal charges in Peregrine's downfall. The FBI continues to review the firm's records.
The government has not yet decided where Wasendorf will serve out his days or when he will be shipped to federal prison.
James Koutoulas, co-founder of the Commodity Customer Coalition which has been working to help former Peregrine customers get their money back, welcomed the sentence. "I want this guy sitting on a cot afraid a shiv is going to go in his neck at night," he said.
-- P.J. Huffstutter is a Reuters agriculture reporter based in Chicago. Includes files from AGCanada.com staff.
Ego too big to fail, PFG founder admits 20-year fraud, July 13, 2012
U.S. regulator admits failure in PFG oversight, July 17, 2012