Does Not Compute: PFG Head Says Spent Stolen Client Money To Comply With Regulator Demands

Tyler Durden's picture

The head of now bankrupt futures brokerage PFG may not have been very successful when it comes to executing succesful suicide attempts, but when it comes to spending stolen client money (at least $200 million) over a period of two decades he had few equals. From the WSJ: "Peregrine Financial Services Inc.'s founder said he spent most of the money allegedly embezzled from customers to cushion his futures brokerage's capital, fund a new corporate headquarters—and to pay regulatory fines and fees, according to previously undisclosed parts of a suicide note and signed statement." It also appears that it was all the regulators' fault: "The note and the statement, which a person familiar with the situation said were left by Peregrine Chief Executive Russell Wasendorf Sr., blames the fraud on "mean spirited" regulators that dogged his firm, saying they were looking to put firms out of business rather than protect commodities investors. The statement also said that deceiving the regulators was "relatively simple."" Here is where it goes from the bizzare to the surreal: '"Most of the misappropriated funds went to maintain the increasing levels of Regulatory Capital to keep [Peregrine] in business and to pay business [losses]," said the signed statement, which was reviewed by The Wall Street Journal. The statement says the misappropriated customer funds also were used to build Peregrine's headquarters in Cedar Falls, Iowa, and to "pay Fines and Fees charged by the regulators."

So... to summarize... the guy who stole money for twenty years, stole it only to comply with regulators requirements for compliance...

Now that does not compute.

Of course, once one gets beyond the shock at the sheer lunacy of what he said, it does imply that the CFTC may have been close to actually catch this criminal in the act, at least once in 20 years.

The note indicates a potentially closer involvement by the CFTC in overseeing Peregrine, commonly known as PFGBest, than previously known. The CFTC has said it left the day-to-day regulation of PFGBest to the NFA, a industry self-regulatory body. Thus, the note could put further pressure by investors and lawmakers on the CFTC for missing the scandal, particularly with the intense scrutiny alleged by Mr. Wasendorf.


Spokesmen for the CFTC declined immediate comment Tuesday. The NFA didn't immediately respond.

"I have to say I don't feel bad about deceiving the regulators," the note said. "They made the decision to be my enemy."

Ok, we get his hatred of the regulators: after all they were trying (unsuccessfully) to catch a criminal commiting a crime for 20 years. Now if only he can explain why he also deceived his customers, friends and clients.

Or do we have to wait until the psych evaluation?

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Michael's picture

Everyone agrees every market is manipulated.

Let's have an immediate audit of the Fed with the understanding their hands will not be tied by legislation until after the complete and total worldwide economic collapse.

However, fairness in the current playing field will be restored by publishing in real time all manipulation occurring in all markets so everyone in the game can benefit, not just whales.

idea_hamster's picture

mean spirited regulators that dogged his firm saying they were looking to put firms out of business rather than protect commodities investors

If you've ever read the Gulag Archipelago, this sounds eerily similar to the purges of the engineers....

Michael's picture

CNBC World (europe CNBC news) has more candid discuccions like this;

How Close Are We to New Great Depression?

Pladizow's picture

On Wall St. stealing is compliant!

Yamaha's picture

Talk about conflicts of interest. Self regulators are paid through their fine money - that is all they care about. They have no interest in protecting anyone except their own pay check.

If you like the concept - lets have the police paid by their tickets and fines....readers would be in jail every other week.......Welcome to the regulatory world!

Tijuana Donkey Show's picture

I think this has already happened. Speed traps, yellow light cameras, and drug laws pay the way as it is. Look at this little ditty in my sector of the world. They have one side of a major interstate, and all they ever did was write tickets. And look at what happened, shucks, the money is just missing! How can a shitty place like this write so many tickets? The city is a 1/3 of a mile in area!

gmrpeabody's picture

It's only a matter of time before state governments insist law enforcement pay for themselves. Guess who they will target first? Hint: not illegal aliens.

francis_sawyer's picture

So I guess it was the "paid off" regulators who got the coke & pussy...

Yamaha's picture

There is some truth in his statement.

bank guy in Brussels's picture

Especially when you include the bribes, every half-big US biz has to pay

That's the real game in America for some decades now

If you get American executives and corporate lawyers drunk enough they explain the game to you

Law firm bills US $500 per hour ... hundreds of hours while obviously doing little actual work ... tax deductible for the firm, and out of that is paid the cash bribes to the US judges and the regulators

There is no US tax etc. auditing of US judges and lawyers unless they step on the wrong toes ...

Great old story about US lobbyist Clark Clifford ... business client needed something fixed with the US government, he said he would handle it ... He fixed it, sent a bill for US $20,000, and a brief note of one or two sentences saying, No need for you to do anything, I took care of it

Business client wrote back, said ... that's not much of a report for 20 thousand ... Why should we pay you that much?

Clifford's reply letter was one sentence: "Because I said so" ... And he attached a bill for an additional $5000

veyron's picture

Regulators are despised more for their incompetency than for their role in a functionng capital market system ...

ATM's picture

They should be despised more for being the ground thugs of the crocked system. What Wassendorf said about the regulators being more interested in shuttering firms is absolutely true. We hear all the bullshit from government about protecting the people but in reality they are doing nothing but entrenching their power.

What better way to accomplish that in the commodities world than to get rid of the small/medium/independent firms and force all the business to the big boys who shower fantastic sums at these greedy bureaucrats as they dine and vacation together?

Bunga Bunga's picture

Hookers and porn?

zero19451945's picture

Nobody cares about PFG or MFGlobal. Nobody cares as long as Bernanke keeps the stock market up.


LawsofPhysics's picture

I see a lot of human capital that could be put to work manning the guillotines!!!

Execute these fuckers already.

LoneStarHog's picture

Question:  How much of that money was spent PAYING-OFF Regulators?

veyron's picture

PFG Best is the best at Paying ofF Government ...

Vagabond's picture

Obviously they are not the best... they are not the last man standing... not even close.

Winston Churchill's picture

The regulators ate my homework defence.

Good luck with that.

Zola's picture

Another one of these entrepreneurs driven out of business by red tape, overregulation, useless busybodies in the regulatory agencies. Except he decided that he was not going to become another of their casualties and instead decided to fight. However his way of fighting dragged innocent bystanders, namely his investors who had put their trust in him. 

Could we conclude that had there been no porn addict SEC/CFTC useless monkeys , either the market would have ferretted him out or he would not have committed this crime ? Maddoff all over ? Regulators once again involved in the Problem ?? Nothing is surprising anymore. Sad...

Seize Mars's picture

Zola, I agree.

The guy is a clown, and a dangerous one. But really one must admit: there are no profitable business models anymore. None.

veyron's picture

The futures brokerage business depended on repo to maturity trades, which don't really yield much under ZIRP...

Plymster's picture

Baloney.  The problem is not that regulators are taxing, or forcing costly compliance, because, in theory EVERY OTHER COMPETITOR SHOULD HAVE THE SAME REGULATORY ONUS.  This should raise everyone's costs, so there is no difference (unless you're a buffoon/criminal who can't pass an audit).

The problem is that we have a crony capitalistic society where you can simply buy a free pass from the regulators.  Couple that with the "but I have to pay all these fines for not keeping my books in order, even though that's 90% of my fucking job", and you get the failure that is PFG.  It would be like a painter bitching that he had to embezzle money from his clients because he can't afford the high cost of paint, or because a law forced him to paint the entire house, instead of just the first 6 feet.

yrbmegr's picture

This guy needed to steal


to comply with regulatory requirements?

That doesn't pass the smell test.

Sandmann's picture

Jeff Skilling needs a cell-mate

Piranhanoia's picture

Suicide note by psychopathic author.  Can not take blame for his own admissions of organized, decades long crimes.   This is your elite.  Pay them or die.

urbanelf's picture

I prefer "my dog ate it"

Scisco's picture

Bribes, sorry I mean fees, can get very pricey in today's environment. All the cost of doing business.

HankPaulson's picture

He should never have been charged with fraud anyway. This kind of regulatory interference in the free market represents a tax on the real economy. The free market is self-regulating. We need smaller government.

haskelslocal's picture

Totally! He should have been charged with Fraud anyway. This kind of free radical approach to free makret represents irrational behavior on the real economy. The paid-for market is self-incriminating. We need smaller cars!

I couldn't agree more.

UGrev's picture

Is it too much to ask for people to not fuck each other over? 

We don't need bigger governmnet, we need better citizens. We don't need smaller or larger cars. We need to be left the fuck alone to buy whatever size car we want. 

yrbmegr's picture

Yes, that is too much to ask.  Human history is replete with examples of people screwing each other over in the absence of sufficient government.  In fact, government is one of the oldest human institutions precisely because people cannot overcome the temptation to screw each other over.

californiagirl's picture

Are you kidding?!!  Government these days EXCELS in screwing over honest people and refuses to prosecute the mega criminals, who line the politicians' campaign coffers with their illegally-pilfered funds, stolen from the people that Government is supposed to be watching out for.  It is hard enough to get Government to assess a minor civil penalty, that, in many cases, is mostly paid for by the corporations' shareholders' (many of whom consist of the average Americans' retirement accounts) or by their liability insurance company, (leaving the criminals' ill gotten fortunes mostly in tact), much less to actually open a criminal investigation.   

Benjamin Glutton's picture

Our government is so small now that it never interfered with his operation...the NFA is a private club comprised of his peers.



haskelslocal's picture

Like a guy who goes golfing with his buddies and takes the savings account with him.

"I swear honey! I spent most of it on gasoline for that stupid SUV you refuse to sell. It's your fault for not buying me a Prius like I said."

"Never mind the new visor, the logo'd shirt, the irraitional greens fee, oh, and the round of drinks I had to buy for the gang, that's irrelevant!"


Hype Alert's picture

I can't help but compare this to our debt, tax receipts and the entitlement programs being used to put up a show of success.

MikeZM's picture

I worked at PFG BEST as a broker about a year or two back.  At MF too for that matter a few years ealier.  I know they the CFTC and NFA were always watching but I do remember while at PFG that it was heavily stressed that we be very careful to stay within the law when on the phone as the NFA was "out to get us."  Not excusing Russ' behavior by any means here.  I could tell after a few short months what kind of shape the compant was in.  That's why I left the first chance I got.  

shovelhead's picture

This may sound a bit naive, but who in their right mind turns over their hard earned money to perfect strangers to manage?

Who ARE these people?

"Yes, you have nice shoes...I can trust you."

I dunno.

MikeZM's picture



A lot of PFG's business is self directed clientele.  These are people that trusted the legal documents they signed stating that their money was is kept in a customer segregated fund that cannot be touched.  The same thing with MF.  This is much bigger than simply giving your money to someone else to manage and having them run off with your funds.   

RopeADope's picture

Sounds like the Republican position to me. Anger at government for uncovering his lack of business acumen. After all, the government exists to disguise staggering levels of incompetence.

Debeachesand Jerseyshores's picture

I will guess he will blame his failed suicide attempt on those pesky regulators.

spanish inquisition's picture

and to pay regulatory fines and fees,

Government clawbacks! (I know, I know, but I can dream)

Whoa Dammit's picture

Let's do some math here:

$200 million missing

$18 million cost of headquarters building

$700K in fines

I don't know how much the regulatory capital requirements were on a non-clearing brokerage house. The requirements look laughably low, while the regulations defining the requirements are byzantine in complexiity and hard to quickly decipher. So lets use a generous 20% of the $440 million company size, which is $88 million.

That leaves over $93 million unexplained (Unless the capital requirements are much higher or much lower).

Benjamin Glutton's picture

This sounds like saying if I had been allowed to steal money from people who failed to properly protect it I wouldn't be BK. What could he be babbling about? The cost of doing business?????


just a failed businessman lashing out at the world.

mariobar's picture

Well... the stolen money couldn't be in better hands, then.

SqueekyFromm's picture

Well, this stupid little excuse deserves an Irish Poem, because he will probably continue to beat his stupid little "job producer" drum:


Wasendork said it wasn't his fault,

When his 20 year stealing got caught.

Just give him a day,

And I bet he will say,

Something stupid, like "Who is John Galt???"


Squeeky Fromm, Girl Reporter



Harry Paratestes's picture

$200,000,000 in Fines ?  They decided to make enemies with me!

Let me just say I had dealings with Mr Wasendorf and it was obvious at the time that he was not to be trusted.  The entourage he kept around him was just as shady.  He had a less than strerling reputation in the Futures Industry.  I first met hin in 2000 when he began to grow his office in Chicago.  I researched his history and found out he made his money the old fashioned way, he stole it.  Peregrine  was a broker in the Cash Forex market where they were able to charge $100 to $200 per trade and also front run the order for 10 pips a side, 20 pips a round turn.  When a Forex trader told me about this I refused to believe this and asked someone whom I knew who worked as the Forex Desk Manager at Peregrine.  This guy happened to work for me years before as a clerk on the Floor of the CBOT.  He verified this and told me I needed to get in on it. He would make sure I got the job if I wanted it. I was more than a little shocked that this was allowed to go on.

 As I learned more about their history I found out they had been close to the owner of RB&H an FCM that was known to pillage customer accounts and whose Chairman was Jack Sandner , Chairman of the CME, whose nickname in the pits of the CME was " Behind the Back Jack".  He was known to write winning trades on a card that were timed to coincide with a trade by a filling broker even if he was not on the trade.  The next morning when the filling broker was informed that "Behind The Back Jack" was into him he would have a choice of eating the out trade for about $1,000 or fight it and go to arbitration against Jack Sandner.  The prospect of going against Jack Sandner and his hand picked arbitration panel would produce a check written to Mr Sandner.  This might happen even when Mr Sandner was skiing in Aspen.  

Both Mr Sandner and Mr Wassendorf were on prominent Committees of National Futures Association the self regulatory agency of the Futures Industry.  It has always been common knowledge on the floors of the CME and the CBOT that these gentleman were slimeballs.  For Mr Wassendorf to claim that the regulators ruined him is laughable.  Unless he meant that their unwillingness to act to shut him down allowed him and whomever he was involved with to steal even more.  I firmly believe Russ Wassendorf not only stole the money but he was involved with another darker entity  that he borrowed money from, this entity is most likely out of Eastern Europe.


Benjamin Glutton's picture

finally an insider that can tell these idealists the true meaning of self regulatory framework. Mr. Wasendorf chose his poison.


when you insist on doing business with criminals eventually your nuts will get crushed. EOS.


thank you.