SPECIAL REPORT 1
First of two parts
A
small-town Iowa boy, raised in hard times by
a widowed mother, starts a business in the
back room of a barber shop before setting
out to the big city. He strikes it rich and returns years
later to local glory, spending lavishly and savoring his
role as the big man in a little town.
It’s a real story, but as became clear this summer,
a dark thread ran through it. For most of the two-
decade life of Peregrine Financial Group, a leading
independent futures brokerage, founder and chief ex-
ecutive Russell Wasendorf Sr. was taking hundreds of
millions of dollars of his customers’ money to cover
losses and live large.
BY P.J. HUFFSTUTTER, ANN SAPHIR, TOM POLANSEK AND DAVID SHEPPARD
CEDAR FALLS, IOWA, SEPTEMBER 24, 2012
BROKING BAD
The big
man of
Cedar Falls
How Russell Wasendorf Sr. built a
$200 million fraud on a simple lie
SECRET LIFE: Wasendorf, founder
of Peregrine Financial, used
forgeries and a post-office box
to hide his theft.
REUTERS/Rick
chaSE/WaTERloo coURiER
SPECIAL REPORT 2
BROKING BAD The BIG mAN Of CeDAR fAlls
His dual life came to light after Wasen-
dorf, 64, tried to commit suicide outside
his headquarters in July. Authorities dis-
covered a four-page confession letter de-
scribing how he used a post-oce box, a
scanner and basic software to hide his theft
for years. e Commodity Futures Trading
Commission accused him of making o
with more than $200 million of customer
money. Last week, he pleaded guilty to mail
fraud, lying to regulators and embezzling
customer funds, crimes that could put him
in jail for 50 years.
Interviews with dozens of former em-
ployees, colleagues and associates, as well as
court lings and company documents seen
by Reuters, oer the most complete ac-
count yet of Wasendorf and his career. He
is a man who came from little, made it big
and then dipped ever deeper into customer
accounts to nance a facade of seemingly
unlimited wealth.
Part of Wasendorf ’s life was an open
book: He brought celebrity speakers such
as Ted Koppel to industry events and wrote
columns for a glossy magazine he owned.
Toward the end of last decade, he relocated
his headquarters from Chicago back to
Cedar Falls, bought a private jet and built
a $24 million state-of-the-art oce, tout-
ing the move as a template for revitalizing
small-town America.
Less known were the personal tensions
he faced, including a split with a brother,
two divorces, a last-minute mystery wed-
ding in Las Vegas and seething resentment
against establishment rivals in Chicago.
His pastor says Wasendorf knew his ruse
was doomed several years before it unrav-
eled. A rift emerged with his only son, Russ
Jr., who warned the Iowa shift was an ex-
pensive folly - and prepared this summer to
move to Australia.
“Russ Jr. told him it was a mistake - that
it was a mistake to spend $24 million on
the building and a mistake to buy that jet,”
said Nicholas Iavarone, Russ Jr.’s lawyer
and a longtime counsel to Peregrine. “It
didn’t matter.… He wanted to go back to
Cedar Falls to be the big man.”
Today, Wasendorf sits in solitary con-
nement, and under suicide watch, at Linn
PASTORAL CARE: The house of pastor Linda Livingston in Marion, Iowa, where Wasendorf hopes to stay if he is released from federal custody.
REUTERS/JEff haynES
Russ Jr. told him it was a
mistake – that it was a mistake to
spend $24 million on the building
and buy that jet.
Nicholas Iavarone
longtime counsel to Peregrine
SPECIAL REPORT 3
BROKING BAD The BIG mAN Of CeDAR fAlls
County Correctional Facility in Cedar
Rapids, Iowa. Authorities have found only
$181 million of an estimated $400 million
in customer funds Peregrine was supposed
to have on hand.
Wasendorf and his lawyer, a public de-
fender, didn’t respond to requests for com-
ment. Beyond the confession letter and the
plea agreement, neither has made any pub-
lic comments to the media.
e youngest son of a meatpacking
plant foreman, Russell Ralph Wasendorf
was born in 1948, named after a pastor and
his son who oered the Wasendorfs shelter
in their attic when money grew tight.
Arthur Wasendorf died when his son was
in kindergarten. Russell’s widowed mother,
Ida, landed a job in marketing for a local se-
curities broker to keep the family fed.
Wasendorf gravitated toward the arts.
At high school in Marion, Iowa, he per-
formed in plays at local churches. While
at the University of Northern Iowa, he
joined a local artist collective, learned to
use audio-visual equipment and worked on
documentaries about New Mexico’s Pueblo
Indians. at led to “a short, but successful
career in the motion picture business” prior
to entering the futures industry, according
to a note he published in the glossy maga-
zine he later founded, Stocks, Futures and
Options, or SFO.
GROWING GOLD
e peak came in 1974, two years after he
left university: a 20-minute documentary
on soybeans titled “e Gold at Grows,”
which later won an award from the Council
on International Non-eatrical Events.
At the time, Wasendorf was in an early
job as an advertising and production man-
ager for the American Soybean Associa-
tion. e lm was made to tell farmers how
their dues were being spent to bolster ex-
ports, including shots of soybean meal be-
ing fed to chickens in Japan.
His rst marriage was brief. He mar-
ried Susan Richardson in 1969 while both
were students at the University of Northern
Iowa, according to an announcement in the
Cedar Rapids Gazette.
e couple had one son, Russell Jr., and lat-
er divorced. Richardson, who has since remar-
ried and lives in Florida, declined to comment.
It was one of several family splits.
Wasendorf maintained little contact with
his siblings in recent years, including older
brother Lewis, who lives just 80 miles from
Cedar Falls.
“Russ chose to kind of divorce himself
from the rest of the family. We respect his
wishes,” said one family member. “He was
always ying around the country, around
the world… We didn’t want to live that
lifestyle.”
In 1976, Wasendorf married Connie
Brandhorst. Russ Jr. was the ring bearer.
Connie, who worked at a John Deere plant,
became a second mother to young Russell,
say people who know the family.
Wasendorf was now working in the ad-
vertising and sales department of a local
commodities magazine owned by Merrill J.
Oster, a futures-industry newsman whom
the Peregrine founder admired. He worked
on promotional videos and trader-educa-
tion programs. e position oered entry to
a world Wasendorf longed for: the Chicago
commodities trading oor.
By 1980, Wasendorf left to start up a ri-
val advisory rm and newsletter. Co-work-
ers believed that Wasendorf and another
staer had taken a copy of Oster’s client list
with them, according to a former employee.
Oster declined to comment.
His new consulting business, which pro-
vided research and futures-trading advice,
began in the back room of a local barber shop.
“He was in my chair one day, saying that
SUICIDE WATCH: The University of Iowa Hospital and Clinics. Wasendorf was taken here after he tried
to kill himself in July.
REUTERS/STEphEn Mally
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SPECIAL REPORT 4
BROKING BAD The BIG mAN Of CeDAR fAlls
he was starting up a business and needed
space,” said barber Ron Welper, who owned
Hair Unlimited on Main Street. Wasendorf
moved in a couple of desks, a computer and
a phone, and got to work contacting would-
be clients. A year or so later, he moved out
and up.
Wasendorf bought a small brokerage,
Dana Futures of Iowa, in 1985. As an “in-
troducing broker,” he was responsible for
rustling up business, helping arrange com-
modity-futures trades by farmers or small-
scale speculators. Futures allow a seller or
buyer to lock in a price for, say, soybeans at
an agreed future date. Wasendorf would pass
along those trades to futures commission
merchants – the regulated middlemen re-
sponsible for executing deals on exchanges.
e business was launched as many
farmers were looking to protect their op-
erations amid plummeting corn prices and
a sharp downturn in the farm economy.
Wasendorf later bragged on his company’s
website that he made his customers rich by
anticipating the 1987 stock-market crash
and advising them to sell ahead of it.
By the early 1990s, he began moving
sta to oces on LaSalle Street, a block
from the Chicago Board of Trade, center
of agricultural futures trading for 150 years.
Soon, Wasendorf moved upmarket to bro-
ker his clients’ trades as a futures-commis-
sion merchant, collecting fees and earning
interest on their collateral. He opened Per-
egrine Financial Group in 1992. e com-
pany became commonly known as PFG, or
PFGBest.
e rm, with oces in Cedar Falls and
Chicago, had just $2 million in customer
funds for its rst few years. Yet the fraud
commenced soon after PFG Best opened,
according to Wasendorf ’s confession letter.
In the winter of 1993, after a routine au-
dit, a Commodity Futures Trading Com-
mission investigator named Robert Agnew
began inquiring into a possible violation of
rules on how Peregrine was investing cus-
tomer money – something that took Wasen-
dorf by surprise, he wrote in his letter.
What specically caught Agnew’s at-
tention isn’t known. Agnew could not be
reached for comment. A CFTC spokes-
man declined to comment.
Wasendorf said Agnew gave him a copy
of the rules Peregrine was allegedly violat-
ing; the broker replied by saying the rules
were outdated, making the investigator
“livid,” according to the letter.
Agnew and his team then “harassed”
Wasendorf, conducting six audits over ve
months until the agency found a “techni-
cal violation” that forced Peregrine to raise
more capital.
CHEATING FATE
Legal fees mounted, according to his con-
fession letter, and the need to keep more
cash on hand sparked nancial trouble.
“I had no access to additional capital
and I was forced into a dicult decision:
Should I go out of business or cheat?” the
letter states. “I guess my ego was too big to
admit failure. So I cheated, I falsied the
very core of the nancial documents of
PFG, the Bank Statements.”
Peregrine got a big break in 1995. Regu-
lators at the National Futures Association
found that managers had used bad checks
to falsely bulk up capital at brokerage First
Commercial Financial Group. e NFA
forced First Commercial to move its cus-
tomers to other rms with a history of
working with small independent brokers.
It was a common move: help clients of a
troubled brokerage quickly resume trading
by simply shifting their accounts to a simi-
lar shop.
Peregrine was one of at least two rms
entrusted with the clients. It kept some of
First Commercial’s brokers, too. But trou-
ble followed. In 1996, the NFA ned these
brokers and Peregrine for using “false and
deceptive” promotional material.
e NFA also discovered that Per-
egrine failed to properly calculate how
much money was in its customer accounts
and to keep them properly segregated. e
brokerage settled the matter by paying a
$75,000 ne without admitting or deny-
ing the allegations.
It was a pattern that Peregrine would
follow at least twice more: take over a trou-
bled rm that the NFA later penalized for
lax oversight.
e NFA declined to comment on why
it did not consider such acquisitions and
violations to be a possible red ag.
By the late 1990s, Peregrine was a fam-
ily aair. Connie worked in the personnel
department. Russ Jr. graduated from the
University of Iowa with a nance degree,
studied Spanish and worked as a liaison
between the Chicago Mercantile Exchange
and regulators in Mexico over the devel-
opment of Mexican peso futures. en, in
1998, he joined Peregrine as head of the
computer team. His job: build and launch
the company’s online trading system.
Wasendorf Sr. was launching or build-
ing up a variety of dierent companies - a
securities brokerage in 2001, a hedge fund
in 2004, a publishing house and a construc-
tion company in 2007. Some were ops.
All, Wasendorf said later in his confession
letter, were part of his attempt to bring in
new revenue to repay the money he had
been stealing from customers.
His strangest bet ultimately became the
most protable, at least on paper.
Alexander Hergan, a founding member of
the Chicago Board Options Exchange, ap-
You could not have sent me
a more clear message of the low
regard you hold me and my firm.
Russell Wasendorf Sr.
in a letter to Jack Sander, former chairman of the
Chicago Mercantile Exchange in Oct. 2000
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SPECIAL REPORT 5
BROKING BAD The BIG mAN Of CeDAR fAlls
proached Wasendorf in 1998 with a proposi-
tion: become a largely silent partner in a Ro-
manian real estate venture. ey knew each
other from Chicago trading circles, according
to Hergan. Wasendorf invested half a mil-
lion dollars in the property development rm,
Avrig 35 Group, and it ourished.
Peregrine rose into the ranks of the
country’s biggest independent brokers. Ac-
cording to data Peregrine submitted to reg-
ulators, customer funds nearly tripled from
around $70 million in 2002 to over $200
million in 2006 – less than a tenth as much
as the big Wall Street banks, but enough for
Wasendorf to achieve prominence.
He became an outspoken proponent of
a merger between the two biggest Chicago
futures exchanges. His magazine sponsored
big-name speakers at industry events, in-
cluding General Tommy Franks and for-
mer First Lady Barbara Bush.
But in Chicago, where Peregrine was
now based, Wasendorf was still seen as
something of an upstart next to decades-old
family-owned brokers. And he was not al-
ways granted the respect he felt he deserved.
“You could have not sent me a more
clear message of the low regard you hold
me and my rm,” Wasendorf wrote in a
letter seen by Reuters, dated October 20,
2000, to Jack Sandner, a former chairman
of the Chicago Mercantile Exchange who
was running a brokerage that had cleared
PFG’s trades. “I guess I should have tak-
en the hint when you refused to take my
phone calls or when you refused to write a
foreword in my latest book.”
Wasendorf felt Sandner’s rm was over-
charging him, according to the letter. Sand-
ner told Reuters that the letter speaks for
itself, and declined to comment further.
Wasendorf also joined, in 2004, an ad-
visory panel at the NFA, tasked with giv-
ing feedback to the regulator about pro-
posals that aect the industry.
e agency, which regulates smaller bro-
kers like Peregrine, would later be faulted
for having missed two decades of fraud.
e post would have oered him a rst-
hand look at – and a say in – rule changes
that could impact his business. It isn’t clear
whether this vantage point abetted the al-
leged fraud, however.
BOX OF SECRETS
An NFA spokeswoman declined to com-
ment on Wasendorf ’s role on the panel.
e association sought to distance itself
from Wasendorf in a July 30 letter from
its president, Dan Roth, to U.S. Sen. Tom
Harkin of Iowa. Roth wrote that the panel
had no decision-making power, and that
Wasendorf had never attended any NFA
board meetings or interacted with board
members in their ocial capacities.
It was in 2006 that Wasendorf rst rent-
Success story
Peregrine’s rising fortunes – as measured by client funds* it
held – disguised trouble below the surface.
Source: Commodity Futures Trading Comission data*Segregated funds
0
100
200
300
$400
million
'03 '04 '05 '06 '07 '08 '09 '10 '11 '122002
MAY 2009
Peregrine buys customer
assets of Alaron Trading.
MAY 2011
U.S. Bank sends document to NFA
showing Peregrine’s account balance
has $200 million-plus shortfall.
JULY 10, 2012
Peregrine Financial Group
files for bankruptcy.
2004
Wasendorf joins National
Futures Association
regulatory advisory panel.
2006
Wasendorf rents P.O. Box
in Cedar Falls, Iowa, to
conduct his fraud.
OCT. 2007
Peregrine buys assets
of American National
Trading Corp.
NOV. 2011
Customer funds
swell after MF
Global collapse;
Peregrine says it
has “significant
excess capital.”
© Thomson Reuters 2012. All rights reserved. 47001073 0310. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of
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BROKING BAD THE BIG MAN OF CEDAR FALLS
SPECIAL REPORT 6
ed Post Oce Box No. 706 in Cedar Falls.
Wasendorf began forging monthly bank
statements that Peregrine received from
U.S. Bank for an account it held there, and
replacing the bank’s real return address with
the address of Box 706. e aim, according
to his plea agreement, was “to deceive au-
ditors into believing PO Box 706 was US
Bank’s mailing address.”
When the regulator sent requests to U.S.
Bank to verify the funds held in Peregrine’s
accounts, Wasendorf simply picked up the let-
ters from Box 706, forged bank statements and
sent them to the regulator with the PO Box as
the return address. e regulator doesn’t appear
to have recognized the ruse.
In 2007, trading volume was rising and
the rm was earning healthy interest income
on the funds it held for clients. Wasendorf
scooped up another wounded rm, Ameri-
can National Trading Corp., a Los Ange-
les-based foreign-exchange brokerage with
some $25 million in client funds. e Avrig
35 Group in Romania was valued by invest-
ment bank UBS at more than $1 billion
ahead of an expected public oering. On
paper, Wasendorf ’s stake in the real estate
venture was worth at least $150 million.
Emboldened, Wasendorf made a deci-
sion that he hoped would cement his leg-
acy: moving his headquarters, and dozens
of sta, back to the town where he had
founded it, Cedar Falls (pop. 40,000).
Iowa was home for Wasendorf. ough
he bought a $1 million condominium in
Chicago in 2003, he never sold his house in
Cedar Falls, more than 250 miles away. He
expanded it instead. He would host sum-
mer barbecues for the sta there, featuring
steak and sweet corn.
At a jungle-themed party, the Wasen-
dorfs drove workers’ children around the
property so they could grab stued animals
dangling from trees, said Jackie Reitz, who
ran a one-woman wealth-management
branch for the brokerage in Arizona.
“I thought that they were an amazing
company,” Reitz said.
Wasendorf found the perfect site for
his new headquarters a short walk from
the greens at Beaver Hills Country Club.
But the 22.2-acre wooded grove wasn’t
zoned for the kind of use Peregrine sought.
Wasendorf sent his architects to the county
to get that changed. He was rebued.
“You know how sometimes there are
people from the city who come in and
think they own everything and can do any-
thing? It was like that,” said Grant Veeder,
Black Hawk County’s auditor.
Wasendorf held public meetings at the
country club and library, hinting he’d take
his 100 new jobs to friendlier environs. He
told local media he would build a small
airline to serve nearby Waterloo Regional
Airport, so his executives could easily travel
cross-country.
At a Black Hawk County Board of Su-
pervisors hearing on April 27, 2007, sup-
porters turned out in droves. Area econom-
ic development ocials sported “Say Yes to
PFG!” buttons and waved a petition bear-
ing more than 1,300 signatures and a letter
of support from six state lawmakers.
ink about the boon to the community,
Wasendorf urged the crowd, with dozens of
new residents buying homes and shopping
on Main Street. e board voted in favor of
the rezoning, 5 to 0.
Privately, Peregrine executives and Russ
Jr. were skeptical about the move, according
to Iavarone, Russ Jr.’s attorney.
e airport in Waterloo had only two
direct ights a day to Chicago and none to
New York. Chicagoans were reluctant to up-
root. Wasendorf shrugged o such concerns,
said Iavarone, who represented Peregrine in
legal matters for almost 20 years. e CEO
bought a jet with a long-time friend in Ce-
dar Falls and hired private pilots.
Wasendorf had held out hope that he
could make good on the money that he
had pilfered, according to his pastor, Lin-
da Livingston of the Ascension Lutheran
Church. But the American nancial crisis
changed that.
“In 2008, he thought that would still be
possible. And then the crash happened,” said
Livingston. “And that was the last time that
it appeared that there would ever be a possi-
bility that he could actually replace and repay
everything that has been misappropriated.”
Additional reporting by Sarah Lynch, Nick
Carey, Ryan Schlader, Eric G. Kelsey and
Barbara Liston. Editing by Jonathan Leff and
Michael Williams
Next: Peregrine falls
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Ann Saphir
Tom Polansek
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Michael Williams, Global Enterprise Editor
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Cedar Falls
Back home
Wasendorf planned a $24 million
headquarters in his hometown
of Cedar Falls, Iowa.
