Pere­grine CEO pleads not guilty to ly­ing to reg­u­la­tors

The Pak Banker - - COMPANIES/BOSS -

Rus­sell Wasendorf Sr., chief ex­ec­u­tive of failed fu­tures bro­ker­age Pere­grine Fi­nan­cial Group, pleaded not guilty to ly­ing to fed­eral reg­u­la­tors. The widely ex­pected move likely sets the stage for an even­tual plea agree­ment, le­gal observers said, af­ter Wasendorf con­fessed last month to bilk­ing his cus­tomers out of mil­lions of dol­lars.

Wasendorf, 64, was in­dicted on 31 counts of over­stat­ing the amount of cus­tomer funds at his bro­ker­age by tens of mil­lions of dol­lars in faked monthly and yearly re­ports to the Com­mod­ity Fu­tures Trad­ing Com­mis­sion (CFTC). Pere­grine filed for bank­ruptcy pro­tec­tion on July 10, one day af­ter Wasendorf at­tempted sui­cide and left a note de­scrib­ing how he had stolen from cus­tomers for nearly 20 years.

The col­lapse of what was once a mid-sized fu­tures bro­ker­age has dealt a fur­ther blow to con­fi­dence in the fu­tures in­dus­try, com­ing less than a year af­ter MF Global Hold­ings Ltd's bank­ruptcy, which left cus­tomers with a $1.6 bil­lion short­fall. In his first ap­pear­ance since the in­dict­ment, Wasendorf shuf­fled into a small court­room at the U.S. Dis­trict Court in the North­ern Dis­trict of Iowa in Cedar Rapids, clad in an or­ange prison jump­suit and tan san­dals, with his hands and feet shack­led.

"At this time he pleads not guilty on each count," his public de­fender, Jane Kelly, told Mag­is­trate Judge Jon Scoles. Fu­tures bro­ker­ages are re­quired to sub­mit fi­nan­cial data on a monthly ba­sis to the CFTC, and the re­ports are then pub­lished on the reg­u­la­tor's web­site. The CFTC has said Wasendorf mis­ap­pro­pri­ated more than $200 mil­lion in cus­tomer funds. If con­victed on all charges, Wasendorf faces up to 155 years in jail, a $7.75 mil­lion fine and 93 years of su­per­vised re­lease fol­low­ing any im­pris­on­ment, ac­cord­ing to the U.S. At­tor­ney's Of­fice.

Wasendorf has been held in an Iowa county jail since be­ing ar­rested July 13 at a hos­pi­tal, where he was be­ing treated af­ter at­tempt­ing to kill him­self. Wasendorf said in his con­fes­sion that, us­ing lit­tle more than a post of­fice box, laser print­ers and Pho­to­shop soft­ware, he forged and in­ter­cepted fi­nan­cial state­ments that were mailed be­tween U.S. Bank, where some Pere­grine cus­tomer money was held, and the firm's au­di­tors at the Na­tional Fu­tures As­so­ci­a­tion.

He also said he spent most of the stolen money try­ing to keep his bro­ker­age afloat. Wasendorf was ex­pected to plead not guilty be­cause it al­lows his lawyer time to ex­am­ine the ev­i­dence that may be used against him in a trial. Kelly, his public de­fender, may feel she can ne­go­ti­ate a more fa­vor­able plea agree­ment if she sees the gov­ern­ment's ev­i­dence, le­gal observers said.

Kelly and pros­e­cu­tors left the court with­out com­ment­ing. Even if the gov­ern­ment's case is air-tight, pros­e­cu­tors will likely be open to ne­go­ti­at­ing a deal be­cause Wasendorf may be able to help lo­cate some of the stolen money, said Richard Hol­well, a for­mer fed­eral judge in the South­ern Dis­trict of New York who is now a part­ner at Hol­well Shus­ter & Gold­berg LLP in New York.

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