Peregrine Financial Group Customers Were Victims of the “System,” Says CFTC Chairman Gensler

According to Commodity Futures Trading Commission Chairman Gary Gensler, the customers of Peregrine Financial Group, also called PFG Best, were failed by the system, which neglected to protect them. Peregrine’s owner Russell R. Wasendorf Sr. is accused of embezzling close to $220M and defrauding clients. You can read an earlier post written by our investment fraud law firm about the CFTC’s lawsuit against Peregrine and Wasendorf on our site.

Per the Regulator’s securities case, the futures commission merchant and Wasendorf allegedly misappropriate client monies and submitted untrue statements in the financial statements they turned in to the CFTC. They also are accused of misrepresenting, during a National Futures Association audit, that Peregrine held over $200M in client funds when that figure was actually close to around $5.1 million. The regulator is not sure what happened to the rest of the money and is accusing both Wasendorf and the futures commission merchant of violating fund segregation laws with their alleged intentional deception of the NFA.

Gensler says that the CFTC will look at how NFA handles its responsibilities as they relate to the FCM and whether the CFTC does a good job in regulating the SRO. However, while noting during testimony front of the Senate Agriculture Committee on July 17 that the allegations against Wasendorf and Peregrine, if true, are crimes, he said that is not possible for market regulators to “prevent all financial fraud.” Gensler also talked about how the SRO system is part of the Commodity Exchange Act but that the CFTC doesn’t have enough funds to act as front-line regulator over the NFA, which is funded by dues.

The CFTC will review how NFA dealt with Peregrine examinations. NFA has hired a law firm to conduct its own review of audit procedures and practices, particularly those involving the exams for Peregrine.

Meantime, Peregrine’s bankruptcy trustee, Ira Bodenstein, has retained forensic accountants from PricewaterhouseCoopers to assist in determining how much of customers’ money is left. These clients have expressed frustration at the delays in their being able to recover even some of their funds. According to Michael Eidelman, who is the receiver for the assets of Wasendorf, a portion of the missing cash may be in property that can be sold so that some Peregrine customers can get their money back. (These clients haven’t tried to sell their claims against Peregrine because they still don’t know the extent of the firm’s liabilities and assets.)

The Peregrine securities fraud was confirmed after Wasendorf tried to kill himself on July 9. In his suicide note, he talked about how he bilked clients of over $100 million during a period lasting close to 20 years. He admitted that he used a rented PO box, inkjet printers, and Photoshop software to execute his scam. He also forged documents to hide the missing funds.


Scandal Shakes Trading Firm,
The Wall Street Journal, July 11, 2012

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Texas Securities: SEC’s Bid To Get Stanford Ponzi Scam Victims SIPC Coverage is Denied by District Court, Stockbroker Fraud Blog, July 9, 2012

Becoming the victim of financial fraud can be personally and financially devastating. At Shepherd Smith Edwards and Kantas, LTD, LLP, we consider our mission to help our clients recoup their losses.

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