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PFGBest Missing $220m, Founder Attempts Suicide
 

Edmundo Braverman's picture
ST
(Human, 14,391
 
Points)
 on 7/11/12 at 8:05am
PFGBest.jpg

I had to preempt my screed against the French today to bring you guys this news because it's pretty bizarre.

On Monday morning, Peregrine Financial Group founder Russ Wasendorf Sr. tried to kill himself. While the media didn't report how, insiders at the company said that a secretary was looking out the window and noticed his car was parked away from everyone else and not in his designated spot, so she told his son (Russ Wasendorf Jr.). It appears his son discovered a suicide note pointing to accounting irregularities just prior to this (or maybe right after - unclear at this point), so he ran downstairs to find his dad in the car with a hose pumping exhaust into it. That's never a good sign if you're a firm employee.

Yesterday the other shoe dropped when regulators accused the firm of misappropriating $220 million in customer funds. The firm collapsed pretty much on the spot, and employees packed up their desks and left. The firm's trading partners froze all the firm's accounts and put everything into a "liquidation only" status.

This is big news because it deals another crippling blow to the already tenuous faith in the financial markets held by most investors. It's one thing to lose money on a bad trade; it's another thing entirely when the guy you trusted to place the trade for you is just pocketing your money. In the wake of MF Global, this PFGBest nightmare is going to cause major problems for non-clearing FCMs and could effect the overall liquidity of the futures market (if it hasn't already).

Another thing that sucks is that I recently advised one of you to accept an offer from PFGBest despite their somewhat sketchy reputation because it was the best of two offers presented. That's why I hate giving that kind of advice, and I certainly hope it went unheeded in this case. If not, you have my condolences.

So what was going on, in a nutshell?

Wasendorf intercepted confidential regulatory documents that were mailed by the National Futures Association to what the industry group believed was U.S. Bank, PFG's bank, a person close to the situation told Reuters. Instead, they were sending the documents, used to independently verify a broker's bank balances, to a post office box that Wasendorf had set up, the source said, who declined to be identified.

The CFTC complaint, which relies on many of the details released on Monday by the NFA, the broker's main regulator, said the bank account that PFG reported was holding $225 million in 1,845 customer accounts actually contained only $5 million.

Wasendorf forged signatures and fabricated bank balances on the documents and simply mailed them back to the Chicago-based NFA, the person said. The scheme apparently began to unravel as the NFA shifted to electronic confirmations.

The NFA "started getting suspicious. He was resisting this new way of confirming the balance," the source said. Wasendorf only recently signed the authorization, a decision that would quickly have led regulators to uncover the discrepancy.

- excerpted from this article.

I really wonder how many more of these are lurking out there. I'd love to hear from any counterparties that are tied up in the mess. What are they telling you guys?

Tags:

Comments

WallStreetOasis.com's picture

wow...sad.

EN
(Human, 12,074
 
Points)
 on 7/11/12 at 8:12am

wow...sad.

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Onetwobit's picture

strange that he attempted

CF
(Orangutan, 255
 
Points)
 on 7/11/12 at 8:39am

strange that he attempted this at work? probably not.

details will start spilling out on where that money went now.

IlliniProgrammer's picture

1.) Pull $5 million out of

ST
(Almost Human, 9,244
 
Points)
 on 7/11/12 at 9:20am

1.) Pull $5 million out of the bank.
2.) Rent a UHaul truck and drive to Florida.
3.) Sail to Cuba.
4.) Lay low for a while.

Work hard, play hard.

prospie's picture

IlliniProgrammer: 1.) Pull $5

(King Kong, 1,680
 
Points)
 on 7/11/12 at 9:23am
IlliniProgrammer:

1.) Pull $5 million out of the bank.
2.) Rent a UHaul truck and drive to Florida.
3.) Sail to Cuba.
4.) Lay low for a while.

Exactly. Follow this guy's approach: "As for Price, he was last seen on a ferry out of Key West, Florida ... Price is believed to own property in Venezuela and Guatemala."

I believe he's still missing. http://www.huffingtonpost.com/2012/07/10/aubrey-le...

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Therightcoast's picture

sounds like he took Mad Men

(Baboon, 105
 
Points)
 on 7/11/12 at 9:29am

sounds like he took Mad Men too seriously..

BTbanker's picture

IlliniProgrammer: 1.) Pull $5

IB
 
Points)
 on 7/11/12 at 9:37am
IlliniProgrammer:

1.) Pull $5 million out of the bank.
2.) Rent a UHaul truck and drive to Florida.
3.) Sail to Cuba.
4.) Lay low for a while.

Reminds me of that money manager who faked his own death and lived in his RV. Or the other one who deliberately crashed his plane to throw the feds off his trail.

"A man generally has two reasons for doing anything. One that sounds good, and the real one." - J.P. Morgan

Onyxcap's picture

This is very sad. What we

CO
 
Points)
 on 7/11/12 at 9:37am

This is very sad. What we need is annual audit from independent firms. As we saw with MF and now PFG, NFA and CFTC audits aren't working.

I was introduced to PFG few months ago when I was looking for a broker and I almost opened my account with them. Now, I am glad I didn't join PFG.

TerpStreeter's picture

prospie: IlliniProgrammer:

HF
 
Points)
 on 7/11/12 at 9:47am
prospie:
IlliniProgrammer:

1.) Pull $5 million out of the bank.
2.) Rent a UHaul truck and drive to Florida.
3.) Sail to Cuba.
4.) Lay low for a while.

Exactly. Follow this guy's approach: "As for Price, he was last seen on a ferry out of Key West, Florida ... Price is believed to own property in Venezuela and Guatemala."

I believe he's still missing. http://www.huffingtonpost.com/2012/07/10/aubrey-lee-price-fbi_n_1661709.html?utm_hp_ref=business

Haha exactly what I was thinking. What's wrong with these guys, honestly. Do they really think they're the smartest crooks out there and no one could possibly catch them? Do they hope they just die before anything sees the light of day? Its absurd.

IlliniProgrammer's picture

Yeah. They'd probably be

ST
(Almost Human, 9,244
 
Points)
 on 7/11/12 at 9:51am

Yeah. They'd probably be putting out an APB on his car right now, but it would take them 2-3 more days to find a car rental record. Especially from a company with a system as screwed up as UHaul. By that point, you'd already be in Cuba.

Don't use your credit or ATM cards, don't speed, don't get on airlines. And keep a low, low profile when you get there. Meaning that regardless of how much money you took, you can't really spend more than $60K/year. You're Bob, the southern-accented backslapping tourist who stood in the middle of the sidewalk in Times Square to take a picture while those mean New Yorkers shoved past you.

Actually, scratch UHaul. The truck would break down after 150 miles.

Work hard, play hard.

RagnarDanneskjold's picture

There's a word to describe

HF
(King Kong, 1,031
 
Points)
 on 7/11/12 at 9:57am

There's a word to describe this now...Corzined....how sad.

Abdel's picture

IlliniProgrammer: 1.) Pull $5

O
(Neanderthal, 2,064
 
Points)
 on 7/11/12 at 10:04am
IlliniProgrammer:

1.) Pull $5 million out of the bank.
2.) Rent a UHaul truck and drive to Florida.
3.) Sail to Cuba.
4.) Lay low for a while.

I saw some really nice looking yachts down there.

melvvvar's picture

japanese CEOs have the

(King Kong, 1,693
 
Points)
 on 7/11/12 at 10:45am

japanese CEOs have the decency to kill themselves properly when they fuck up this bad

accountingbyday's picture

IlliniProgrammer: 1.) Pull $5

CF
 
Points)
 on 7/11/12 at 11:03am
IlliniProgrammer:

1.) Pull $5 million out of the bank.
2.) Rent a UHaul truck and drive to Florida.
3.) Sail to Cuba.
4.) Lay low for a while.

This is almost exactly right. The only thing is don't actually get a U-haul. Rent a truck from one of those mom and pop type places in the city. They literally don't have a "system" and it'd be weeks before anyone figured that out.

Otherwise, by a car cash off Craigslist. The only issue with that is you'd have to throw old plates on the car and hope not to get stopped. Actually, I'm sure I could go into Chicago and offer someone $3k cash for their car and get them to keep the plates on it.

I'd also get/rent/steal the boat from craigslist.

Neighbor's picture

I wanna see how many hours we

IB
(King Kong, 1,236
 
Points)
 on 7/11/12 at 11:43am

I wanna see how many hours we can go without having a new major financial scandal hitting the headlines

Set the over/under at 3.5 hours

GO

I didn't say it was your fault, I said I was blaming you.

rls's picture

Is there ever just one roach?

HF
(Orangutan, 367
 
Points)
 on 7/11/12 at 12:07pm

Is there ever just one roach? There are others in the wood works. After MF Global, PFG, and the delicious, ongoing LIBOR scandal, it should be patently obvious that regulators are: 1) completely incompetent; and 2) captured by their respective industries. In case you didn't already know- check your counter parties. Unfortunately, this usually means using the biggest counterparty available. Should malfeasance happen, the government is more likely bail them out (what a world we live in). Don't have a counterparty if at all possible.

Bene qui latuit, bene vixit- Ovid

JDimon's picture

I'm really surprised, and

(Orangutan, 252
 
Points)
 on 7/11/12 at 12:28pm

There is already a book on you. That book is already being written. And if I talked to your friends, your teachers, your professionals, your family, I would know so much about you I wouldn't even have to meet you. You write the book the way you want to be

IlliniProgrammer's picture

I'm not saying he should have

ST
(Almost Human, 9,244
 
Points)
 on 7/11/12 at 12:50pm

Work hard, play hard.

Bondarb's picture

IlliniProgrammer: Yeah.

HF
(Neanderthal, 2,283
 
Points)
 on 7/11/12 at 9:34pm
IlliniProgrammer's picture

What about retail equities

ST
(Almost Human, 9,244
 
Points)
 on 7/11/12 at 10:07pm

Work hard, play hard.

Bondarb's picture

IlliniProgrammer: What about

HF
(Neanderthal, 2,283
 
Points)
 on 7/11/12 at 10:25pm
Edmundo Braverman's picture

Yeah, Bondarb's right. Stock

ST
(Human, 14,391
 
Points)
 on 7/12/12 at 1:58am

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