The State of Iowa says Peregrine Financial Group defaulted on a $ 1.2 million dollar incentives package long before the collapse of the business last week.
Peregrine founder and owner, Russell Wasendorf, Sr., was arrested last Friday morning by FBI agents. He is accused of making false statements to the U.S. Commodity Futures Trading Commission regarding the value of customer segregated funds at Peregrine Financial Group.
Peregrine collapsed as a result, and Wasendorf, Senior, admitted to some twenty-years of fraud in a statement to investigators.
In this new revelation, the Iowa Economic Development Authority told Peregrine back in march that it would have to repay a $ 175,000 forgivable loan, which helped the company build its new $18-million Cedar Falls headquarters in 2009. The company was also ordered to pay penalties of $13,376 for alleged violation of the contract.
The incentives contract with the State of Iowa mandated 74 jobs at an hourly rate of $19.74, but the company allegedly only produced 25 jobs which met the mandated criteria.
Wasendorf will make another appearance in U.S. District Court in Cedar Rapids Wednesday afternoon at 2:30.
Wasendorf had been hospitalized at the University of Iowa Hospitals and Clinics last week. He was on a psychiatric hold following a suicide attempt outside the company headquarters on Monday, July 9.
According to court documents, Wasendorf, Sr., was interviewed on Monday afternoon in his hospital room and confirmed he wrote a letter detailing almost 20 years of illegal activity and estimated the loss due to his fraud at $100 million.
Earlier reports indicated Wasendorf had been near death when employees discovered him inside a car Monday morning with one end of a hose attached to the car exhaust and the other end inside the vehicle. According to court documents, Wasendorf left a suicide note addressed to his wife along with a signed statement detailing his fraud at PFG.
According to the criminal complaint, Wasendorf's son and PFG President, Russ Wasendorf, Jr., arrived at work Monday morning to find a signed copy of the statement on his desk along with another suicide note.
"I have committed fraud. For this I feel constant and intense guilt," Wasendorf, Sr., wrote.
According to court documents, Wasendorf, Sr., admitted to forging bank statements for nearly 20 years. He claims to have embezzled millions of dollars.
"I had no access to additional capital and I was forced into a difficult decision: Should I go out of business or cheat? I guess my ego was too big to admit failure. So I cheated, I falsified the very core of the financial documents of PFG, the Bank Statements," Wasendorf, Sr., wrote.
Wasendorf, Sr., said all bank statements were delivered directly to him. He used a combination of scanners, Photoshop and Excel to create fake bank statements that he would hand over to the accounting department. He was also the only person with authorization to access the company's bank accounts.
After reading Wasendorf's suicide note, local authorities notified the Waterloo office of the Federal Bureau of Investigation of the possible financial problems at PFGBest.
The National Futures Association, a self-regulatory organization for the futures industry, moved quickly to freeze all Peregrine accounts.
The National Futures Association thought it was mailing the documents to a U.S. Bank post office box for U.S. Bank to verify Peregrine's account balance. But, according to the signed statement by Wasendorf, he controlled that post office box and used it to intercept confirmation forms and provide false bank statements.
According to court documents, following the discovery of his father's suicide note, Wasendorf, Jr., obtained a bank statement directly from U.S. Bank for the end of 2011 to compare with bank statements on file at Peregrine. The ending balance on Dec. 31, 2011 for the bank statement on file was $221,770,946.18. The bank statement provided directly by U.S. Bank for the same date showed an ending balance of $6,337,628.14.
The Chief Financial Officer at Peregrine used the bank statements she was given by Wasendorf, Sr., to report customer segregated funds to the U.S. Commodity Futures Trading Commission.
The Commodity Futures Trading Commission filed a Federal lawsuit Tuesday against Peregrine Financial Group, accusing the firm and Russ Wasendorf, Sr., of fraud and misappropriation of client funds.
Peregrine countered by filing Chapter 7 bankruptcy late Tuesday in U.S. bankruptcy court in Chicago. The bankruptcy petition says the company has somewhere between 10,000 to 25,000 creditors. The petition listed assets between $500 million and $1 billion, with liabilities somewhere between $100-$500 million. The list of creditors has yet to be made public.
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