Peregrine Financial Group Inc., a futures brokerage with $396 million in customer funds, is being investigated for alleged missing money as founder Russell Wasendorf Sr. unsuccessfully attempted suicide.
"Some accounting irregularities are being investigated regarding company accounts," the brokerage said on Sunday in an e-mail to customers. Wasendorf owns the entire firm, according to the e-mail. The National Futures Association (NFA) "and other officials" have frozen all customer money, the e-mail said.
The NFA, the self-regulator for futures brokerages, said Sunday that Peregrine reported it had about $400 million in customer-segregated funds in late June, of which $225 million was on deposit at U.S. Bank. The regulator was then made aware that Wasendorf, its president and chief operating officer, "may have falsified bank records." The regulator then found that only $5 million was on deposit.
The NFA has prohibited Peregrine, based in Cedar Falls, Iowa, from distributing customer money, soliciting or accepting new customer accounts or placing trades for customers except to liquidate positions.
The investigation also includes officials at the Commodity Futures Trading Commission and local authorities, according to a person familiar with the matter who asked not to be named because the details are private.
Peregrine was sued by a court-appointed receiver in Minnesota earlier this year for allegedly ignoring red flags that Peregrine customer Trevor Cook was operating a Ponzi scheme, according to a Feb. 1 lawsuit filed in U.S. District Court in Minneapolis. Cook was sentenced to 25 years in prison for operating "one of the largest Ponzi schemes in Minnesota history," receiver R.J. Zayed said in the complaint.
Supposedly profitable investments by Cook and others with Peregrine "ultimately lost more than $30 million" in accounts that Peregrine "permitted Cook to open, maintain and manage in the face of overwhelming red flags of fraud or insolvency," the suit said. Cook and others "transferred tens of millions of dollars, totaling approximately $48 million," to Peregrine accounts from their customers.