Peregrine Financial chief executive Russell Wasendorf Sr., accused of stealing more than US$200 million ($244 million) from his futures brokerage's customers and lying to regulators to cover his tracks, has agreed to plead guilty to mail fraud, making false statements to regulators and embezzling customer funds, prosecutors said on Tuesday.
Wasendorf, 64, could be sentenced to up to 50 years in prison, according to a plea agreement made public at a hearing in Cedar Rapids, Iowa. He appeared at the hearing in an orange jumpsuit, his wrists and legs shackled.
Magistrate Judge Jon Scoles said he would rule on the plea agreement at a later time.
Wasendorf's public defender, Jane Kelly, asked that he be released from jail to the care of a pastor in his hometown of Marion, Iowa.
Kelly said Wasendorf had co-operated with law enforcement and with the court-appointed receiver, whose job is to locate Wasendorf's assets and sell them to raise money for bilked customers and creditors.
"He did have an option; he could have remained silent," Kelly said. Scoles said he would probably rule on her request by the end of the week.
Wasendorf attempted suicide on July 9 near the headquarters of his Cedar Falls, Iowa, firm and left a signed confession of a 20-year-long fraud.
The search continues for the money he stole with former clients still unable to access funds frozen since the firm's bankruptcy on July 10.
Wasendorf was arrested on July 13 and indicted on 31 counts of lying to regulators a month later. He initially entered a not-guilty plea and has been held at Linn County Jail in Iowa under suicide watch and in isolation since his arrest.
Linda Livingston, a pastor at Ascension Lutheran Church who knew Wasendorf in high school, told the judge that Wasendorf could move in with her and her husband if Wasendorf was allowed to leave jail.
Nancy Paladino, who had married Wasendorf two weeks before the Peregrine CEO attempted suicide, has offered to live in the house as well if the judge requires Wasendorf, seen as a potential suicide risk, to have constant company, Livingston said.
Paladino filed to annul the marriage in August.
Wasendorf met the receiver and representatives from the Commodity Futures Trading Commission, Department of Justice and the FBI in two in-person interviews in July and August for six hours each, prosecutors said at the hearing.
The CFTC has filed suit against Wasendorf and his firm, saying the CEO misappropriated more than US$200m in customer funds over several years. Wasendorf, in his confession, said he spent most of the stolen money on building a new headquarters for his company and keeping his business afloat.
Peregrine's 24,000 customers have had no access to their funds since Wasendorf was found, on July 9, incoherent but conscious in his car outside the firm's headquarters, a hose hooked to the exhaust pipe and snaked through the window. FBI agent William Langdon said on Tuesday Wasendorf had taken sleeping pills and had a bottle of vodka in the car.
Last week, Peregrine's bankruptcy trustee made public his plans to return US$123m to former customers of the futures brokerage, amounting to 30 per cent to 40 per cent of their funds. The CFTC over the weekend asked the court to delay that payout pending further examination of the company's records, many of which the regulator says have been falsified.
Wasendorf himself told FBI agents that he had forged bank statements for years to fool regulators into thinking he was properly safeguarding customer funds, when all the while he was using them for his own purposes, according to the complaint in the criminal case.
MOVING THE NEEDLE
Receiver Michael Eidelman said in an interview on Tuesday that he expects to continue meeting with Wasendorf in order to track down more assets, regardless of any plea agreement.
Eidelman has also hired a private investigator help him and is considering suing entities for the return of money or gifts that may have been bought with stolen money, he said.
Still, Eidelman does not believe he'll ever find nearly enough of the spent money to plug the shortfall in customer funds.
"Despite all the work that we have done so far, we haven't found the big ticket things that once we could sell them we could say, 'Oh, this is great, this is really going to move the needle on what customers will get," he said.
The National Futures Association on Tuesday turned over to Peregrine Financial's bankruptcy trustee a US$700,000 fine it had levied against Peregrine in February. The fine was part of a settlement for Peregrine's role in a Ponzi scheme masterminded by one of the firm's clients.
Wasendorf said he used some of the customer money he stole to pay for regulator fines,
An NFA spokesman said the money will be distributed to Peregrine Financial customers "affected by the shortfall in funds that should have been segregated for their benefit".
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