Wednesday, January 30, 2013

EES: PFG Best Fraud Case Continues To Unravel

The case involving the fraud perpetrated by Russ Wasendorf, Sr. continues to get worse as more information comes out.
The Iowa department of revenue announced that Russ Wasendorf, Sr. also duped them, out of approximately $14 Million in unpaid taxes:
Russ Wasendorf Sr. duped customers, regulators and his colleagues as he pulled off a 20-year, $100 million fraud at his Iowa-based brokerage. The state's tax collectors say he and his ex-wife also duped them, and that the former couple owes Iowa more than $14.1 million in unpaid taxes, interest and penalties.
The Iowa Department of Revenue filed an assessment in November against Russ and Connie Wasendorf, alleging they underreported their taxable income between 2001 and 2009 by about $75 million and dodged $6.6 million in taxes as a result, according to court records released this week.
This announcement comes at a bad time for the case, now seeing more bills associated with it adding up. PricewaterhouseCoopers, one of the world's largest accounting firms, submitted a bill for $1.6 million for about 4,239 hours of work between July 22 and October 31, according to a filing in Peregrine's bankruptcy case on Monday. On Friday, Shaw Fishman Glantz & Towbin, the law firm representing Trustee Ira Bodenstein, submitted a bill for $671,417 for 1,508 hours of work between July 10 and October 31, according to court documents.
The case now has a number of the total fraud, according to documents recently released. $215 Million.
"Defendant claims the loss is less than $200 million," Acting Iowa U.S. Attorney Sean Berry said in a sentencing memorandum filed yesterday in federal court in Cedar Rapids. "The actual loss in this case can be determined with remarkable precision."
The National Futures Association, an industry self- regulator, announced the same day as the suicide attempt that about $200 million in customer funds the firm reported was on deposit at its bank were unaccounted for.
According to his plea agreement, Wasendorf started stealing from Peregrine in the early 1990s, covering his theft by altering statements from the company's bank and passing them to his chief financial officer and accountants.
Institutional Decay
If we are suspicious of our own institutions then who can we really trust? Our global financial system is comprised of a network of insittutions who custody our assets; it isn't possible for individuals to custody their own assets. If a trusted NFA Member who sat on the board of the NFA was capable of stealing $215 Million from clients over a period of many years without getting caught, what other monsters lurk in places we haven't yet looked?
In our article Modern Insitutional Decay we had outlined some facts that seem to point to a trend; the institutions that built the modern world are dead or dying.
The insituttions that watch the institutions, such as the ratings agencies, and the regulators, have also in some cases found guilty of conflicts of interest.
Traders need to rely on their own analysis, and try to obtain as much objective information as possible.
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