What was Peregrine Financial Group?
Peregrine Financial Group (PFG), also known as PFGBest, was a futures brokerage firm that collapsed in 2012 due to fraudulent activity. The company was founded in 1980 by Russell Wasendorf Sr. and grew to become one of the largest futures brokers in the United States, with over 20,000 clients and $500 million in assets.
How did the fraud happen?
The fraud at PFG was perpetrated by its founder and CEO, Russell Wasendorf Sr. Wasendorf had been siphoning off customer funds for over 20 years to cover his personal expenses, such as a private jet, a lavish lifestyle, and his failed business ventures. He managed to conceal his fraudulent activity by creating fake bank statements and forging regulatory documents, which he submitted to regulators to make it appear as if the company had sufficient funds to cover its obligations.
The fraud was uncovered in July 2012 when Wasendorf attempted suicide and left a note confessing to the fraud. This led to an investigation by the National Futures Association (NFA) and the Commodity Futures Trading Commission (CFTC), which found that PFG had a shortfall of over $200 million in customer funds.
As a result of the fraud, PFG was forced to file for bankruptcy and its customers lost their investments. The company’s collapse also had a ripple effect on the futures industry, as it raised concerns about the adequacy of regulatory oversight and the safety of customer funds.
The aftermath
The fallout from the PFG scandal also led to regulatory changes, with the CFTC implementing new rules to strengthen customer protection and increase oversight of futures brokers. Additionally, the NFA introduced measures to enhance its monitoring of futures firms and improve its ability to detect fraudulent activity.
Russell Wasendorf Sr. was sentenced to 50 years in prison in January 2013 for fraud, embezzlement, and lying to regulators. He also had to pay $215 million in restitution to PFG’s customers. In addition to his criminal sentence, Wasendorf was banned from the futures industry for life.
The bottom line
The PFG fraud serves as a cautionary tale about the importance of regulatory oversight and the need for investors to exercise caution when choosing a brokerage firm. It highlights the need for due diligence when selecting a broker, and the importance of monitoring account statements and regulatory filings to detect any irregularities or red flags.
In conclusion, the PFG fraud was a significant event in the futures industry, and its impact was felt far beyond the collapse of the firm itself. The scandal led to regulatory changes and raised awareness about the importance of protecting customer funds, and serves as a reminder of the risks associated with investing and the need for investors to remain vigilant.