The receiver for Peregrine Financial Group Inc. has the authority to hire Russell Wasendorf Sr.’s head pilot and restaurant manager to help find and secure assets controlled by the bankrupt future brokerage’s former chief executive officer, a judge said.
Temporary equity receiver Michael Eidelman was appointed on request of the U.S. Commodity Futures Trading Commission, which is probing more than $200 million of missing customer money. He has more power than the trustee liquidating the brokerage in bankruptcy court, because he has “exclusive jurisdiction” to take possession of all funds, properties and assets owned or controlled by Wasendorf, as well as customers’ assets, U.S. District Judge Rebecca Pallmeyer said in an order.
Peregrine’s July 10 bankruptcy, cutting off customers’ access to their accounts, came less than a year after the failure of MF Global Holdings Ltd. (MFGLQ:US), whose clients are still missing $1.6 billion. Wasendorf may have funded his personal investments with Peregrine brokerage money, Eidelman said in a court filing.
“It is possible assets owned by the Wasendorf entities may have been procured with funds embezzled from PFG,” he said.
Robert Thompson, head pilot of Wasendorf Air LLC; Cindy Zubak, manager of Wasendorf’s restaurant My Verona LLC; and Heather McCallum, chief financial officer of Wasendorf & Associates Inc., would be paid hourly rates, equal to their current salaries divided by 2,000, if Eidelman needs their services, according to the order filed July 17 in federal court in Chicago.
Eidelman is free to hire private investigators, locksmiths and lawyers, spending whatever estate money is “necessary or advisable” to preserve, hold or manage the former CEO’s assets, including a publishing and a construction company, an aircraft and real estate. Eidelman will take possession of those assets, as well as two condominiums in downtown Chicago, at 195 North Harbor Drive and 1440 North Lake Shore Drive.
Wasendorf entities on the receiver’s mailing list include Wasendorf Construction LLC, SFO Magazine, Traders Press Inc., Village Gate Communications Inc. and Wasendorf & Sons Co., according to filings.
Eidelman must notify the bankruptcy trustee, Ira Bodenstein, if he receives customer assets or trading positions, the judge said. Should he agree with the trustee on what to do with those positions, “then the receiver shall be free to implement such disposition;” otherwise he can ask the judge for permission to do it his way, the judge said.
Eidelman also has power to push any Wasendorf entity into bankruptcy, and will be armed with “all keys, computer passwords, entry codes, PIN numbers and combinations to locks necessary to gain or to secure access” to assets or documents of the Wasendorf companies, including the brokerage and its accounts, Pallmeyer said.
The judge barred anyone else from trying to establish or enforce any claims against or on behalf of Wasendorf and his companies, or the receiver and assets he assembled. No civil lawsuit can be started or litigated, and no debts can be accelerated by lenders.
The CFTC, which sued Wasendorf and Peregrine, is exempt along with other regulators, as is the Justice Department, which also is probing Wasendorf and the firm. Traders can terminate swap agreements, so long as they don’t try to get any money that may be due.
Top hourly rates for professionals at the receiver’s firm, Vedder Price PC, are between $490 and $750.
Wasendorf was arrested July 13 after a suicide attempt and a signed confession that he had defrauded customers for 20 years. As his fraud advanced, he opened an Italian restaurant after moving the brokerage’s headquarters to Cedar Falls, Iowa, from Chicago in 2009.
He took a group of restaurant employees to Italy for a week, staying at luxury hotels and visiting local wineries, built a “green” building adjacent to the Beaver Hills Country Club, and donated money to local hospitals to care for children with rare diseases.
He sat on the board, chaired by billionaire Lee Bass, of the unrelated Peregrine Fund wild bird conservation organization and the president committees of the University of Iowa and the University of Northern Iowa (27684MF:US), according to his and other websites. He gave Northern Iowa’s athletics department $2 million.
“I had no access to additional capital and I was forced into a difficult decision,” he wrote in his confession, using a computer at home, according to prosecutors. “Should I go out of business or cheat? I guess my ego was too big to admit failure.”
The bankruptcy petition lists more than $500 million in assets and more than $100 million in liabilities. The brokerage estimates it has more than 10,000 creditors, according to the filing. Peregrine had 241 employees, of which 56 were retained to help liquidate.
Financial statements based on a forged bank statement showing Peregrine’s customer accounts at U.S. Bank with a balance of $221.8 million as of Dec. 31 was sent to regulators including the CFTC, according to the affidavit. The account actually held only $6.3 million, according to the FBI.
The criminal case is U.S. v. Wasendorf, 12-mj-131, U.S. District Court for the Northern District of Iowa (Cedar Rapids). The bankruptcy case is Peregrine Financial Group Inc., 12-27488, U.S. Bankruptcy Court, Northern District of Illinois (Chicago). The regulatory case is U.S. Commodity Futures Trading Commission v. Peregrine Financial Group Inc., 12-cv-5383, U.S. District Court, Northern District of Illinois (Chicago).
To contact the reporter on this story: Linda Sandler in New York at firstname.lastname@example.org
To contact the editor responsible for this story: John Pickering at email@example.com