Bizarre Case of Failed Broker Becomes Even Stranger

Thursday, 12 Jul 2012 | 1:40 PM ET
PFGB Headquarters
PFGB Headquarters

CEDAR FALLS, Iowa — Just days before Peregrine Financial Group collapsed, the firm's president sent an email to employees suggesting the crisis had passed, CNBC has learned.

"It is believed that based on current cost cuts and projections for increases in income in particular from international business ... that PFGBEST will be able to run at break even," wrote President and Chief Operating Officer Russell Wasendorf, Jr., in the July 6 email obtained by CNBC and verified by multiple PFG employees.

(Click here to read the entire email.)

The email says a ten percent across-the-board salary cut planned for this month would not be necessary.

PFG Told Employees All's Well Days Before Collapse
CNBC's Scott Cohn has the latest details on the investigation of PFGBest's bankruptcy, after regulators alleged the firm misstated $200 million in customer accounts.

"We have done our utmost to weather the economic difficulties presented in 2012 and the industry factors that caused all (futures brokerages) to require some restructuring," the email said.

PFG filed for bankruptcy on Tuesday, and regulators say some $200 million in customer funds are unaccounted for.

One day earlier, Wasendorf's father, PFG founder and CEO Russell Wasendorf, Sr. — a 40-year futures industry veteran — attempted suicide in his car outside PFG's Cedar Falls, Iowa headquarters.

An apparent suicide note found in the vehicle indicated possible accounting discrepancies at the firm, according to a police report.

Russell Wasendorf Sr.
Source: PFG Best
Russell Wasendorf Sr.

Authorities will not discuss Wasendorf Sr.'s condition, but a local newspaper, quoting unidentified sources, reported he is alert and responsive at an Iowa hospital, and possibly able to shed some light on the bizarre events leading up to the firm's collapse.

On June 5, employees received an invitation to Wasendorf's wedding to his fiancee Nancy Palladino, planned for Aug. 4, according to another email obtained by CNBC.

But public records in Clark County, Nevada show Wasendorf and Palladino were married in Las Vegas three weeks later, on June 30. Three days after the wedding, Wasendorf signed over power-of-attorney to his son, Russell Wasendorf, Jr.

Three days later, on July 6, the younger Wasendorf sent the email to employees saying the firm was now poised to break even.

CNBC Investigations Inc.
CNBC Investigations Inc.

PFG had been under scrutiny for months.

In February, the industry's self-regulatory organization — the National Futures Association — filed a civil complaint against the firm alleging violations involving customer funds.

Russell Wasendorf, Jr. did not respond to a voicemail from CNBC.

PFG's in-house attorney has also not responded to CNBC's requests for comment.

— By CNBC's Scott Cohn


Contact U.S. News


    Get the best of CNBC in your inbox

    › Learn More

Don't Miss

U.S. Video

  • Bitcoin. Digital gold rush or a shadowy tool empowering criminals on the dark web? What is really driving The Bitcoin Uprising? CNBC's Mary Thompson takes an in-depth look at this emerging digital currency by speaking to the bitcoin faithful, who believe the open source currency will upend the global financial system, as well as those who believe bitcoin is an easily manipulated tool that empowers criminals, hackers and drug barons in the dark online underworld. Although the future of bitcoin is uncertain, The Bitcoin Uprising sheds much needed light on the speculative currency and the future of money.

  • Loyalists around the world have embraced it as the cryptocurrency of the future, but some big names on the street differ widely in their beliefs about bitcoin. The Oracle of Omaha thinks it's a "joke." Tech entrepreneur Marc Andreessen counters that Buffett is out of touch, while bitcoin believers like Jonathan Rumion fully embrace the digital currency by buying groceries with bitcoin and even getting paid in bitcoin. CNBC's Mary Thompson reports.

  • Authorities say the online black-market bazaar Silk Road could be the tip of the iceberg when it comes to the criminal underworld using bitcoin for trading in illicit goods and services. On the "Dark Web," fake IDs, drugs, even hit men are all paid in bitcoin. CNBC's Mary Thompson explores why bitcoin is the currency of choice for criminal activity on the dark web and reports on the story of Mt. Gox, the largest bitcoin exchange, which shut down in February, leaving bitcoin investors holding the bag.