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Judge Rules No Bail for Peregrine Financial Founder

The chief federal judge in Cedar Rapids, Iowa, has blocked a ruling by a federal magistrate that would have allowed Peregrine Financial Group founder Russell Wasendorf to be released on bail after pleading guilty to fraud and embezzlement charges.

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

Wasendorf, 64, was scheduled to enter his plea Monday afternoon, then be released. But after prosecutors called his crime "nothing short of breathtaking" and argued Wasendorf is a serious flight risk, Chief U.S. District Judge Linda Reade, without explanation, blocked Wasendorf's release, ordering that he remain detained "pending further order of the court."

It was not immediately clear if the ruling would have any impact on Wasendorf's plans to plead guilty. A hearing was scheduled for 3:30 p.m. ET Monday in Cedar Rapids. (Read More: Peregrine Founder Won't Have to Name Names in Plea Deal.)

In a sharply worded motion filed just hours before the hearing, federal prosecutors said the conditions would not be enough to prevent Wasendorf from fleeing.

"Approximately $200 million is missing, and defendant, with limited community ties, has recently decided to kill himself rather than face the consequences of his crimes," the 19-page motion said. "There is serious risk defendant will flee and no conditions of release will reasonably assure his appearance."

Peregrine, a futures brokerage firm with nearly 25,000 clients, collapsed in July amid revelations Wasendorf had falsified the firm's bank statements for years.

Wasendorf attempted suicide on July 9, leaving notes detailing the fraud. Prosecutors say Wasendorf remains on suicide watch at the county jail where he has been held since his arrest on July 13. (Read More: Bizarre Case of Failed Broker Becomes Even Stranger.)

"Such circumstances strongly suggest defendant remains unstable and that he cannot be trusted to exercise sound judgment going forward," the filing said. At the same time, prosecutors said the suicide attempt may, in fact, be part of the fraud.

"His suicide attempt was not the result of a desperate and fleeting impulse," prosecutors said, noting that Wasendorf had been hoarding sleeping pills for months in preparation. The suicide attempt, prosecutors allege, "was part of the plan all along, and provides a strong indication of the alternatives defendant might choose rather than appear for court."

Prosecutors also dispute the judge's finding that Wasendorf no longer has the means to flee since his assets are frozen, noting that Wasendorf has assets in Romania that "could be worth tens of millions of dollars." (Read More: Peregrine CEO hid $100 Million, but Not in Flashy Toys.)

In addition, prosecutors said only a tiny fraction of the $200 million in customer funds missing from Peregrine has yet to be accounted for.

CNBC Investigations Inc.
CNBC Investigations Inc.

The filing also downplays Wasendorf's cooperation with authorities, which Judge Scoles cited in approving his release.

"Although defendant has sat down and provided answers to questions about his assets, given the nature and extent of defendant's crimes, none of what defendant says can be taken at face value," the filing said.

Prosecutors nonetheless did not require Wasendorf to cooperate in exchange for the plea agreement in which a 31-count indictment is being dropped and replaced with a four-count criminal complaint.

—By CNBC's Scott Cohn
@ScottCohnCNBC

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