CEDAR RAPIDS — A former New York prosecutor and securities litigation expert speculated Friday about whether more charges would be filed after the founder and chief executive of Peregrine Financial Group pleaded not guilty to 31 counts of making false statements to regulators about the company’s financial state.
Daniel Stein, a partner with Richards, Kibbe and Orbe in New York and former assistant U.S. attorney for the Southern District of New York, has handled several securities and fraud cases.
Russell Wasendorf Sr., 64, of Cedar Falls, pleaded not guilty Friday during his arraignment. His trial is set to begin Oct. 15. If convicted on all charges, Wasendorf faces up to 155 years in prison and a $7.7 million fine.
Stein said he was surprised Wasendorf wasn’t charged with fraud.
The government alleges Wasendorf made false statements to the U.S. Commodity Futures Trading Commission. In order to bring a charge of fraud, the government would have to prove Wasendorf knowingly made false statements to a victim of the fraud, and the victim relied on those statements in handing over money or property.
Wasendorf admitted in a note before attempting suicide that he stole more than $100 million from customer funds for more than 20 years, according to court documents.
He also explained in some detail how he made forgeries of the bank statements and how he went about covering up the scheme.
“The key difference between a fraud charge and a false statement charge relates to the person to whom the alleged false statements were made,” Stein said. “My guess is that the false statement charges here are readily provable (in light of his suicide note), but may be something of a placeholder until the investigators sort out all of the evidence to determine whether or not a fraud charge is warranted.”
Stein said he expected Wasendorf to plead not guilty to the charges Friday because cases like this typically plead out and don’t go to trial. However, it could take months for the prosecutor to go through all the evidence in a complex case.
“Even if he admitted everything like he did in the suicide note, until both sides sort through all the evidence they’re not going to rush into a plea,” Stein said. “I was looking back at the Bernie Madoff (Ponzi scheme) case and he was arrested in December 2008 and didn’t plead out until March of 2009.”
Madoff turned his wealth management business into a massive Ponzi scheme that defrauded thousands of investors of billions of dollars. He pleaded guilty to 11 federal fraud charges.
Stein, in explaining what motivates individuals like Madoff or the key players involved in the Enron scandal to commit these crimes, said they are “complicated individuals.”
He said motives don’t matter in criminal intent but usually the people who commit these kinds of crimes are driven by a combination of things — unwillingness to admit their mistakes, a belief they’re good at what they do and can succeed, and the desire for money.
“In a Ponzi scheme, they usually think they can make the money back before anybody discovers it,” Stein said. “When money is involved you don’t need an explanation as to why.”
There has been speculation on whether Wasendorf acted alone in his alleged scheme. Stein said while it’s a possibility, authorities haven’t indicated anybody was involved.
“Wasendorf’s note suggests pretty strongly that nobody else was involved, but the authorities will certainly not accept that at face value,” Stein said. “I have no doubt that the prosecutors and investigators are looking very closely at the evidence, and talking to lots of witnesses, in an attempt to make a judgment as to whether anyone else was involved. It’s too early at this point to even make an educated guess.”