Russell Wasendorf Sr. ran Cedar Falls, Iowa-based Peregrine Financial Group. Wasendorf also bilked his investors out of some $200 million over the past 20 years, according to the latest investigations coupled with Wasendorfs confessions.
Matthew Philips, with Matthew Leising and Andrew Harris, describe the debacle in their article, Why Did It Take 20 Years To Catch This Man? (Bloomberg Businessweek 7/30/128/5/12, pp. 2425). At the heart of this crime of opportunity stand two key factors:
1The shortcomings of governmental and industry oversight.
2Modern technologys powerful tools that render fraud easy.
The National Futures Association (NFA) is responsible for overseeing firms such as Peregrine Financial Group. The U.S. Commodity Futures Trading Commission has ultimate authority, but leaves the hands-on work to the NFA. Wasendorf had been hiding his embezzlement for two decades simply by insisting on providing hardcopy records as opposed to electronic records to the NFA and other inquirers. In Wasendorfs words:
Using a combination of Photoshop, Excel, scanners, and both laser and ink jet printers I was able to make very convincing forgeries of near[ly] every document that came from the Bank. (p. 25)
The result for his investors was horrific. When investigators got into the electronic records, the account balances added up to $6.3 million while the forged customer hardcopy statements totaled $221.7 million. A $215.4 million shortfall is no chunk change. Philips, with Leising and Harris react to the seriousness of the offense:
The scandal is another reminder of how incompetent government overseers have been at detecting financial fraudand how ill equipped (or disinterested) the industry has been at policing itself. (p. 25)
Accountability is easy to talk about but tough to maintain. But maintain it we must. While Im the last person to press for more government control over private business, someone has to police the industry. If the industry watchdogs dont do the job, then government may be the only option. (Not my choice!)
A superior solution is for the industry to do a better job of holding itself accountable. The industry can satisfy all governmental requirements while going the second mile to police itself on behalf of its customers, its integrity, and its reputation. We certainly need more of that today.
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