Market Commentary and Intraday News
Iowa workers stunned by CEO's sudden downfall
303 days ago
By RYAN J. FOLEY
(AP:WATERLOO, Iowa) Workers at a bankrupt Iowa brokerage and other firms owned by a businessman implicated in a $200 million fraud scandal say they are stunned by their sudden collapse and are trying to rebuild their lives.
About 75 workers of Peregrine Financial Group Inc. and other companies controlled by Russ Wasendorf Sr. attended a meeting Wednesday at a community college in Waterloo. They were given information about unemployment, job training and other benefits.
Workers from the brokerage, an upscale Italian restaurant that Wasendorf opened, his charitable foundation, and his publishing company were in attendance.
Nick Kollasch recently moved to Cedar Falls from Des Moines to work as a cook at MyVerona, Wasendorf's restaurant. He says its closure was shocking, but he's proud the restaurant's quality "raised the bar" for the region.
THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.
Investigators are moving quickly to identify and seize the wide-ranging personal assets of the disgraced founder of an Iowa brokerage so they can try to reimburse thousands of customers and workers affected by his alleged $200 million fraud.
Former Peregrine Financial Group, Inc. CEO Russ Wasendorf Sr. had been set to appear in U.S. District Court in Cedar Rapids for a hearing to determine whether he will continue to be jailed, but a judge delayed Wednesday's hearing until July 27 at Wasendorf's request. He is being held in an undisclosed location in the meantime.
Some of the estimated 250 Iowa workers who lost their jobs when Wasendorf's network of companies collapsed are expected to meet Wednesday afternoon with state officials to begin applying for unemployment benefits and filling out paperwork seeking unpaid wages and commissions.
Wasendorf's business career came to a shocking end last week after he was found unresponsive in his car outside Peregrine's headquarters in Cedar Falls following a suicide attempt. He left a suicide note in which investigators say he detailed how he embezzled customer funds for nearly 20 years and falsified bank records to fool regulators. Federal regulators shut down his firm, which was missing more than $200 million in customer accounts that it claimed to have, and it filed for bankruptcy the same day.
In portions of the note that have not been made public by the FBI, Wasendorf said that he spent most of the money to prop up PFG and to pay its business losses and fines and fees charged by regulators, according to the Wall Street Journal, which received the statement from a "person familiar with the situation." Wasendorf wrote that a portion went to build its $24 million, state-of-the-art headquarters in Cedar Falls, the paper reported. Attempts by The Associated Press to obtain the same material were not immediately successful.
A court filing in Peregrine's bankruptcy case shows that roughly 24,000 customers had accounts with the firm and are missing money, and an industry regulator told customers it's not clear when they will have access to their funds. Fewer than a dozen of them who had "precious metals" under the firm's control may qualify for the immediate return of their property under federal rules.
Wasendorf was arrested Friday at an Iowa hospital and charged with lying to regulators. Federal prosecutors say they will seek additional charges that could land Wasendorf, 64, in prison for the rest of his life.
Meanwhile, officials appointed to manage the assets of the firm and those of Wasendorf say they have made progress identifying and seizing valuable real estate properties and a diverse set of other companies that he controlled. They say Wasendorf owned two condominiums in downtown Chicago that property records show are worth a combined $1.3 million, an upscale restaurant in Cedar Falls, a publishing company, a construction company and an aircraft firm that owned at least one jet.
The assets identified so far stretch from Iowa to Florida to Europe, according to a court filing, which says they "may have been procured with funds embezzled from PFG." The receiver says it has been given expanded authority to take control of funds from companies controlled by Wasendorf and take all "necessary and appropriate" actions to seize his other assets.
"We are looking diligently to find assets that he owned or had control of," said Randall Lending, a lawyer for receiver Michael Eidelman. "We're working closely with the (bankruptcy) trustee to hopefully make substantial recoveries for people that lost money."
Separately, the U.S. Commodity Futures Trading Commission on Tuesday asked a judge to prohibit Wasendorf from "withdrawing, transferring, removing, dissipating, concealing or disposing of" any funds, personal property or securities that he controls.
Facing the prospect of frozen assets, Wasendorf learned last week that he could not afford to hire Chicago lawyer Thomas Breen to represent him in the criminal case as he had planned. U.S. Magistrate Judge Jon Scoles on Tuesday appointed federal public defender Jane Kelly to represent Wasendorf at taxpayer expense. He warned that Wasendorf "may be required to repay the cost of defense at a later date." Because of Kelly's recent appointment, Scoles delayed Wednesday's hearing at Wasendorf's request.
In all, up to 250 full-time and part-time workers in Iowa worked for Wasendorf's firms, and Iowa Workforce Development spokeswoman Kerry Koonce said they have been invited to Wednesday's meeting at Hawkeye Community College. She said they may be able to recover missing wages during the bankruptcy but noted that commissions are treated differently and may be more difficult to obtain. She said employees owed severance packages will likely be out of luck.
"There's going to be a lot of paperwork to go through for these individuals, which means it's not going to be an overnight solution, unfortunately," Koonce said.
One of the employees affected is Robert Thompson, the former chief pilot for Wasendorf Air in Cedar Falls. He is expected to work with the receiver to recover his firm's assets.
"I am just like 95 percent of the people in the country. We are all two paychecks away from the poor house and my situation is no worse or better than my co-workers," he wrote in an email. "Luckily we live in a loving community where friends and family still means something special."
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