Feds: PFGBest CEO should get 50-year prison term

IOWA CITY, Iowa (AP) -- Disgraced businessman Russ Wasendorf Sr. should receive the maximum 50-year prison sentence for a $215 million fraud that victimized more than 10,000 customers and bankrupted his Iowa-based brokerage, federal prosecutors argued Tuesday.

The U.S. Attorney's Office said in a filing that federal guidelines call for Wasendorf to be sentenced to life in prison, which means the founder and CEO of Peregrine Financial Group should get the maximum sentence his charges carry.

U.S. District Judge Linda Reade should make the terms on separate counts run one after another for a full 50-year sentence "to achieve the total punishment called for under the guidelines," prosecutors argued. Wasendorf, 64, would likely spend the rest of his life behind bars if Reade agrees at the Jan. 31 sentencing hearing in Cedar Rapids.

Wasendorf pleaded guilty in September to mail fraud, embezzling customer funds and making false statements to two regulatory agencies. He admitted he used customer money that was supposed to be held separately to prop up his company, known as PFGBest, and hid the theft from colleagues and regulators by making phony financial statements over a 20-year period.

Defense attorney Jane Kelly had no comment Tuesday, but she has argued the loss was less than $200 million and Wasendorf's scheme was not sophisticated — two factors that could reduce the length of his recommended sentence.

Prosecutors disputed both claims, saying Wasendorf carried out "an exceedingly complex scheme" that inflated his business and personal wealth through the theft of customer funds.

Wasendorf tightly controlled the company's bank accounts, and used computers and copiers to create phony bank statements, deposit slips, and checks to cover up the theft, prosecutors said. His system fooled colleagues, who submitted false financial statements to regulators.

Prosecutors said the National Futures Association nearly discovered the fraud during a 2011 audit, but Wasendorf went to great lengths to conceal it. He convinced a PFG employee that a clerk pulled the wrong account balance, told US Bank personnel they mistakenly received the confirmation form, and then submitted a fabricated form from his home fax machine, they wrote.

Prosecutors said the $215 million loss could be "calculated with remarkable precision," unlike many other frauds. That figure represents the difference between the $376 million customers unwittingly entrusted with PFGBest, and the amount the company had in the bank.

Wasendorf used customer funds to expand PFG, even though it was never profitable and lost "tens of millions of dollars," prosecutors wrote. He told investigators that if he could make himself appear rich and successful, regulators "would not discover it was all a fraud," they added.

PFGBest collapsed in July after Wasendorf was found unconscious in his car in the company's parking lot with a tube hooked up to the exhaust pipe. Investigators say he attempted suicide after learning his company would be forced to give regulators electronic access to its bank accounts and he would no longer be able to hide his fraud. Regulators seized the company after learning $200 million was missing.

The bankruptcy left investors who had 24,000 accounts unable to access their money. Customers who invested in commodities have received 30 percent of their money back and expected are to eventually get back between 50 and 60 percent, said John Roe, co-founder of the Commodity Customer Coalition, which is helping customers.

Thousands of others who opened accounts to trade foreign currency or invest in coins or bullion have not received any funds, and it's not clear how they will fare since those investments had fewer protections, he said.

Prosecutors said they would respond in court to any defense request for a sentence of less than 50 years for Wasendorf.

Reade has a reputation for handing out tough sentences. She signaled in October one is on the way for Wasendorf when she overruled a magistrate's recommendation that he be released pending sentencing, saying he had an incentive to flee.

"Defendant faces a long sentence, and, in combination with his advanced age, there is a high likelihood that he will spend the remainder of his life in prison," Reade wrote.