1 00:00:02,410 --> 00:00:04,910 In this episode of American Greed. 2 00:00:06,070 --> 00:00:09,310 If you're not trading with the best resources, it's time to get smarter. 3 00:00:09,610 --> 00:00:12,410 He's a trailblazer with a fanatic ambition. 4 00:00:12,790 --> 00:00:17,070 And by all appearances, Russell Wozendorf leads one of the most 5 00:00:17,070 --> 00:00:18,550 trading firms of its kind. 6 00:00:18,950 --> 00:00:22,170 Everything that I heard was fabulous. It was just something that everybody 7 00:00:22,170 --> 00:00:23,250 wanted to be a part of. 8 00:00:23,510 --> 00:00:27,970 But if there's one thing Wozendorf knows how to sell, it's a brilliant lie. 9 00:00:28,710 --> 00:00:31,490 While more than $200 million goes missing. 10 00:00:32,090 --> 00:00:37,670 He pulled off an audacious fraud for 20 years. 11 00:00:37,970 --> 00:00:44,490 I concealed my crime so easily, but what wasn't simple was living with the 12 00:00:44,490 --> 00:00:47,250 guilt. He's a thief. It's just who he is. 13 00:01:02,480 --> 00:01:04,280 July 9th, 2012. 14 00:01:04,840 --> 00:01:08,380 It's just before 8 a .m. in Cedar Falls, Iowa. 15 00:01:10,380 --> 00:01:15,240 At Peregrine Financial Group, a leading independent commodities brokerage firm, 16 00:01:15,600 --> 00:01:18,960 an employee makes a startling discovery. 17 00:01:19,780 --> 00:01:22,080 She immediately calls for help. 18 00:01:23,440 --> 00:01:25,080 9 -1 -1, what's the problem? 19 00:01:25,280 --> 00:01:29,360 There's a car behind our building with a tube from the exhaust into... 20 00:01:29,870 --> 00:01:31,330 The window and there's a person inside. 21 00:01:32,630 --> 00:01:34,030 Okay. And the car's running. 22 00:01:34,710 --> 00:01:36,490 Can you tell if they are? 23 00:01:37,910 --> 00:01:40,550 No, I haven't been down. I'm on the top floor. 24 00:01:41,530 --> 00:01:44,590 Moments later, her coworkers go out to investigate. 25 00:01:45,090 --> 00:01:49,490 I just opened the door, but I don't know if... Okay, are you watching it from 26 00:01:49,490 --> 00:01:51,450 the... Yes, I'm watching it right now. 27 00:01:51,650 --> 00:01:53,570 I've got a group of people out there. 28 00:01:55,130 --> 00:01:56,130 Oh, my God. 29 00:01:57,360 --> 00:01:59,000 Can you tell me what's going on? 30 00:01:59,560 --> 00:02:03,340 She recognizes the vehicle's occupant. 31 00:02:03,640 --> 00:02:08,120 It's the chairman and CEO of Peregrine, Russell Wassendorf. 32 00:02:09,020 --> 00:02:11,600 Is he with your business? He owns our business. 33 00:02:11,940 --> 00:02:13,420 He's the owner of the business? 34 00:02:13,700 --> 00:02:15,680 Okay. Okay. Oh, my God. 35 00:02:16,760 --> 00:02:19,980 Wassendorf was alive. He was breathing, but he was incoherent. 36 00:02:20,620 --> 00:02:24,160 Police say that he had been downing vodka and bleeding pills. 37 00:02:24,910 --> 00:02:26,870 He was airlifted to the hospital a short time later. 38 00:02:27,170 --> 00:02:30,470 Police find a signed letter inside Wozendorf's car. 39 00:02:31,090 --> 00:02:36,030 It reveals an extraordinary secret that will forever change the lives of more 40 00:02:36,030 --> 00:02:39,990 than 200 employees and 13 ,000 clients. 41 00:02:40,630 --> 00:02:43,370 This is my last confession, the letter begins. 42 00:02:43,810 --> 00:02:45,510 I have committed fraud. 43 00:02:46,170 --> 00:02:50,050 It just told the story of this caper that he'd been pulling off over the last 44 00:02:50,050 --> 00:02:51,050 two decades. 45 00:02:51,400 --> 00:02:56,740 Since that fateful day, Russell Wozendorf has never spoken to the media, 46 00:02:56,740 --> 00:02:57,740 now. 47 00:02:57,780 --> 00:03:03,100 In an interview with American Greed, he tells his story from a federal prison in 48 00:03:03,100 --> 00:03:04,120 Terre Haute, Indiana. 49 00:03:05,840 --> 00:03:11,900 It begins in rural Iowa, where he was born in 1948, the youngest of three 50 00:03:11,900 --> 00:03:15,300 children. My father died when I was five years old. 51 00:03:15,760 --> 00:03:21,020 After a period of mourning, my mother got a factory job. We were quite poor. 52 00:03:21,020 --> 00:03:22,840 lived in a very, very small farmhouse. 53 00:03:23,120 --> 00:03:26,700 No hot and cold running water, no indoor toilet facilities. 54 00:03:26,980 --> 00:03:32,680 But then, very soon, my mother earned enough money to be able to buy a very 55 00:03:32,680 --> 00:03:35,420 inexpensive house in a small town in Iowa. 56 00:03:37,120 --> 00:03:41,840 Wozendorf is a striver growing up, and he gets into college where he studies 57 00:03:41,840 --> 00:03:42,840 filmmaking. 58 00:03:43,210 --> 00:03:47,650 His talent for showmanship lands him a job shooting a PR piece for the American 59 00:03:47,650 --> 00:03:50,410 Soybean Association in 1973. 60 00:03:52,030 --> 00:03:56,670 That year, prices for commodities like soybeans and grain are soaring. 61 00:03:57,230 --> 00:03:59,110 Traders are making a killing. 62 00:04:00,050 --> 00:04:05,330 All of a sudden, stocks were going down, so everybody kind of leaned to futures, 63 00:04:05,370 --> 00:04:06,910 the new thing, to make money. 64 00:04:07,550 --> 00:04:13,970 Everyone was excited about Futures Markets. It got me involved in 65 00:04:13,970 --> 00:04:14,929 an interest. 66 00:04:14,930 --> 00:04:18,310 For Wozendorf, playing the market is more than an interest. 67 00:04:18,670 --> 00:04:20,149 It becomes a calling. 68 00:04:20,709 --> 00:04:26,530 By 1980, he gives up filmmaking to work as a consultant for Futures Investors. 69 00:04:26,990 --> 00:04:31,730 He then opens Wozendorf and Associates from the basement of his Cedar Falls 70 00:04:31,730 --> 00:04:35,610 and begins trading commodities for his clients as well. 71 00:04:36,940 --> 00:04:43,180 I decided to set up my own broker capability, and a large New York bank 72 00:04:43,180 --> 00:04:46,580 of my customers, a large oil man from Texas. 73 00:04:46,840 --> 00:04:49,520 So these were big -time commercial users. 74 00:04:50,280 --> 00:04:53,900 In the futures markets, if you want it as an investment vehicle, it can be 75 00:04:54,040 --> 00:04:57,700 But most people are looking for a little more excitement, a little more action, 76 00:04:57,820 --> 00:04:59,100 and they can get it, for sure. 77 00:05:01,960 --> 00:05:07,940 Sometimes it's all risk and no reward, as millions of investors learn the hard 78 00:05:07,940 --> 00:05:09,720 way on Black Monday. 79 00:05:10,300 --> 00:05:13,280 It is a day that will be in bold print and history books. 80 00:05:13,720 --> 00:05:19,840 It's October 19th, 1987, when the stock market crashes and the Dow Jones suffers 81 00:05:19,840 --> 00:05:22,220 its greatest one -day decline ever. 82 00:05:24,880 --> 00:05:26,960 Multitudes of brokers are panicked. 83 00:05:27,720 --> 00:05:30,860 But not Russell Wozendorf. He's sitting pretty. 84 00:05:31,610 --> 00:05:32,890 And so were his clients. 85 00:05:33,890 --> 00:05:38,770 That's because he urged them to sell their shares ten days earlier. 86 00:05:40,870 --> 00:05:45,790 It was just a matter of looking at the world as it was and seeing that the 87 00:05:45,790 --> 00:05:49,670 potential was there. And the extent of the crash was actually quite easy to 88 00:05:49,670 --> 00:05:54,370 predict because it was just a direct mathematical extrapolation from the 1929 89 00:05:54,370 --> 00:06:00,250 crash. Financial writer Daryl Jobman knew Wozendorf and says he probably had 90 00:06:00,250 --> 00:06:03,090 both vision and luck on his side. 91 00:06:03,390 --> 00:06:07,550 I see lots of gurus come along and they always predicted the crash. 92 00:06:07,850 --> 00:06:11,230 I mean, you make enough predictions, some of them are going to be right and 93 00:06:11,230 --> 00:06:12,230 you're going to look like a genius. 94 00:06:12,530 --> 00:06:17,330 Genius or not, Wozendorf's fortunes improved dramatically after his October 95 00:06:17,330 --> 00:06:18,330 prediction. 96 00:06:18,940 --> 00:06:24,380 I had spoken to a group in Hong Kong in September and practically got booed off 97 00:06:24,380 --> 00:06:25,199 the stage. 98 00:06:25,200 --> 00:06:30,480 In November, I spoke to a group in the Cayman Islands, and I literally could 99 00:06:30,480 --> 00:06:34,720 go into the bathroom without somebody following me in and trying to open an 100 00:06:34,720 --> 00:06:41,120 account. By 1990, Russell Wozendorf moved to Chicago, the epicenter of the U 101 00:06:41,120 --> 00:06:45,280 future markets, and rents an office next door to the Chicago Mercantile 102 00:06:45,280 --> 00:06:46,280 Exchange. 103 00:06:46,540 --> 00:06:52,380 He renamed his company Peregrine Financial Group, or PFG, after the 104 00:06:52,380 --> 00:06:55,140 Falcon, one of the world's fastest predators. 105 00:06:58,300 --> 00:07:04,360 In 1992, he incorporates Peregrine as a Futures Commission Merchant, or 106 00:07:04,360 --> 00:07:10,660 FCM. Unlike a broker, an FCM has the authority to hold and trust 107 00:07:10,660 --> 00:07:12,460 its customers' money. 108 00:07:14,250 --> 00:07:19,670 In becoming an FCM, a Futures Commission merchant, Wassendorf was taking the 109 00:07:19,670 --> 00:07:20,670 next big step. 110 00:07:20,710 --> 00:07:25,950 But he faces a potential game changer the following year. For reasons unknown, 111 00:07:26,350 --> 00:07:29,230 he has a falling out with a major investor. 112 00:07:29,970 --> 00:07:36,530 There had been a partner of his that put in about $200 ,000. That partner wanted 113 00:07:36,530 --> 00:07:37,530 out. 114 00:07:37,640 --> 00:07:42,560 The law suddenly leaves Peregrine short of the cash level required by 115 00:07:42,560 --> 00:07:43,560 regulators. 116 00:07:44,580 --> 00:07:48,940 I knew the industry was pretty well stacked in the favor of the larger 117 00:07:49,080 --> 00:07:53,300 and the smaller firms were being quickly weeded out by the regulators. 118 00:07:53,620 --> 00:07:57,140 We heard this a lot, you know, when we talked to Russ. He was always talking 119 00:07:57,140 --> 00:07:59,720 about the regulators being on his back. Too much regulation. 120 00:08:01,100 --> 00:08:05,360 Wozendorf accuses the Commodity Future Trading Commission, or CFTC, 121 00:08:06,170 --> 00:08:09,510 of putting him through the wringer after his investor backs out. 122 00:08:10,650 --> 00:08:15,230 The CFTC is demanding that he come up with an even higher level of capital 123 00:08:15,230 --> 00:08:18,750 before, or they'll force him to shut his doors. 124 00:08:19,170 --> 00:08:22,130 He felt that he was being persecuted by the CFTC. 125 00:08:22,410 --> 00:08:25,610 He did not feel that he should have had to come up with this extra capital to 126 00:08:25,610 --> 00:08:26,610 keep his business running. 127 00:08:27,250 --> 00:08:29,430 Wozendor finds himself at a crossroads. 128 00:08:29,810 --> 00:08:30,830 Doesn't have the money. 129 00:08:31,690 --> 00:08:37,710 But what he does have is $2 million in customer funds, money that belongs to 130 00:08:37,710 --> 00:08:40,070 individual investors and speculators. 131 00:08:40,549 --> 00:08:45,390 These are called segregated funds, and the name is very much apt. They're not 132 00:08:45,390 --> 00:08:46,510 your money to play with. 133 00:08:47,450 --> 00:08:53,190 If he were to tap into these funds, he'd be committing a federal crime and could 134 00:08:53,190 --> 00:08:55,110 serve up to 10 years in prison. 135 00:08:56,150 --> 00:08:58,710 But Wozendorf feels there is no other choice. 136 00:08:59,500 --> 00:09:04,500 He steals $200 ,000 of customers' money, then hides the evidence. 137 00:09:06,300 --> 00:09:12,960 You make a decision to take an action that is against your morals, against 138 00:09:12,960 --> 00:09:18,600 previous code of conduct. That was a decision that I made simply to save the 139 00:09:18,600 --> 00:09:19,700 company at that time. 140 00:09:20,320 --> 00:09:24,400 Even he admitted that his ego was too big to fail. 141 00:09:24,780 --> 00:09:26,340 The gamble pays off. 142 00:09:26,890 --> 00:09:31,750 He meets his required capital level, and regulators leave Peregrine alone. 143 00:09:32,190 --> 00:09:37,430 A lot of things go on in the financial world, but touching those customer funds 144 00:09:37,430 --> 00:09:40,450 is pretty rare and pretty extraordinary. 145 00:09:41,070 --> 00:09:45,910 For Russell Wozendorf, it's only the beginning of a criminal journey that 146 00:09:45,910 --> 00:09:46,930 span two decades. 147 00:09:47,870 --> 00:09:51,870 Once that decision was made, it became irreversible. 148 00:09:53,150 --> 00:09:55,170 Coming up on American Greed. 149 00:09:55,880 --> 00:10:01,240 An entrepreneur with a groundbreaking idea joins forces with paragraph and 150 00:10:01,240 --> 00:10:02,240 burned. 151 00:10:02,820 --> 00:10:05,280 This guy would get your business and he would kill it from you. 152 00:10:05,640 --> 00:10:08,020 And that was the truth. He did it over and over again. 153 00:10:21,450 --> 00:10:26,950 In the mid -1990s, Chicago's commodity futures industry is on the brink of a 154 00:10:26,950 --> 00:10:27,950 seismic change. 155 00:10:28,450 --> 00:10:33,450 For almost 150 years, traders have battled in the pit using open outcry, 156 00:10:33,710 --> 00:10:37,990 shouting and signaling orders to buy and sell everything from gold to soybeans 157 00:10:37,990 --> 00:10:44,130 to pork bellies. But Russell Wozendorf, CEO of Peregrine Financial Group, is 158 00:10:44,130 --> 00:10:46,370 ready to invest in the next frontier. 159 00:10:46,990 --> 00:10:51,480 I directed the resources towards... online trading, which I thought was 160 00:10:51,480 --> 00:10:52,640 the future of the industry. 161 00:10:52,980 --> 00:10:56,940 It was a big step to go electronic at the time when you had all of these 162 00:10:56,940 --> 00:11:00,700 entrenched interests wanting to preserve that open outcry trading. 163 00:11:01,860 --> 00:11:05,240 A lot of the firms didn't want to trade electronically right away. 164 00:11:05,790 --> 00:11:09,210 But open pit trading is no match for the Internet. 165 00:11:09,610 --> 00:11:13,230 You could quickly see where things were headed. The retail client wanted it to 166 00:11:13,230 --> 00:11:15,610 happen because they wanted their orders filled instantly. They didn't want to 167 00:11:15,610 --> 00:11:16,970 wait three hours to get their fills back. 168 00:11:17,230 --> 00:11:18,890 In February 1998, 169 00:11:19,710 --> 00:11:24,550 Russell Wozendorf meets another entrepreneurial broker named Jerome 170 00:11:25,090 --> 00:11:30,030 Bressert has developed one of the first online trading programs for consumers to 171 00:11:30,030 --> 00:11:32,810 send their orders directly to the exchange floor. 172 00:11:33,520 --> 00:11:38,460 Ressert software is ahead of its time, and it's exactly what Wassendorf is 173 00:11:38,460 --> 00:11:39,460 looking for. 174 00:11:40,280 --> 00:11:45,800 We met at an office, and I logged in with his computer, and we did trading 175 00:11:45,800 --> 00:11:46,840 there for about five minutes. 176 00:11:47,600 --> 00:11:51,520 And he was so impressed, he wanted to buy my company the next day. 177 00:11:51,980 --> 00:11:57,120 Ressert says his partners aren't ready to sell, so Wassendorf makes him a 178 00:11:57,120 --> 00:11:58,240 personal offer instead. 179 00:11:58,970 --> 00:12:04,530 He promises Bressert a 50 % share of Peregrine's online trading division if 180 00:12:04,530 --> 00:12:05,530 joins the firm. 181 00:12:05,950 --> 00:12:07,490 Bressert accepts the offer. 182 00:12:08,350 --> 00:12:12,530 Russ came across as very wealthy. He came across as someone that you would 183 00:12:12,530 --> 00:12:14,890 trust. He put his arm around you. He shook your hand. 184 00:12:15,090 --> 00:12:18,230 He gave you that good feeling that you're going to be safe with him. 185 00:12:19,180 --> 00:12:23,820 In a few short months, Bressert and his web programmer create a new online 186 00:12:23,820 --> 00:12:29,460 trading platform for Peregrine. They call it Best Direct, Best being short 187 00:12:29,460 --> 00:12:32,060 Bressert Electronic Systems Trading. 188 00:12:33,580 --> 00:12:38,060 It's among the first to connect consumers directly to the Globex network 189 00:12:38,060 --> 00:12:39,400 Chicago Mercantile Exchange. 190 00:12:41,340 --> 00:12:45,860 Globex is international and allows nearly round -the -clock trading. 191 00:12:46,800 --> 00:12:50,740 Once we connected Best Direct to Globex, it took half a second to go on. 192 00:12:50,940 --> 00:12:55,280 It was amazing. People were shocked. That was the very beginning that we knew 193 00:12:55,280 --> 00:12:56,540 had something that was great. 194 00:12:57,500 --> 00:13:02,060 Walsendorf realizes that he's hit the jackpot when Best Direct goes online in 195 00:13:02,060 --> 00:13:03,060 1998. 196 00:13:03,960 --> 00:13:05,980 Kerrigan's trade volume explodes. 197 00:13:08,110 --> 00:13:11,670 The online division became 95 % of all PFG's business. 198 00:13:11,890 --> 00:13:17,450 We went from making literally $500 a day in commissions to $50 ,000 to $200 ,000 199 00:13:17,450 --> 00:13:18,149 a day. 200 00:13:18,150 --> 00:13:22,550 But as Wozendorf beefs up his staff and moves Peregrine to a lavish new 201 00:13:22,550 --> 00:13:26,630 headquarters, Bressard says the company changes for the worse. 202 00:13:26,990 --> 00:13:28,170 He grew too fast. 203 00:13:28,370 --> 00:13:29,339 His ego... 204 00:13:29,340 --> 00:13:32,560 was so big that he wanted this office before we could actually afford the 205 00:13:32,560 --> 00:13:36,160 office. He would start yelling at people. He started yelling at me. This 206 00:13:36,160 --> 00:13:39,220 beginning of where they were trying to get me out of the company, and he was 207 00:13:39,220 --> 00:13:40,300 trying to get his son in the company. 208 00:13:41,460 --> 00:13:45,860 Bressert says that by December 2000, Wassendorf strips him of his main 209 00:13:45,900 --> 00:13:48,600 turning them over to his 30 -year -old son, Russ Jr. 210 00:13:49,960 --> 00:13:51,940 And then I was still asking, where's my option agreement? 211 00:13:52,160 --> 00:13:55,480 He did give me a 50 % option on the company, but I never got the signed 212 00:13:55,700 --> 00:13:58,780 I don't think his ego would allow me just to have half his company. 213 00:13:59,320 --> 00:14:03,580 He didn't expect this. It was a very unexpected growth in the division. 214 00:14:03,940 --> 00:14:06,660 Bresert resigns in April 2001. 215 00:14:07,520 --> 00:14:12,200 He says he never got his fair share, potentially tens of millions of dollars. 216 00:14:12,580 --> 00:14:17,340 But he realizes he doesn't stand a chance in court without a signed 217 00:14:18,000 --> 00:14:19,040 He did steal my software. 218 00:14:19,240 --> 00:14:23,680 He would bring people in, get all he could from you, and then try to get you 219 00:14:23,680 --> 00:14:24,880 and keep it for himself. 220 00:14:25,120 --> 00:14:26,200 And that's what he did. 221 00:14:27,340 --> 00:14:32,640 Next on American Greed, Wozendorff pours a fortune into real estate, publishing, 222 00:14:32,840 --> 00:14:33,840 and charity. 223 00:14:34,780 --> 00:14:35,980 There's just one problem. 224 00:14:37,100 --> 00:14:40,420 It was customer money, and he treated it as though it was his. 225 00:14:51,150 --> 00:14:57,990 By 2004, Russell Wasendorf, CEO of Peregrine Financial Group, is riding 226 00:14:57,990 --> 00:15:01,050 on the success of his firm's online trading platform. 227 00:15:02,210 --> 00:15:07,190 Peregrine's trade volume has shot up 400 % in the past four years. 228 00:15:07,430 --> 00:15:12,370 It's a triumph for a relative newcomer in Chicago's cutthroat futures industry. 229 00:15:12,890 --> 00:15:18,930 So says Nick Ivarone, who served as outside counsel for Peregrine since the 230 00:15:18,930 --> 00:15:24,260 beginning. What mattered to Russ was to appear to be the person that's built the 231 00:15:24,260 --> 00:15:25,300 most successful firm. 232 00:15:25,560 --> 00:15:30,180 At this point, the 56 -year -old is launching one new business venture after 233 00:15:30,180 --> 00:15:35,440 another, from a securities brokerage to a glossy trade magazine to developing 234 00:15:35,440 --> 00:15:37,280 commercial real estate in Romania. 235 00:15:38,500 --> 00:15:43,440 I knew we had great opportunities. At one time, Romania was the fastest 236 00:15:43,440 --> 00:15:44,440 economy in Europe. 237 00:15:44,740 --> 00:15:48,080 By the looks of it, Wozendorf has finally arrived. 238 00:15:49,230 --> 00:15:52,430 Wassendorf was definitely among the more flashy people in the industry. 239 00:15:52,670 --> 00:15:55,530 He wore a jeweled pinky ring. He always had a big smile. 240 00:15:55,770 --> 00:15:59,590 He brought in big -name speakers to futures industry conferences. 241 00:16:00,090 --> 00:16:04,230 He would bring in the likes of Ted Koppel, Barbara Bush, Alan Greenspan. 242 00:16:04,510 --> 00:16:06,390 Tell me, Frank, thank you. 243 00:16:06,710 --> 00:16:10,410 Your nation thanks you. We thank you. God bless you. 244 00:16:12,490 --> 00:16:18,030 He could surround himself with these people and elevate himself in the same 245 00:16:18,560 --> 00:16:24,000 He establishes Peregrine Charities as well, a foundation that donates 246 00:16:24,000 --> 00:16:26,080 to children's medical research. 247 00:16:26,800 --> 00:16:30,380 Russ came off as a very well -off man. 248 00:16:30,600 --> 00:16:34,460 My perception was that, you know, he was putting money into these other ventures 249 00:16:34,460 --> 00:16:35,460 from his own money. 250 00:16:35,660 --> 00:16:41,480 Broker Paul Cavanaugh joins Peregrine in 2005 when the firm appears to be on the 251 00:16:41,480 --> 00:16:44,420 rise with a staff of about 75 people. 252 00:16:44,840 --> 00:16:46,740 Peregrine was really a marketing machine. 253 00:16:47,360 --> 00:16:51,060 And that's really what's important to opening accounts in the futures 254 00:16:51,300 --> 00:16:55,680 You have to start with good leads. And they had them. Not only does Peregrine 255 00:16:55,680 --> 00:17:00,780 project wealth and industry savvy, it's got a reputation for integrity as well. 256 00:17:01,020 --> 00:17:05,819 When it comes to financial regulations, Wozendorf is known to hold his employees 257 00:17:05,819 --> 00:17:06,819 accountable. 258 00:17:07,380 --> 00:17:11,540 PFC required all brokers and operations people to maintain a very high standard. 259 00:17:12,190 --> 00:17:16,010 And it was kind of above and beyond, I think, what was needed. He was always 260 00:17:16,010 --> 00:17:22,609 outspoken about how much better he ran his firm and how 261 00:17:22,609 --> 00:17:24,369 his firm followed the rules. 262 00:17:25,230 --> 00:17:30,710 But Russell Wozendorf's carefully crafted image is a cover for his 263 00:17:30,710 --> 00:17:32,330 misdeeds behind the scenes. 264 00:17:32,870 --> 00:17:36,790 He wanted to make it look as though he was a wealthy and successful 265 00:17:37,280 --> 00:17:41,380 in part in order to throw the regulators and others off the scent, to make sure 266 00:17:41,380 --> 00:17:44,220 that they didn't look too closely or subject them to too much scrutiny. 267 00:17:44,820 --> 00:17:49,720 According to Assistant U .S. Attorney Peter Deegan, Wassendorf has been 268 00:17:49,720 --> 00:17:56,320 customer funds from Peregrine since 1993, when he embezzled $200 ,000 to 269 00:17:56,320 --> 00:17:57,380 his company afloat. 270 00:17:58,260 --> 00:18:02,840 In the decades since, Peregrine's client base has grown, and the firm now holds 271 00:18:02,840 --> 00:18:05,700 more than $100 million of customer money on deposit. 272 00:18:06,480 --> 00:18:11,180 Money that Wozendorf continues to steal to finance his Romanian real estate 273 00:18:11,180 --> 00:18:15,680 deals, his celebrity events, and his charities, among other pursuits. 274 00:18:16,240 --> 00:18:20,760 Whenever he had any need or any desire to pull millions of dollars out of his 275 00:18:20,760 --> 00:18:24,120 company, he simply went right to customer segregated funds, pulled it out 276 00:18:24,120 --> 00:18:26,700 there, covered his tracks by phoning up the bank statements. 277 00:18:27,620 --> 00:18:32,880 Remarkably, he's become a one -man fraud master, using the simplest tools to 278 00:18:32,880 --> 00:18:36,460 deceive his entire accounting staff and financial regulators. 279 00:18:36,900 --> 00:18:41,400 He produces counterfeit bank documents that inflate the balance in Peregrine's 280 00:18:41,400 --> 00:18:44,960 customer -segregated account and hide how much he's withdrawn. 281 00:18:45,520 --> 00:18:51,880 He actually started by using a copy machine and doing a literal cut -and 282 00:18:51,880 --> 00:18:57,380 job. on bank records and bank statements. As time went on, he started 283 00:18:57,380 --> 00:19:02,420 computer software that allowed him to make alterations digitally in order to 284 00:19:02,420 --> 00:19:04,940 generate convincing fake bank statements. 285 00:19:06,430 --> 00:19:12,050 painfully simple. For one thing, the regulators really weren't scrutinizing 286 00:19:12,050 --> 00:19:17,190 to the degree that they should have. Here I was depositing false deposits of 287 00:19:17,190 --> 00:19:21,450 capital into the firm to the tune of several million dollars a year, and at 288 00:19:21,450 --> 00:19:23,950 point did they ever ask me where the money was coming from. 289 00:19:24,490 --> 00:19:27,150 It was literally coming from thin air. 290 00:19:27,470 --> 00:19:32,010 From day one, he's kept the scheme his secret and his alone. 291 00:19:32,470 --> 00:19:34,430 No one else at Peregrine knows. 292 00:19:35,470 --> 00:19:38,190 Not even his son, who was the company president. 293 00:19:39,250 --> 00:19:42,730 Wassendorf made it known that he was the only one who was allowed to receive 294 00:19:42,730 --> 00:19:44,030 statements from the bank. 295 00:19:44,490 --> 00:19:48,250 Wassendorf's employees say that he had an awful temper, that if anyone 296 00:19:48,250 --> 00:19:51,650 questioned him about the bank statements, he would explode. 297 00:19:52,110 --> 00:19:55,870 And so through intimidation, he really kept the secret under wraps. 298 00:19:56,390 --> 00:20:02,010 Setting up that whole scam was too simple, way too simple. What wasn't 299 00:20:02,010 --> 00:20:03,450 was living with the guilt. 300 00:20:03,850 --> 00:20:10,810 And that tore me apart. I was insomniac. I drank too much. I did all 301 00:20:10,810 --> 00:20:13,510 those things that are self -destructive. 302 00:20:14,210 --> 00:20:19,730 Yet his conscience isn't enough to stop him. As long as Peregrine continues 303 00:20:19,730 --> 00:20:25,390 gaining new clients, Wassendorf uses the customer -segregated account like it's 304 00:20:25,390 --> 00:20:26,390 his own money. 305 00:20:29,730 --> 00:20:32,910 We're providing customers great technology. 306 00:20:33,760 --> 00:20:38,340 Market analysis, and most importantly, superlative customer service. 307 00:20:39,580 --> 00:20:44,420 By 2008, Peregrine is bigger than ever after buying out a rival firm. 308 00:20:44,800 --> 00:20:48,900 It now holds almost $300 million in customer funds. 309 00:20:49,980 --> 00:20:53,640 But financial disaster is brewing in the U .S. 310 00:20:54,800 --> 00:20:56,680 When American Greed returns. 311 00:20:57,580 --> 00:21:02,120 The economy goes into free fall and Peregrine starts bleeding money while 312 00:21:02,120 --> 00:21:04,820 Wozendorf continues to spend wealth. 313 00:21:05,260 --> 00:21:08,660 People didn't understand where he was getting all his money from. 314 00:21:20,490 --> 00:21:26,210 It's May 2008, and Chicago brokerage firm Peregrine Financial Group is 315 00:21:26,210 --> 00:21:27,510 celebrating a milestone. 316 00:21:28,090 --> 00:21:32,370 Sustaining your success is not only our mission, it's our obsession. 317 00:21:33,110 --> 00:21:38,590 Ten years after launching its online trading platform, the company rebrands 318 00:21:38,590 --> 00:21:40,530 itself as PFG Best. 319 00:21:41,390 --> 00:21:46,210 The firm, led by Chairman and CEO Russell Wozendorf, looks like a winner 320 00:21:46,210 --> 00:21:50,470 in the futures industry, including independent broker Carly Garner. 321 00:21:51,310 --> 00:21:55,670 She's opening a small trading office in Las Vegas and has to find a futures 322 00:21:55,670 --> 00:21:57,970 commission merchant to clear her trades. 323 00:21:58,830 --> 00:22:02,350 PFG, because it was a family operation, was very appealing to us. 324 00:22:02,590 --> 00:22:05,230 Our mission at PFG is to empower our customers. 325 00:22:05,510 --> 00:22:08,390 They worked hard to educate their clients. They had magazines. They had 326 00:22:08,390 --> 00:22:10,090 webinars. They had all these things that... 327 00:22:10,380 --> 00:22:14,060 let people know what the futures markets were all about, and that's exactly what 328 00:22:14,060 --> 00:22:15,240 we wanted to be a part of. 329 00:22:15,480 --> 00:22:20,680 Garner wants a company that she can trust, and she decides PFG looks like 330 00:22:20,680 --> 00:22:21,680 best bet. 331 00:22:21,760 --> 00:22:26,420 It wasn't a decision that was made lightly. I had made a number of phone 332 00:22:26,420 --> 00:22:30,480 around the industry, and everything that I heard was, you know, fabulous. 333 00:22:31,160 --> 00:22:33,220 She signed with the firm that summer. 334 00:22:33,780 --> 00:22:38,180 But as careful as she is, Garner will still get blindsided by the likes of 335 00:22:38,180 --> 00:22:39,240 Russell Wozendorf. 336 00:22:41,070 --> 00:22:44,870 Wall Street at least is bracing for a bankruptcy by Lehman Brothers. 337 00:22:45,070 --> 00:22:48,790 When September 2008 hits, everything changes. 338 00:22:49,550 --> 00:22:54,310 Financial powerhouses begin collapsing, including Lehman Brothers and Washington 339 00:22:54,310 --> 00:22:55,310 Mutual. 340 00:22:56,310 --> 00:23:01,830 Anxious investors go on a selling spree, and the Dow plunges more than 2 ,600 341 00:23:01,830 --> 00:23:03,150 points in October. 342 00:23:03,630 --> 00:23:07,690 It's a difficult time for anybody in the financial services industry because... 343 00:23:08,360 --> 00:23:09,620 Nobody has money to invest. 344 00:23:10,020 --> 00:23:13,020 Customers were scared. They don't want to trade, and they don't want to open 345 00:23:13,020 --> 00:23:18,160 accounts. To make matters worse, the Federal Reserve slashes interest rates 346 00:23:18,160 --> 00:23:19,160 almost zero. 347 00:23:19,720 --> 00:23:24,200 Typically, brokerage firms like PFG earn interest on their customers' accounts, 348 00:23:24,520 --> 00:23:27,620 and they rely on that for revenue, but not anymore. 349 00:23:28,500 --> 00:23:31,180 All the revenue streams went towards zero. 350 00:23:31,600 --> 00:23:35,300 The financial crisis torpedoes PFG's bottom line. 351 00:23:35,920 --> 00:23:38,640 And commodities traders suffer well into 2009. 352 00:23:39,380 --> 00:23:44,040 For all of the proverbial blood in the streets, however, Russell Wassendorf's 353 00:23:44,040 --> 00:23:46,220 ambitions remain unabated. 354 00:23:46,420 --> 00:23:51,960 In fact, he forges ahead with his boldest plan yet, the construction of a 355 00:23:51,960 --> 00:23:55,960 $24 million corporate headquarters in Cedar Falls, Iowa. 356 00:23:56,360 --> 00:23:59,860 Cedar Falls is near Marion, Iowa, where Wassendorf grew up. 357 00:24:00,510 --> 00:24:04,910 It has a main street that runs right through the center of town with a barber 358 00:24:04,910 --> 00:24:06,770 and a candy shop and an old hotel. 359 00:24:07,770 --> 00:24:11,850 Russell Wassendorf is going to come into Cedar Falls and build a sparkling new 360 00:24:11,850 --> 00:24:17,150 headquarters, hire a bunch of people, make Cedar Falls sort of the new 361 00:24:17,150 --> 00:24:18,930 for a certain part of the futures industry. 362 00:24:19,270 --> 00:24:21,190 It's very much an audacious move. 363 00:24:22,060 --> 00:24:25,460 In Chicago, he was one fish in a giant pond. 364 00:24:25,740 --> 00:24:29,820 When he moved his operation to Iowa, he was the biggest fish in a small pond. 365 00:24:30,660 --> 00:24:35,440 Wassendorf built a state -of -the -art facility, large enough for 300 employees 366 00:24:35,440 --> 00:24:37,160 on 22 acres of land. 367 00:24:37,620 --> 00:24:41,400 He announces its grand opening in September 2009. 368 00:24:42,940 --> 00:24:44,240 I'm Russ Wassendorf. 369 00:24:44,440 --> 00:24:49,420 I'm chairman and chief executive officer of PFG Best. I want to welcome you to 370 00:24:49,420 --> 00:24:50,480 One Baraboon West. 371 00:24:51,100 --> 00:24:53,360 Within the structure itself. It was like Field of Dreams. 372 00:24:53,640 --> 00:24:56,880 He felt if he built it, the brokers would come. 373 00:24:57,140 --> 00:24:58,200 But they didn't. 374 00:24:58,720 --> 00:25:01,240 Very few brokers followed him out to Iowa. 375 00:25:01,640 --> 00:25:04,060 So that building had a lot of space. 376 00:25:05,100 --> 00:25:10,280 Most of PFG's brokers have chosen to stay behind at the Chicago office, where 377 00:25:10,280 --> 00:25:14,680 Wozendorf's 39 -year -old son, Russ Jr., runs the show. 378 00:25:15,340 --> 00:25:18,220 There's growing strain between father and son now. 379 00:25:18,560 --> 00:25:19,560 Russ Jr. 380 00:25:19,660 --> 00:25:22,560 has fought the Iowa move ever since his father proposed it. 381 00:25:23,520 --> 00:25:28,560 There's no business reason for doing it, and Russ Sr. just summarily dismissed 382 00:25:28,560 --> 00:25:31,480 Russ Jr.'s opinions and other people's opinions. 383 00:25:32,320 --> 00:25:36,360 Cedar Falls, meanwhile, gives Wozendorf a hero's welcome. 384 00:25:37,100 --> 00:25:41,420 He relishes playing the part of a local boy made good and spends money 385 00:25:41,420 --> 00:25:43,100 extravagantly to show it. 386 00:25:43,920 --> 00:25:48,920 At his Cedar Falls home, he builds a massive pool with a retractable glass 387 00:25:48,920 --> 00:25:50,720 at a cost of more than $1 million. 388 00:25:52,200 --> 00:25:56,720 He takes to the skies in a private jet that he purchases for his trips to 389 00:25:56,720 --> 00:26:02,080 Chicago. And he opens an Italian restaurant called My Verona that uses 390 00:26:02,080 --> 00:26:06,280 ingredients from his organic farm and touts its upscale cuisine. 391 00:26:07,070 --> 00:26:11,550 He took his restaurant staff on an all -expenses -paid trip to Italy to learn 392 00:26:11,550 --> 00:26:14,670 about medieval sausage -making techniques and wine pairing. 393 00:26:14,890 --> 00:26:18,290 He wanted to give a top -class experience there in Iowa. 394 00:26:18,570 --> 00:26:22,890 For anyone who inquires about the source of his wealth, Wassendorf says that he 395 00:26:22,890 --> 00:26:25,670 made a killing in Romanian real estate. 396 00:26:26,110 --> 00:26:30,810 I remember him telling me that he had the largest construction company in all 397 00:26:30,810 --> 00:26:35,030 Eastern Europe, and he was worth hundreds of millions of dollars. 398 00:26:36,680 --> 00:26:41,380 But it's around this time that fate deals Wassendorf an unexpected hand. 399 00:26:41,860 --> 00:26:46,680 He's diagnosed with esophageal cancer, and the news shakes him profoundly. 400 00:26:47,200 --> 00:26:51,880 There's enough of a wake -up call that I considered all aspects of my life, 401 00:26:51,900 --> 00:26:53,060 including my marriage. 402 00:26:53,520 --> 00:26:58,820 In December 2010, he and his wife of 34 years filed for divorce. 403 00:26:59,520 --> 00:27:02,980 I always had the feeling I was living on borrowed time anyway. My father died 404 00:27:02,980 --> 00:27:07,620 when he was 50, and I guess that's one of the reasons I lived a rather fast and 405 00:27:07,620 --> 00:27:08,620 furious life. 406 00:27:09,000 --> 00:27:12,360 As it turns out, the diagnosis is a mistake. 407 00:27:12,940 --> 00:27:14,520 Wassendorf is cancer -free. 408 00:27:15,060 --> 00:27:18,380 And yet, his worst troubles are only beginning. 409 00:27:19,820 --> 00:27:25,720 When American Greed returns, see how an employee's tiny slip -up almost exposes 410 00:27:25,720 --> 00:27:26,920 his entire fraud. 411 00:27:29,230 --> 00:27:34,550 Hear more about Russell Wassendorf's motives at AmericanGreed .CNBC .com. 412 00:27:37,490 --> 00:27:38,710 Feeling greedy? 413 00:27:39,190 --> 00:27:42,030 Want more than your share of behind -the -scenes dirt? 414 00:27:42,710 --> 00:27:45,570 Follow at AmericanGreedTV on Twitter. 415 00:27:45,850 --> 00:27:47,110 We'll be right back. 416 00:27:54,750 --> 00:27:57,810 It's 2011 in Cedar Falls, Iowa. 417 00:27:58,960 --> 00:28:04,300 Russell Wozendorf, chairman and CEO of Peregrine Financial Group, has been 418 00:28:04,300 --> 00:28:07,520 stealing money from his customers for the past 18 years. 419 00:28:08,320 --> 00:28:13,840 He's embezzled more than $200 million and covered his tracks by switching real 420 00:28:13,840 --> 00:28:16,040 bank statements with forgeries. 421 00:28:16,600 --> 00:28:21,240 He told his staff that the bank statements for the customer -segregated 422 00:28:21,240 --> 00:28:25,340 were to be delivered to him unopened and that only he would have access to 423 00:28:25,340 --> 00:28:27,440 those. His scheme worked. 424 00:28:28,030 --> 00:28:31,570 but only as long as he controls the communication flow with the bank. 425 00:28:32,290 --> 00:28:37,850 His iron grip finally slipped, appropriately enough on Friday the 13th 426 00:28:37,850 --> 00:28:38,850 2011. 427 00:28:39,430 --> 00:28:42,010 The circumstances, utterly routine. 428 00:28:42,610 --> 00:28:47,890 It's during an audit when a PFG employee emails a request to U .S. Bank for an 429 00:28:47,890 --> 00:28:52,250 account balance and helps to put the bank in contact with a regulator at the 430 00:28:52,250 --> 00:28:55,230 National Futures Association, or NFA. 431 00:28:55,850 --> 00:29:00,950 Her intent is to make the audit go faster, but she unwittingly exposes just 432 00:29:00,950 --> 00:29:03,650 much customer money is missing from PFG. 433 00:29:04,490 --> 00:29:09,930 U .S. Bank told the NFA and the Peregrine employee that Peregrine's 434 00:29:09,930 --> 00:29:11,290 balance was around $7 million. 435 00:29:11,730 --> 00:29:14,190 That was about a $200 million shortfall. 436 00:29:15,390 --> 00:29:21,430 For the first time in almost two decades, a regulator gets a look at 437 00:29:21,430 --> 00:29:22,430 account balance. 438 00:29:22,990 --> 00:29:27,190 I found out it happened within minutes after it happened. I obviously thought 439 00:29:27,190 --> 00:29:28,190 the jig was up. 440 00:29:28,770 --> 00:29:33,930 That afternoon, Wassendorf contacts his bank to try to undo the damage. 441 00:29:34,350 --> 00:29:39,130 I gave one of the bank officers the song and dance that it was sent by accident. 442 00:29:39,190 --> 00:29:43,710 It was just, you know, this happened. Don't worry about it. It's nothing. 443 00:29:43,910 --> 00:29:45,090 And they bought my story. 444 00:29:46,390 --> 00:29:51,750 Meanwhile, he fabricates a new bank statement showing a phony balance of 445 00:29:51,750 --> 00:29:52,750 million. 446 00:29:53,370 --> 00:29:58,030 He gets ready to fax that statement to regulators the next business day. 447 00:29:58,410 --> 00:30:03,910 On Monday morning, he called up the NFA auditor and said the bank had made a 448 00:30:03,910 --> 00:30:08,650 mistake. They're going to be sending you a new verification form. And when he 449 00:30:08,650 --> 00:30:13,430 sent it, he changed the fax header on his fax machine to make it look like it 450 00:30:13,430 --> 00:30:14,430 was coming from the bank. 451 00:30:14,840 --> 00:30:20,420 The NFA accepts the forgery at face value, and Wassendorf dodges a bullet. 452 00:30:21,300 --> 00:30:27,220 Russ thought that the jig was up. He was apparently shocked that the NFA didn't 453 00:30:27,220 --> 00:30:27,799 catch him. 454 00:30:27,800 --> 00:30:33,460 Another type of damage that Wassendorf cannot seem to reverse, however, is 455 00:30:33,460 --> 00:30:36,660 continuing drop in profits and sinking morale. 456 00:30:37,140 --> 00:30:41,840 He's transformed his Iowa headquarters into a call center for opening online 457 00:30:41,840 --> 00:30:42,840 accounts. 458 00:30:43,130 --> 00:30:45,510 but at the expense of his brokers in Chicago. 459 00:30:46,050 --> 00:30:49,890 It felt like they wanted to phase out the brokers and just become an online 460 00:30:49,890 --> 00:30:55,150 trading house. All of the leads went to Iowa, where the customer service reps 461 00:30:55,150 --> 00:30:59,610 were. All the phone numbers on the website rang in Iowa. So rather than 462 00:30:59,610 --> 00:31:03,110 brokers a percentage of the commissions, the house would keep all the 463 00:31:03,110 --> 00:31:07,410 commissions. The last year, a lot of the brokers were just fading away. 464 00:31:07,730 --> 00:31:08,830 They were leaving. 465 00:31:09,400 --> 00:31:15,860 By the end of 2011, even Wassendorf's son and PFG president, Russ Jr., is 466 00:31:15,860 --> 00:31:17,180 planning an exit strategy. 467 00:31:17,640 --> 00:31:18,640 Russ Jr. 468 00:31:18,880 --> 00:31:23,340 has been at odds with his father, both professionally and personally, since his 469 00:31:23,340 --> 00:31:24,340 parents divorced. 470 00:31:24,580 --> 00:31:29,380 His father has also begun dating another woman, whom he intends to marry. 471 00:31:30,140 --> 00:31:34,100 The disagreements over how to run the company had intensified. 472 00:31:34,480 --> 00:31:38,200 The personal situation had really deteriorated. 473 00:31:38,960 --> 00:31:41,420 And so he wanted to get away from his father. 474 00:31:42,000 --> 00:31:46,860 But fate intervened, and suddenly the Wassendorffs are faced with a potential 475 00:31:46,860 --> 00:31:47,779 train wreck. 476 00:31:47,780 --> 00:31:49,540 In February 2012, 477 00:31:50,300 --> 00:31:56,540 financial regulators hit PFG with a $700 ,000 fine accusing four of its brokers 478 00:31:56,540 --> 00:31:57,540 of misconduct. 479 00:31:57,760 --> 00:32:02,020 The charges stem from a federal investigation into Minneapolis 480 00:32:02,020 --> 00:32:03,420 trader Trevor Cook. 481 00:32:04,270 --> 00:32:09,510 who's convicted of bilking investors of $194 million in a foreign currency 482 00:32:09,510 --> 00:32:10,510 fraud. 483 00:32:11,070 --> 00:32:16,210 Cook has set up many accounts at PFG to clear his trades and illegally 484 00:32:16,210 --> 00:32:18,130 commingled funds between them. 485 00:32:18,970 --> 00:32:23,910 Regulators said that PFG was clearly, at the very least, not supervising its 486 00:32:23,910 --> 00:32:26,030 brokers. These trades should not have gone through. 487 00:32:26,230 --> 00:32:29,750 You know, commingling of funds in the futures industry is just a very bad 488 00:32:29,750 --> 00:32:32,490 offense. It just shows that, you know, you're having issues. 489 00:32:33,320 --> 00:32:39,260 To make matters worse, regulators banned PFG from signing up new brokers for a 490 00:32:39,260 --> 00:32:40,440 period of two years. 491 00:32:41,220 --> 00:32:45,820 So that's really when things got bad, in my opinion. And, you know, some of my 492 00:32:45,820 --> 00:32:49,260 associates left the firm because of that. I almost went with them. 493 00:32:49,840 --> 00:32:53,220 By early May, PFG is clearly struggling. 494 00:32:53,460 --> 00:32:58,700 The company announces a 20 % pay cut for all its employees and several layoffs. 495 00:32:59,530 --> 00:33:04,150 The following month, regulators from the National Futures Association begin 496 00:33:04,150 --> 00:33:05,390 their annual audit. 497 00:33:06,010 --> 00:33:10,810 This time, they tell Wozendorf they're introducing a new auditing system. 498 00:33:11,150 --> 00:33:15,370 It's electronic and will give them direct access to PFG's bank accounts. 499 00:33:16,550 --> 00:33:22,090 The online technology that helped make Wozendorf now threatens to undo him. 500 00:33:23,370 --> 00:33:28,130 For 20 years, he had been doctoring bank statements with physical paper. He knew 501 00:33:28,130 --> 00:33:32,110 the jig was up. With electronic account verification, that really was the one 502 00:33:32,110 --> 00:33:33,410 thing that he couldn't hide from. 503 00:33:33,810 --> 00:33:37,770 But regulators need Wassendorf's consent before they can proceed. 504 00:33:38,350 --> 00:33:43,030 He refuses to give it to them and stalls for time over the next week. 505 00:33:43,610 --> 00:33:47,150 I could very easily have disappeared, but in doing that... 506 00:33:47,420 --> 00:33:52,660 I felt that the federal prosecutors would have then gone to lay the blame 507 00:33:52,660 --> 00:33:59,480 innocent people. And I didn't want to put my past employees or my son in that 508 00:33:59,480 --> 00:34:02,140 type of situation because they knew nothing about what I was doing. 509 00:34:02,580 --> 00:34:07,180 Wassendorf says he wants one last bit of happiness before his time runs out. 510 00:34:07,540 --> 00:34:11,520 So he takes his fiancée to Las Vegas on the weekend of June 30th. 511 00:34:11,840 --> 00:34:15,440 They elope at a private ceremony at the Bellagio. 512 00:34:16,880 --> 00:34:19,800 This was sort of the beginning of the end for Wassendorf. 513 00:34:20,260 --> 00:34:24,620 He was, you know, putting all his affairs in order ahead of his planned 514 00:34:25,480 --> 00:34:30,760 Eight days later, on Sunday, July 8th, Russell Wassendorf emails financial 515 00:34:30,760 --> 00:34:36,639 regulators. He finally gives them consent to view PFG's bank accounts 516 00:34:37,340 --> 00:34:41,360 Then he sets out a number of items in his office for authorities to find. 517 00:34:42,200 --> 00:34:47,420 I was very careful to keep all the evidence of my crime. I kept all of the 518 00:34:47,420 --> 00:34:51,880 original bank statements that I had forged, and then I had a thumb drive 519 00:34:51,880 --> 00:34:54,820 they could access and trace the money. 520 00:34:55,380 --> 00:35:00,660 By 8 o 'clock the next morning, he drives into a wooded area behind PFG. 521 00:35:01,360 --> 00:35:04,840 A short time later, one of his employees calls 911. 522 00:35:07,580 --> 00:35:08,580 Up next. 523 00:35:09,450 --> 00:35:14,450 There's a car behind our building with a tube from the exhaust into the window, 524 00:35:14,490 --> 00:35:15,490 and there's a person inside. 525 00:35:16,750 --> 00:35:18,150 Okay. And the car's running. 526 00:35:29,830 --> 00:35:31,370 July 9, 2012, 527 00:35:32,250 --> 00:35:33,250 Cedar Falls, Iowa. 528 00:35:33,810 --> 00:35:35,890 A desperate call to 911. 529 00:35:40,650 --> 00:35:44,710 Okay, are you watching it from the... Yes, I'm watching it right now. I've got 530 00:35:44,710 --> 00:35:45,850 group of people out there. 531 00:35:46,650 --> 00:35:51,810 Just before 8 a .m., employees at Peregrine Financial Group make a 532 00:35:51,810 --> 00:35:52,810 discovery. 533 00:35:54,030 --> 00:35:56,970 Ma 'am, can you tell me what's going on? 534 00:35:58,890 --> 00:36:03,370 Russell Wassendorf, chairman and CEO, has attempted suicide. 535 00:36:04,150 --> 00:36:08,710 He's overdosed on sleeping pills while sealed inside a car full of exhaust 536 00:36:08,710 --> 00:36:09,710 fumes. 537 00:36:11,120 --> 00:36:14,480 Do you have contact with anybody to see if he's breathing or not? 538 00:36:14,760 --> 00:36:15,760 Oh, my God. 539 00:36:16,960 --> 00:36:21,440 Paramedics rush him to the hospital, and police recover a suicide note and 540 00:36:21,440 --> 00:36:24,000 confession letter from inside the vehicle. 541 00:36:24,640 --> 00:36:28,580 I've committed fraud, the letter states. I have been able to embezzle millions 542 00:36:28,580 --> 00:36:31,880 of dollars from customer accounts at Peregrine Financial. 543 00:36:33,160 --> 00:36:36,720 At that point, a federal criminal investigation begins. 544 00:36:37,610 --> 00:36:41,390 He had laid out in some detail what he had done. 545 00:36:41,630 --> 00:36:46,470 Everyone was incredulous that this was true, so the next thing to do was to go 546 00:36:46,470 --> 00:36:49,090 down to the bank, and sure enough, it was true. 547 00:36:50,010 --> 00:36:54,470 Investigators find $5 million in PFG's customer -segregated account. 548 00:36:55,190 --> 00:36:59,930 That's $200 million short of what Wassendorf had everyone believing was 549 00:37:00,890 --> 00:37:05,410 Commissioner Bart Chilton of the Commodity Futures Trading Commission is 550 00:37:05,410 --> 00:37:06,570 notified immediately. 551 00:37:07,370 --> 00:37:12,650 This is $200 million of customer funds. This isn't big corporations. These are 552 00:37:12,650 --> 00:37:17,070 average folks who had their money invested with Peregrine. There was a lot 553 00:37:17,070 --> 00:37:21,070 shock, but more importantly, I was thinking, how are we going to get their 554 00:37:21,070 --> 00:37:25,830 back? That afternoon, regulators freeze PFG's trading positions. 555 00:37:26,130 --> 00:37:30,090 The company doesn't have the capital to stay open, and it declares bankruptcy 556 00:37:30,090 --> 00:37:31,090 the next day. 557 00:37:31,490 --> 00:37:35,850 More than 200 employees are suddenly told their jobs are gone. 558 00:37:36,570 --> 00:37:39,330 I think the hardest thing for Russ Jr. 559 00:37:39,610 --> 00:37:43,790 was he had to explain to the employees what was happening, that the company was 560 00:37:43,790 --> 00:37:47,510 going down and that Peregrine was finished. 561 00:37:47,890 --> 00:37:52,290 We knew the firm was having issues, but nothing of that nature. I mean, nobody, 562 00:37:52,330 --> 00:37:55,170 I don't think anybody could comprehend that, you know, he had taken over $200 563 00:37:55,170 --> 00:37:59,870 million, attempted suicide. I mean, that was just a blow, just a shock. 564 00:38:00,090 --> 00:38:02,350 The damage spreads far and wide. 565 00:38:03,120 --> 00:38:07,500 And in Las Vegas, broker Carly Garner fears that it will jeopardize her own 566 00:38:07,500 --> 00:38:12,200 business. She's among hundreds of outside brokers that cleared trades 567 00:38:12,200 --> 00:38:15,600 PFG and trusted the firm with their clients' money. 568 00:38:16,100 --> 00:38:20,520 Because all of our assets were at PFG, I knew that we would be starting from 569 00:38:20,520 --> 00:38:26,980 scratch. Our clients were left with, I assumed it to be pennies on the dollar. 570 00:38:27,530 --> 00:38:32,030 Garner, who opened her business with zero clients four years ago, represents 571 00:38:32,030 --> 00:38:33,670 more than 300 now. 572 00:38:34,730 --> 00:38:39,670 Altogether, their assets amount to $4 million, all of which was on deposit at 573 00:38:39,670 --> 00:38:40,670 PFG. 574 00:38:41,270 --> 00:38:44,590 Garner knows they may never see that money again. 575 00:38:46,030 --> 00:38:49,670 It was a nightmare. There was nothing we could do, but our clients wanted 576 00:38:49,670 --> 00:38:51,410 answers, and we didn't have them to give to them. 577 00:38:54,190 --> 00:38:56,190 Getting very disoriented. 578 00:38:57,250 --> 00:39:02,530 Wozendorf, seen here in video taken at his bedside, is soon visited by FBI 579 00:39:02,530 --> 00:39:08,050 agents. He's in stable condition after a near -fatal overdose of sleeping pills. 580 00:39:08,770 --> 00:39:13,410 Authorities later place him under arrest on charges of making false statements 581 00:39:13,410 --> 00:39:14,570 to federal regulators. 582 00:39:15,090 --> 00:39:19,230 Eventually, Wozendorf leads them through his 20 -year scare. 583 00:39:19,470 --> 00:39:23,650 He sat down and was willing to talk about how he'd done it. 584 00:39:24,120 --> 00:39:26,620 but also to talk about AFCA and where they were. 585 00:39:27,200 --> 00:39:31,300 Unfortunately, when you would ask what happened to all the money, the answer 586 00:39:31,300 --> 00:39:32,380 too often was, well, it's gone. 587 00:39:33,080 --> 00:39:38,140 The court appointed receiver and trustee tally Wassendorf's remaining assets and 588 00:39:38,140 --> 00:39:39,140 sell them off. 589 00:39:39,480 --> 00:39:44,420 But they come nowhere close to recouping the funds that he stole from 13 ,000 590 00:39:44,420 --> 00:39:45,420 customers. 591 00:39:45,840 --> 00:39:51,380 All told, PFG's customers have received roughly 30 % of their money back so far, 592 00:39:51,620 --> 00:39:53,440 but they don't expect to see the rest. 593 00:39:54,030 --> 00:39:56,150 They include Carly Garner's clients. 594 00:39:56,690 --> 00:40:00,050 Many of them have told me they'll never trade commodities again, and I don't 595 00:40:00,050 --> 00:40:04,110 blame them. This is something that people don't bounce back from very 596 00:40:04,610 --> 00:40:10,850 In September 2012, Wassendorf pleads guilty to embezzlement, mail fraud, and 597 00:40:10,850 --> 00:40:12,570 counts of lying to federal regulators. 598 00:40:13,010 --> 00:40:17,510 He maintains that he acted alone, and investigators haven't found the evidence 599 00:40:17,510 --> 00:40:18,850 to prove otherwise. 600 00:40:19,630 --> 00:40:23,770 At the time of his sentencing, we didn't believe any other charges would be 601 00:40:23,770 --> 00:40:24,770 brought against anybody. 602 00:40:25,050 --> 00:40:31,310 In January 2013, a U .S. District Judge sentences Russell Wozendorf to the 603 00:40:31,310 --> 00:40:35,250 maximum prison term, 50 years in a federal penitentiary. 604 00:40:36,250 --> 00:40:40,090 He will be eligible for release by the time he's 107. 605 00:40:42,470 --> 00:40:45,790 But many say that punishing Wozendorf isn't enough. 606 00:40:47,040 --> 00:40:49,040 Investors need better protection. 607 00:40:50,560 --> 00:40:57,180 It's mind -boggling how easy it was to fool the regulators because they weren't 608 00:40:57,180 --> 00:40:58,180 auditing electronically. 609 00:40:58,260 --> 00:41:03,040 The fact that this was able to go on for as long as it went on is as much an 610 00:41:03,040 --> 00:41:06,340 indictment of the regulators as it is of Russell Wassender. 611 00:41:06,720 --> 00:41:12,660 The CFTC is taking steps to improve oversight of customer funds. 612 00:41:13,710 --> 00:41:17,930 The thing that we have in place now is that we have electronic access to bank 613 00:41:17,930 --> 00:41:24,790 records that we can check 24 -7, 365, to ensure that customer funds are where 614 00:41:24,790 --> 00:41:28,130 they're supposed to be all the time. That doesn't mean that there's not more 615 00:41:28,130 --> 00:41:29,170 be done. There is. 616 00:41:29,830 --> 00:41:33,890 Today, the repercussions of PFG's collapse are still being felt. 617 00:41:34,110 --> 00:41:37,130 And customers aren't the only ones that paid the price. 618 00:41:38,320 --> 00:41:41,880 For brokers, you know, who played by the rules, this really wasn't fair. 619 00:41:42,960 --> 00:41:47,680 Not only do we lose our customers and our customers lose their money, but we 620 00:41:47,680 --> 00:41:54,540 have the additional taint or stigma of being associated with Watzendorf. 621 00:41:54,720 --> 00:41:58,340 And it's going to take a good amount of time to get that off. 622 00:41:59,100 --> 00:42:04,440 Every moment he was doing this, he was playing with people's lives and careers 623 00:42:04,440 --> 00:42:07,700 as well as people's money. And he didn't care. 624 00:42:08,680 --> 00:42:13,740 Wassendorf now expresses his remorse and says he accepts the punishment he's 625 00:42:13,740 --> 00:42:16,620 been given for his hubris and greed. 626 00:42:17,540 --> 00:42:22,720 I'm deeply sorry for what has happened. I feel very guilty for what I've done, 627 00:42:22,820 --> 00:42:24,540 and I deserve the punishment I'm getting. 628 00:42:25,340 --> 00:42:30,220 I was a horrible hypocrite, and because of that, I don't expect to be forgiven. 629 00:42:30,580 --> 00:42:33,580 I've lost my son's trust. I've lost his love. 630 00:42:33,860 --> 00:42:37,220 I don't believe I'll ever see my grandchildren again. 631 00:42:38,220 --> 00:42:40,200 And I'm very, very sorry about that. 632 00:42:44,020 --> 00:42:48,060 Next, an herbal enhancer promises passion but delivers pain. 633 00:42:48,540 --> 00:42:51,360 It wasn't about selling a product. It was about exploiting people. 634 00:42:51,620 --> 00:42:53,900 Snaring victims in a credit card fraud. 635 00:42:54,360 --> 00:42:58,320 American Greed scams scoundrels and suckers. Next on CNBC. 636 00:42:59,160 --> 00:43:02,940 Restaurant Startup premieres Tuesday, July 8th on CNBC.