A judge sentenced Peregrine Financial Group Inc. founder Russ Wasendorf Sr. to 50 years in prison on Thursday for stealing $215 million from investors over 20 years in what a prosecutor called the biggest fraud in Iowa history.
U.S. District Judge Linda Reade told Wasendorf, 64, that the stiff sentence was warranted because of the "staggering losses" his greed caused to more than 13,000 investors, employees and creditors over 20 years.
Instead of having the courage to admit his company was a failure since its inception in the early 1990s, she said Wasendorf lavishly spent clients' money to make himself look like "a big shot," Reade said. Last summer's collapse of the company, nicknamed PFGBest, rippled across the financial industry, affecting regulatory agencies and the nation as a whole.
"By imposing a substantial sentence, the court sends a message that white collar criminals may serve long prison sentences for stealing money from other people," Reade said.
Wasendorf, who has been kept in an isolation unit since last summer, seemed frail in his orange prison jumpsuit. His attorney said he'd lost a substantial amount of weight behind bars and was suffering from serious health problems, including a tumor on his pancreas that doctors are testing for cancer.
Before he was sentenced, Wasendorf issued a broad apology for the damage he caused and said he would accept any punishment.
"I just want to say I'm very, very sorry for the financial and emotional damage I have caused to investors and employees of Peregrine Financial Group," Wasendorf said.
He said he regretted the damage "my deceit has caused" the industry and his community and family. He also said any sentence would pale in comparison to the punishment of being estranged from his son, Russ Wasendorf, Jr., who helped him run the company and has been described as shocked about the fraud.
"I've lost the love of my son, and I'll never see my grandchildren again," Wasendorf said, breaking up.
Prosecutors said they don't anticipate bringing charges against Wasendorf's son or anyone else.
Guilty plea made in September
Wasendorf pleaded guilty in September to misusing at least $100 million to cover business losses at PFGBest and a range of personal expenses. This week, he agreed with prosecutors that he caused $215 million in losses. Reade ordered Wasendorf to pay that amount in restitution, but said it was "highly unlikely" the victims would ever be compensated in full.
Wasendorf hid the theft from colleagues and regulators by making phony financial statements for nearly two decades that made the company appear healthy.
At a news conference after the hearing, acting U.S. Attorney Sean Berry praised the sentence, saying it was the longest ever given to a white-collar criminal in the northern district of Iowa. He said the punishment was fitting because Wasendorf carried out the largest fraud in Iowa history.
"This is a just sentence for a con man," he said.
Judge rejects plea for lenience
Wasendorf's attorney, public defender Jane Kelly, had urged Reade to impose a more lenient sentence than the 50-year prison term recommended by advisory guidelines. She argued that Wasendorf had cooperated with regulators and investigators to help customers maximize their refunds. She also said Reade should consider that he wasn't motivated by greed because he had made significant contributions to charity for medical research and other causes.
But Reade rejected those arguments. She said he cooperated only after he was arrested and left a suicide note detailing his theft. She blasted Wasendorf for blaming overzealous regulators for prompting him to start stealing. And she said all of his good acts in the community built up Wasendorf's reputation – and allowed him to victimize more people.
Wasendorf was found unconscious outside the company's headquarters last July after attempting suicide in his vehicle by connecting a tube to his exhaust pipe. He left a startling suicide note in which he confessed to the fraud. He wrote that he started stealing because his "ego was too big to fail" and that he did not feel bad about duping regulators he felt were overzealous. He said he managed to get away with it for so long because he became adept at making "convincing forgeries" of bank and financial statements using printers and scanners.
Regulators immediately discovered PFGBest could not account for more than $200 million in customer funds it was supposed to be holding, and the firm filed for bankruptcy protection. Some 24,000 customers were unable to access their accounts and still have not been fully reimbursed. Customers who opened accounts to trade commodities have received between 30 and 40 percent of their money back, while customers who traded foreign currency have received nothing because that activity has less legal protection.
Wasendorf used their money to build up a business empire that included a publishing company, a corporate jet, the nicest restaurant in Cedar Falls, and a family charity known for making donations to universities and hospitals.
Customer money also helped build what was perhaps the biggest symbol of Wasendorf's home-grown success with a firm he started in a basement 30 years ago: PFG's $20 million headquarters, a three-story glass building that opened in 2009 and included a gym, a daycare center, a Montessori school, and a restaurant. Today, the building is largely empty and up for sale.