IOWA CITY, Iowa (AP) — A disgraced Iowa businessman should be released from jail while he awaits sentencing for a "reprehensible" 20-year fraud scheme that bilked customers out of millions of dollars, a judge ruled Thursday.
U.S. Magistrate Judge Jon Scoles ordered Peregrine Financial Group founder Russ Wasendorf Sr. released from the Linn County jail in Cedar Rapids after he pleads guilty Monday to mail fraud, embezzling customer funds, and lying to regulators. The ruling came after prosecutors released their 17-page plea agreement with the founder of the Cedar Falls-based brokerage, as well as suicide notes he left for his new wife and son.
Wasendorf will be confined to the suburban Cedar Rapids home of Linda Livingston, a friend and Lutheran pastor who has been counseling him. He will be under GPS electronic monitoring and allowed to leave only under special circumstances.
Assistant U.S. Attorney Peter Deegan had sought Wasendorf's continued detention, arguing he was suicidal and had the means to travel internationally. Deegan declined comment Thursday, but he said earlier in the week that he would likely appeal if Scoles ordered the 64-year-old Wasendorf released.
Scoles said he doesn't believe Wasendorf is likely to flee because he surrendered his passport and no longer has access to cash, cars or his corporate jet. And while he may be suicidal, that is not a reason to detain Wasendorf under the law, Scoles said.
It's unknown how long Wasendorf will be free because sentencing hasn't been set.
In the plea agreement prosecutors made public Thursday, Wasendorf acknowledged he embezzled and misspent more than $100 million in investors' funds to keep Peregrine afloat and on other personal and business interests, such as a restaurant and publishing company he owned. He sent phony documents to two regulatory agencies, the National Futures Association and the U.S. Commodity Futures Trading Commission, to cover his tracks.
Wasendorf faces up to 50 years in prison and a fine up to twice the amount his customers lost. The agreement bars Wasendorf from profiting from selling books or movies about his fraud, requiring him to assign the rights of any proceeds to the government to pay back victims.
The agreement details the scheme that Wasendorf took responsibility for in a note found with him in July following a failed suicide attempt in his car in his company's parking lot. Wasendorf secretly withdrew customer funds and used computers to make false bank statements to conceal the theft from auditors, regulators and colleagues.
Wasendorf gave fraudulent statements to his accounting department showing fictitious deposits and balances. The false numbers were used to generate monthly reports to regulators showing the company was holding more than $200 million in customer funds than it actually had.
Wasendorf fooled auditors with the National Futures Association, the industry's self-regulator, by changing the bank's address in the statements to a post office box he controlled. The auditors would mail forms asking the bank to verify Pergrine's account balances; Wasendorf would send back false documents purporting to be from the bank.
Ironically, Wasendorf blamed overzealous regulators for his demise, calling them "the Gestapo" and accusing them of driving financial companies out of business or overseas. In his suicide note, made public in its entirety Thursday, Wasendorf said he began forging documents after a vindictive regulator punished him in the early 1990s with audits that forced Peregrine to increase the amount of funds it held.
"I have to say I don't feel bad about having deceived the regulators," he wrote. "During the last 30 years that I have been exposed to them they have become more and more mean-spirited. ... Well, they can put another feather in their hat! They have successfully put another firm out of business."
Prosecutors released copies of separate notes Wasendorf left for his son, Peregrine President Russ Wasendorf Jr., and Nancy Paladino, an Illinois woman he secretly married days earlier in Las Vegas. In a note, Wasendorf informed his son of the marriage, saying his new wife was now "the heir to the majority of my estate" and that it was his "dying wish that you help her."
Wasendorf told Paladino he typed his note to her because "my hands are shaking so much I cannot write."
"I love you so much and I so wanted to spend my final years (growing) old with you," he wrote. "I am so sorry that will not happen. ... My death is the only way that I can protect you from long-term harassment."
Paladino has filed for annulment, saying the marriage occurred under false pretenses. But she told Scoles she still talks to Wasendorf and plans to live with him while he's released.