10 Key Details in the Peregrine Financial Collapse

Updated

You've caught the headlines about Peregrine Financial and PFGBest. The comparisons drawn to the massive failure of MF Global (NASDAQOTH: MFGLQ.PK) piqued your interest. Ready to get up to speed fast? Here are the 10 things you need to know to get up to date on Peregrine's crash landing.

1. The easy way out
Russ Wasendorf Sr., the 64-year-old founder of Peregrine Financial, apparently saw his house of cards collapsing around him. He was found in his car Monday after a suicide attempt -- there was a tube running from the exhaust pipe into the car and a bottle of vodka next to him.

Fun Wasendorf fact: The finance magnate graduated in 1971 from the University of Northern Iowa with a degree in filmmaking. Apparently he was good at telling stories.


2. Where's the money, Lebowski?
In the wake of Wasendorf's suicide attempt, regulators forced the company into liquidation and checked up on its accounts. And ... whoops! Wouldn't you know it, an account at US Bancorp (NYS: USB) that was supposed to have $225 million had just $5 million. According to reports, this was nothing new -- that account normally had only around $5 million.

3. The tell-all suicide note
Details have begun to leak out about the suicide note that Wasendorf left. Based on what's come out so far, it looks like we have a pretty clear possibility of fraud on our hands. Why do I say that? The signed note read "I have committed fraud." The note also suggested that the brokerage's founder may have been stealing from the company for almost 20 years.

4. The "special" mailing address
How did Wasendorf pull the wool over regulators' eyes? It appears that he gave them a bogus P.O. box number and sent them his own version of the bank statements that provided the accurate account information as it existed in the Wasenworld alternative universe.

5. Who knew?
Russ Sr. may not have been the only one in on the apparent fraud at Peregrine. Though he had a fancy wedding scheduled for Aug. 4, he tied the knot with his fiancee Nancy Palladino in a quiet ceremony in Las Vegas on June 30. Three days later, he signed over power-of-attorney to his son, Russ Jr., Peregrine's president. Were these simply seen as oddities by those close to him? Or were there others who were hip to the scheme and its impeding unraveling?

6. Some cushion for the way down
A change that cropped up after MF Global's meltdown may come in handy. CME Group (NYS: CME) set up a $100 million fund that it's said can provide up to $25,000 per account to farmers and ranchers caught up in the Peregrine mess. That's certainly something, but maybe not a much of a lifesaver for some farmers. In the wake of MF Global's meltdown, we talked to one farmer who had $250,000 in his account at the broker. And, of course, CME's offer does nothing for Peregrine customers who aren't food producers.

7. What can be recovered?
In a cheeky blog post titled "Ignore the Idiots," asset manager Attain Capital Management noted that it's not anywhere near right to assume that the $5 million at US Bancorp is all that will be available to Peregrine customers. In addition to that $5 million, Jefferies Group (NYS: JEF) , the clearing bank for the broker, is holding about $125 million of account assets. Attain believes there may be another $50 million at JPMorgan Chase (NYS: JPM) , which also held Peregrine customer accounts. That's against around $400 million in reported customer assets.

8. The infamous Trevor Cook
If you believe in the idea of like attracting like, then it may not be surprising that Peregrine was tied up in a legal battle with the receiver for victims of Trevor Cook, who ran a Ponzi scheme that bilked investors out of $194 million and who traded $48 million in accounts at Peregrine. That was huge business for Peregrine, which had around $203 million in customer equity at the time. The lawsuit against Peregrine alleges that the company overlooked "objective red flags of fraud" because the business from Cook was very lucrative.

9. $700,000 says something went very wrong
Just five months ago, the National Futures Association slapped Peregrine with a $700,000 fine for not properly overseeing its introducing brokers and allowing them to rip off clients. The NFA also said Peregrine didn't have effective anti-money-laundering procedures. For a broker Peregrine's size, $700,000 is a huge fine. Obviously, the NFA recognized that this wasn't a tightly run ship -- why didn't they make sure all the I's were dotted and T's were crossed elsewhere?

10. And ... here come the vultures
One man's misery is another man's potential profit. At this early stage of the Peregrine mess, CRT Capital has already swooped in and offered to buy up customer claims from Peregrine victims for 20 to 25 cents on the dollar. If nothing else, this is a sign that CRT is pessimistically handicapping the outcome of the Peregrine customer recoveries -- the lowest price CRT paid for MF Global claims was 60 cents on the dollar.

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The article 10 Key Details in the Peregrine Financial Collapse originally appeared on Fool.com.

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