Peregrine Financial Group Case Study Essay

Fraudulent financial reporting has always been and will always be present in the financial world. They are shocking when they come to light and at the same time, consumer starts doubting the system that were supposed to be watching out for these frauds. These financial scandal is another reminder of how incompetent government overseers have been at detecting financial fraud and how ill equipped the industry has been at policing itself. This paper will back up that claim by looking at the Peregrine Financial Scandal that happened just last month of this year. How Russell Wasendorf Sr. llegedly defrauded their clients and fooled their auditors using PO Box and Photoshop. Peregrine Financial group is a futures brokerage based in Cedar Falls, Iowa that accepts trades from other countries. They are a direct access brokerage that offers access to exchanges in the US. For many companies who went down on a scandal, the main reason was always greed of the top officers; for Wasendorf Sr. , it was not greed but pride. According to Russel Wassendorf Sr. , “”I had no access to additional capital and I was forced into a difficult decision: Should I go out of business or cheat?

I guess my ego was too big to admit failure, I have committed fraud” (Levine). In front of everyone, Wasendorf Sr. had everything; he was CEO of his own company that was a multi million-dollar brokerage firm and everyone looked up to him and was considered a pillar of the community. He had such a sterling public image that he had way too much pride in him to admit that he failed. It was when interest rates dropped significantly that Wassendorf Sr. started having a hard time being in this business. Instead of filing for bankruptcy, he submitted false financial documents for his company to the U.

S. Commodity Futures Trading Commission that overstated the value of Peregrine’s customer money using Photoshop, scanners, printers, and PO Box to make convincing forgeries of bank statements (Foley). Because of the stress that Wassendorf Sr. was going through with the fraud he was committing, he attempted to kill himself at his company’s parking lot and left a note admitting the financial forgeries that he had done. Per Jacob Bunge of WSJ, Wassendorf Sr. was charged with 31 separate counts of misleading regulators, offenses that carry a maximum of 155 years imprisonment (Bunge).

Its been said that its one of the heaviest penalties sought because of the recent last financial crisis that has happened. Instead of facing his company’s failure, he chose to face prison for a very long time. In situations like this, the first thing that people would always ask is, “why didn’t regulators see this? ”. According to SFGate, Wasendorf confessed to nearly 20 years of fraud where he had been embezzling millions of dollar from customer accounts (Phillips). It’s shocking for everyone to think how he could’ve fooled these regulators.

This had led to many criticisms to the industry’s regulators for failing to catch the fraud and protect consumers. According to Matthews Phillips, for decades the NFA, a private trade group that’s supposed to keep watch over its members, relied on paper copies of Peregrine’s bank statements which were allegedly doctored for years by Wasendorf to hide the millions of dollars he stole from clients by using a combination of Photoshop, Excel, scanners (Phillips). The problem here was that the auditors lacked skepticism. For a multimillion-dollar company, paper mail confirmation should not be enough when doing an audit.

A visit with the client’s bank or electronic confirmation or phone confirmation in addition with the paper confirmation should have been done as well. Wasendorf was in a position to be able to commit fraud and he was able to conceal it for a long time even when regulators check him annually. Wasendorf said he would send doctored bank statement to the NFA with a post office box listed as the bank’s returned address and he maintained strict control over the real statements that no one else ever saw except for himself (Philipps).

He was in a tight position to choose between failing and cheating, Wasendorf chose cheating because he had the opportunity to do so. The question now would be, what could’ve been done instead? Because Wasendorf was in the position, he was able to conceal his fraud for a very long time. Increase skepticism from the auditors would have ended this fraud a long time ago. Mark Zimbelman, a professor of accounting writes that regulators are easy to fool if all they are doing is checking for supporting documents, given todays technology; a more skeptical approach raises the chances of detection but most auditors and regulators are not too hard to ool because they just want to dot the i and cross the t (Elliot). For a big company like Peregrine, increase questions, increase audit procedures, and more rigorous bank confirmations could’ve prevented the scheme from getting this big. Regulators should look at whether an audit procedure measures up to the size and complexity of the business.


Bunge, Jacob (August 2012). Peregrine financial CEO misled regulators month-by-month-indictment. The Wall Street Journal. Retrieved 15 August 2012 from http://online. sj. com/article/BT-CO-20120814-709171. html. Elliot, Nick (July 2012). Peregrine financial: 4 common methods of camouflaging fraud. The Wall Street Journal. Retrieved 15 August 2012 from http://blogs. wsj. com/corruption-currents/2012/07/30/peregrine-financial-4-common-methods-of-camouflaging-fraud/. Foley, Ryan (August 2012). US brokerage CEO indicted in $200m fraud scheme. The Associated Press. Retrieved 15 August 2012 from http://abcnews. go. com/US/wireStory/iowa-brokerage-ceo-indicted-200m-fraud-scheme-16997868#.

UDAFuam9w0s. Levine, David (July 2012). Peregrine Financial Group’s former employees recall a troubled workplace. The Huffington Post. Retrieved 15 August 2012 from http://www. huffingtonpost. com/2012/07/14/peregrine-financial-group_n_1673589. html. Phillips, M. , Leising, M. , & Harris, A . (July 2012). Peregrine scandal had regulators fooled. San Francisco Chronicle. Retrieved 15 August 2012 from http://www. sfgate. com/business/article/Peregrine-scandal-had-regulators-fooled-3743271. php#page-2.