Peregrine CEO charged – allegation is he ran fraud for 20 years

The Wall Street Journal article Peregrine CEO Arrested says that the suicide note left by Mr. Wasendorf claims to have been running a fraud for 20 years.

The article reports Mr. Wasendorf was arrested and arranged on Friday, July 13.

In just one paragraph, here is a very rough outline of the length and depth of the alleged fraud:

“I have committed fraud,” he [Mr. Wasendorf] wrote in a signed statement found in his car by his son, Russell Wasendorf Jr., Peregrine’s president. Mr. Wasendorf Sr. wrote that he had used computer software, scanners and laser printers to falsify bank documents for nearly two decades, according to the complaint.

Here is a snapshot of the techniques used:

Mr. Wasendorf wrote that no one else at Peregrine ever saw the firm’s actual U.S. Bank statements, which he ordered to be delivered directly to him unopened, according to the complaint. He said he made counterfeit statements within hours of receiving the real statements and gave these to Peregrine’s accounting department, the complaint said. Mr. Wasendorf Sr. also said he was the sole person at Peregrine with online access to its account at U.S. Bank.

Don’t make too much of that approach of the unopened statement going to a senior officer. That is actually a good counter-fraud control. If a person outside the accounting department gets to the statement first, someone independent of the bookkeeping team can browse through the statement looking for odd items. That would usually be a good way to check up on the accounting staff.

Of course, if the person receiving the unopened statement is the perpetrator, that control fails.

So we have the technique of intercepting original documents, scanning them, making alterations, and printing the altered documents.

The article suggests the amount of missing money is in the range of $200M.  There is a bank statement that claims to have $212.8M in the account but new records from the bank indicate there is about $6.3M in the account. That would be a shortfall of $206.5M.

Amongst the variety of unsettling things is that the bankruptcy filing claims $500M in assets, according to the Bloomberg article, Wasendorf Fraud at Peregrine Lasted 20 Years, U.S. Says. 

My initial guess is that means the total assets should have been about $700M with $200M missing.  That shortfall would then be about 29% of total assets.