Peregrine's Final Flight

The bizarre suicide attempt of derivatives trader Russ Wasendorf has taken another strange turn as it turns out Reuters is now reporting his outfit, Peregrine Financial Group, had been cooking the books for more than two years in an attempt to cover up hundreds of millions in missing cash.

Wasendorf, 64, is reported to be in a coma after a suicide attempt Monday morning, according to a complaint filed by the Commodity Futures Trading Commission on Tuesday that accuses Wasendorf and Peregrine of fraud.

The source offered new details on how Wasendorf allegedly carried out the deceit, which involved the forging of confidential documents that the NFA uses to verify a broker's cash balance with its depository institution.

Wasendorf intercepted these documents after they were mailed by the NFA, the broker's first-line regulator, to U.S. Bank, where PFGBest had said it had well over $200 million on deposit, the person said. The NFA has said the account actually held just $5 million this week.

Wasendorf had set up a post office box in Cedar Falls, Iowa, according to a second person involved in the matter. It was to that post office box that NFA sent the documents, which were addressed to the bank.

The post office box was neither in Wasendorf's name nor registered to the bank, the second person said.

Wasendorf then forged signatures and fabricated bank balances on the documents and simply mailed them back to the Chicago-based NFA, the person said.

Good old fashioned mail fraud.  Gotta love it. Yves Smith over at nakedcap is a bit less nice about the whole rotten deal.

However, it needs to be stressed that this is not how a regulated broker is supposed to fail. As many seasoned traders stressed at the time of the MF Global collapse, customer accounts are supposed to be sacrosanct. And as a result, it is normally possible to have fairly smooth transfer of customer accounts out of failed firms. If it turns out that twice in a relatively short period that customers had their funds pilfered under regulators’ noses, it means that investors should vote with their feet until they have some assurance that these failings have been rectified.

And a good half of that money, $200 million of the firm's $400 million, is now missing.  But we need less regulation to unleash the power of capitalism on the markets, so that guys like Russ Wasendorf can make nine figures vanish into thin air.  Sure.

The American way.

How many more firms ripping off client accounts for hundreds of million and billion will it take before we do something about it?