1. FBI agents arrested Peregrine Financial Group Inc. Russell Wasendorf Sr. at a local hospital Friday,
following his suicide attempt, and he appeared in federal court later in the day on charges of lying to
federal regulators.
Early that week authorities found an unresponsive Wasendorf, as well as a suicide note beside him in his
car outside the company’s headquarters in Cedar Falls, Iowa. In this tell-all note, Wasendorf detailed an
elaborate fraud scheme in which he apparently embezzled over $100M from customer accounts by
using false bank statements. Even more, he was able to conceal his crime of forgery for so long by being
the sole individual with access to the US Bank accounts held by PFG., as well as using computer
software, scanners and printers to "make very convincing forgeries of nearly every document that came
from the bank," including statements, letters and other correspondence.
In addition, Peregrine Financial Group, which marketed itself as PFGBest, filed for bankruptcy this past
Tuesday, coincidentally the same day the industry's top regulator filed civil fraud charges alleging the
firm misused customer money, and falsely claimed a bank account contained more than $220 million
when it actually had about $5 million. The money in that account belonged to customers and was
supposed to be kept separate from Peregrine's own money. Unfortunately, when Wasendorf’s son
checked his bank statement, in an account that regulators believed to have $221M, it actually showed a
balance of merely $6.3M.
According to officials, Wasendorf could face a wide range of additional criminal charges and decades in
prison for what the prosecutor has called a $200 million scheme in which Wasendorf embezzled
customer funds for 20 years.
Just like any other fraudulent case, the Wasendorf scheme is a great example of how operational due
diligence could have possibly been an important tool to use by an investor. Checking into management
responsibilities would have been useful in making sure executives were not carrying out financial
transactions or personally writing checks without anyone’s knowledge. Although Wasendorf was able to
access the bank accounts held by his company, during the operational due diligence review, checking all
financial transactions on both ends could have revealed discrepancies in the accuracy of what was being
recorded compared to the bank statement. In addition, an operational due diligence review would also
check into the personal background of Wasendorf, including interviewing other employees or friends on
his behavior, and if they noticed anything suspicious. Even looking into his personal bank transactions
could have raised several warning signs for investors after noting various suspicious or unusual
transactions occurring on his account.
Furthermore, technology was a big factor in this case, certain software were a key component in how
Wasendorf was able to carry on his scheme for so successfully, and for so long, without being detected.
Although analyzing company software is often an area that risks being overlooked much of the time,
during an operational due diligence review the company’s management software and operations would
be thoroughly investigated. However, even though looking into a fund’s technology is useful, it is also up
to the investor to investigate the firm’s software, as well as to become familiar with certain jargon and
various system names. In doing this, an investor will be able to understand the risk assessment given on

2. the company software, instead of getting lost in all the technical terms; ending up wasting potentially
value information. In any event, by deciding to use the operational due diligence process to assess any
potential risks, an investor could avoid making the wrong investment, and possibly avoid a potentially
life-threatening scandal.