Weekend Economists Ride With Sally into the Sunset July 27-29, 2012

[Demeter]

33. CFTC chief admits failure; Iowa broker says money gone

http://uk.reuters.com/article/2012/07/17/us-peregrine-cftc-gensler-idUSBRE86G0KF20120717

U.S. futures market regulators scrambled on Tuesday to take new steps to prevent another broker from dipping into client funds, while it emerged that the founder of Peregrine Financial Group had already spent the more than $100 million he took from clients to keep his firm afloat.

As the chief of the Commodity Futures Trading Commission acknowledged that the regulatory system had failed to protect customers of PFGBest, as Peregrine is known, new details from Russell Wasendorf Sr.'s confession and suicide note showed a man embittered by "mean spirited" regulators and distraught over deceiving his own son..."I know you will be shocked to discover my crimes," Wasendorf, 64, wrote to his son, Russell Wasendorf Jr., in the suicide note, a copy of which was read to Reuters by a source close to the situation. "I never wanted you to know the kind of guy I really was"...In his suicide note to his son, Wasendorf said: "I beg your forgiveness ... Your mistake was trusting your father, nothing more." Wasendorf Jr. was chief financial officer of Peregrine. But he had no sympathy for regulators: "I have to say I don't feel bad about deceiving the regulators," the note said. "They made the decision to be my enemy."

Regulators including the Commodity Futures Trading Commission have been criticized for failing to catch the deceit. Wasendorf blamed them for driving him to commit fraud by undermining his company in 1993, just a year after it was formed, the Wall Street Journal reported.

In a signed letter found with his suicide note last Monday, Wasendorf said that his scheme began around 1993, when a CFTC investigator in Kansas City sought to fine his firm for a violation involving customer funds, according to the Journal. The CFTC "harassed" him by conducting six on-site audits over five months, he wrote. He said a "technical violation" then raised his capital requirements...