CEDAR RAPIDS, Iowa (AP) - The founder of an Iowa brokerage has signed a plea agreement with federal prosecutors in which he admits to carrying out a $200 million fraud and embezzlement scheme that bankrupted his company and could result in him spending the rest of his life in prison, prosecutors said Tuesday.
Prosecutors said Russ Wasendorf Sr. will plead guilty to mail fraud, embezzling customer funds and two counts of making false statements to regulators. U.S Magistrate Judge Jon Scoles confirmed the agreement but hasn't ruled on the matter.
Prosecutors said the agreement calls for Wasendorf, 64, to be sentenced to up to 50 years in prison.
Details of the agreement were made public during a hearing in federal court in Cedar Rapids called to determine whether Wasendorf should be freed from jail pending his plea hearing and sentencing.
Scoles said he would rule by Friday on whether to release Wasendorf pending sentencing, which hasn't been scheduled. The judge also plans to schedule a hearing soon to allow a formal guilty plea.
Prosecutors have asked the judge to not release Wasendorf, who listened intently as FBI agent William Langdon laid out the case against him.
Langdon recounted how Wasendorf was found July 9 outside the company's headquarters in Cedar Falls after a failed suicide attempt in his vehicle. He said Wasendorf had connected a hose to his exhaust pipe, took prescription drugs and drank alcohol.
Langdon read out loud a note that Wasendorf left behind in which the businessman said he started forging bank records 20 years ago to prop up his struggling firm. Wasendorf wrote that he used computer software, scanners and printers to make convincing forgeries of bank statements to fool regulators about how much money the company had.
Langdon said the statements in the suicide note were corroborated during a search of his office, where investigators found several fake "cut-and-paste" bank records Wasendorf had created. Wasendorf has also met with regulators and investigators on multiple occasions since his arrest to explain the fraud, which he "knew would one day catch up with him," Langdon said.
FBI agents arrested Wasendorf days after the suicide attempt while he was hospitalized at University of Iowa Hospitals and Clinics, and by then court records show he had already been cooperating with investigators.
After his arrest, Wasendorf waived his right to an immediate detention hearing, but he requested one last week.
Defense attorney Jane Kelly said the plea agreement leaves open how much prison time will be recommended for Wasendorf under federal sentencing guidelines. She indicated it would likely be far less than the maximum 50 years.
Nonetheless, Linda Livingston, a Lutheran pastor who has counseled Wasendorf in jail, testified that he has accepted the likelihood of spending the rest of his life behind bars.
Livingston said he was relieved that his fraud was uncovered and dedicated himself to trying to recover as much money as possible for his customers.
Livingston said she and her husband, former high school classmates of Wasendorf, have agreed to allow him to live in their home if he is released.
Assistant U.S Attorney Peter Deegan argued that Wasendorf remained a serious risk to commit suicide or flee if released. He said Wasendorf "has gone from being a hero to a villain" and signed a plea deal that will likely put him in prison until his death.
"What incentive does he have to show up in court?" Deegan asked.
Tuesday's development came as regulators try to unravel the complicated finances of Peregrine Financial Group, Inc., and partially compensate customers who have not been able to access their funds for two months. The trustee overseeing the company's bankruptcy outlined a plan last week for an initial distribution of $123 million in assets to about 17,000 customers, who would receive 30 percent to 40 percent of the assets they held with the firm. The payments would start by the end of September.
But the company's regulator, the U.S. Commodities Futures Trading Commission, raised concerns about the plan in a filing Sunday, arguing payments should not be processed until accounts can be verified as valid. The commission said its preliminary investigation uncovered more than $45 million in "fictitious bookkeeping entries and unusual activity" in customer accounts.
"The CFTC does not favor unnecessarily delaying customer distributions, and believes that the innocent customers of the Debtor should be compensated for their losses as soon as reasonable and practicable," agency lawyers wrote. "Nonetheless, caution is warranted to ensure that the books and records of the Debtor may be relied upon to avoid the possibility of distributions based on fictitious data."
A hearing on the plan from trustee Ira Bodenstein, which would hold back $58 million in company assets, is set for Wednesday in federal bankruptcy court in Chicago. Bodenstein said that additional distributions will occur but that no one will get 100 percent of their money back.