“I have committed fraud. For this I feel constant and intense guilt. .. Through a scheme of using false bank statements I have been able to embezzle millions of dollars from customer accounts at Peregrine Financial Group, Inc. The forgeries started nearly twenty years ago and have gone undetected until now. I was able to conceal my crime of forgery by being the sole individual with access to the US Bank account held by PFG. No one else in the company ever saw an actual US Bank statement. … I had no access to additional capital and I was forced into a difficult decision: Should I go out of business or cheat? I guess my ego was too big to admit failure. So I cheated, I falsified the very core of the financial documents of PFG, the Bank Statements. .. I also made forgeries of official letters and correspondence from the bank, as well as transaction confirmation statements.”
“Using a combination of Photo Shop, Excel, scanners, and both laser and ink jet printers I was able to make very convincing forgeries of nearing every document that came from the Bank. I could create forgeries very quickly so no one suspected that my forgeries were not the real thing that had just arrived in the mail.”
“When it became a common practice for Certified Auditors and the Field Auditors of the Regulators to mail Balance Confirmation Forms to Banks and other entities holding customer funds I opened a post office box. The box was originally in the name of Firstar Bank but was eventually changed to US Bank. I put the address “PO Box 706, Cedar Falls, lA 50613-0030″ on the counterfeit Bank Statements. When the auditors mailed Confirmation Forms to the Bank’s false address, I would intercept the Form, type in the amount I needed to show, forge a Bank Officer’s signature and mail it back to the Regulator or Certified Auditor.
When online Banking became prevalent I learned how to falsify online Bank Statements and the Regulators accepted them without question.”
Full PFG Affidavit (including part of the suicide note): PFG Affidavit (Scribd)
PFG once again proves that not only is the Sanctity of Segregated Funds “guideline” all but dead, but that it was really just a myth all along. Far be it for regulators to pick up a phone just once over a 20 year period and speak with an actual representative of the bank to confirm the existence of hundreds of millions of dollars.
But perhaps the most frightening thing about all these blowups using client capital, is that by the time this is all over, with so many firms secretly reaching for yield any way they can since interest rates have been stuck at 0%, how many more funds, companies, clearing firms, and brokerage houses blow up before all is said and done. And even if they get away with it for a while, I can’t imagine what hell will break loose once interest rates start climbing again in the U.S. (as they have in Greece, Italy, Spain, etc). Unfortunately, there’s still no way for the average person to tell who’s gonna get caught with their pants down once the tides turn. And while I don’t very much trust the FDIC or SIPC either (especially if many institutions all collapse simultaneously), it’s still better than nothing if regulators want to hold to the claim of actually somewhat protecting innocent customers. Just ask some of Madoff’s ex-clients.
Often times such blowups start with the coverup of a smaller loss (or some kind of “reaching for yield” or “naked hedge” scenario that backfired). The CEO figures he’ll be able to “kick the can” down the road long enough to figure out how to dig out of the hole (hey, the government does it all the time, so why can’t we all)! Perhaps he can outgrow the “discrepancy” over time and glaze it over. Such wishful thinking inevitably leads to even bigger failures and blowups (just like repeatedly lending more money to defunct countries who have absolutely no way to pay it back or even print their way out of it).
But perhaps the government can pass some new laws, rules, and regulations, and create a few new oversight bureaus, to make sure the original oversight commissions enforce the laws, rules, and regulations already in place.
So far, clients of these firms would have likely faced less risk had the government simply told them “caveat emptor”: realize that any firm where you entrust your hard-earned money could disappear with it overnight, so diversify wisely… And if you do get caught up in one of these frauds, hopefully your money went to help some other “poor” politically-connected bankster stay afloat and save the economy while you go back to eating cake…