Russell Wasendorf Sr, chief executive of Peregrine Financial Group, was arrested by U.S. authorities today and faces criminal charges, reports Financial Times.
The Peregrine founder allegedly created and used false statements to deceive federal regulators.
His arrest comes days after he attempted suicide; regulators had discovered Peregrine had a shortfall of $215m in its customer segregated accounts and froze all funds.
The company’s implosion has addled traders already worn down by months of scandals, missteps and revelations of fraud, Michael Greenberger, a former senior official at the Commodity Futures Trading Commission, told Associated Press.
“These markets have lost the confidence of their customers, from the small businesses that need to use them to hedge, to the large funds who use them to invest,” says Greenberger, a professor at the University of Maryland School of Law.
If the markets don’t receive a strong, immediate boost of confidence, he’s afraid “everyone is going to be hurt, because hedging—if it’s done properly—helps consumers by creating lower prices. If not, prices are going to go up.”
When fewer investors participate in a market, it becomes more difficult to buy and sell investments quickly at the price that traders want. People end up paying more than they otherwise might, and small changes in demand jerk prices up and down.
Kevin Davey, an individual investor who used Peregrine to buy and sell futures, also told AP that price swings are inevitable “when there’s just not enough orders at certain prices.”
Futures and options were specialties of Peregrine, which filed for Chapter 7 bankruptcy liquidation in Chicago late Tuesday. The company bought and sold the investments for small retail investors and some larger clients.
Wasendorf left behind a note that led police to notify the FBI, which has launched a preliminary inquiry. He was accused in civil fraud charges of misusing money from a bank account at U.S. Bank, claiming it contained more than $220 million when the balance barely topped $5 million.