Confirmation.com's Role Uncovering the PFGBest Fraud
Confirmation.coms Role Uncovering the PFGBest Fraud Brian Fox, CPA, MBA Brian Fox, CPA 2
Founder and Chief Marketing Officer, Capital Confirmation Professor at Vanderbilt University Multiple Top 40 CPA Under 40 in the U.S. awards Received the first two patents on Electronic Audit Confirmations Co-authored Guide to Electronic Confirmations Often seen on or written about in: Fox Business News Forbes Fortune New York Times The CPA Journal Speaker at professional conferences and
business schools Copyright 2012, Confirmation.com On Monday, July 9, 2012 Regulators discovered nearly $215 million missing in customer funds from PFGBest accounts. 3 Copyright 2012, Confirmation.com
On Monday, July 9, 2012 Russell Wasendorf, Sr., attempted suicide leaving behind a signed statement that begins to explain the $215 million shortfall in customer accounts. 4 Copyright 2012, Confirmation.com Russell Wasendorf, Sr. CEO of Peregrine
Financial Group Peregrine Financial Group Fraud Fraud uncovered in July 2012 and took place over a 20-year period. $215 million shortfall in PFGBest customer money. CEO Russell Wasendorf Sr. was arrested July 13 on charges of lying to federal regulators. October 3, Wasendorf Sr. entered a guilty plea to charges including lying to regulators, embezzlement and mail fraud. 5
Former clients are still unable to access more than 60% of the funds frozen since PFGs Copyright 2012, Confirmation.com bankruptcy. Russell Wasendorf wrote in part: have committed fraud. For this I feel constant Iand intense guilt. I am very remorseful that my greatest transgressions have been to my fellow man. 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. The Bank statements were always delivered directly to me when they arrived in the mail. I made counterfeit statements within a few hours of receiving the actual statements and gave the forgeries to the accounting department. 6 Copyright 2012, Confirmation.com On Friday, July 13, 2012
Russell Wasendorf was arrested for making false statements to regulators. Russell Wasendorf, Sr. CEO of Peregrine Financial Group 7 Copyright 2012, Confirmation.com Events Leading Up to the Frauds Discovery
8 Copyright 2012, Confirmation.com PFG No Stranger to Rule Violations December 1996: The NFA accuses PFG of failing to supervise its brokers, who the NFA says made misleading statements and disseminated misleading promotional materials, while the company itself failed to correctly calculate segregated funds computations, maintain adequate segregated funds, and report to the NFA that the firm was under-segregated.
Result: PFG settled for $75,000 9 Copyright 2012, Confirmation.com PFG No Stranger to Rule Violations June 2004: The NFA accuses PFG of failing to audit an IB run by a convicted cocaine dealer Dominick Concillio. Result: PFG paid $5,000 fine and agreed to audit Concillio properly. December 2008: The NFA issues a Warning Letter to PFG for failing to report its interactions
with Concillio again 10 Copyright 2012, Confirmation.com PFG No Stranger to Rule Violations February 2012: The NFA issues a disciplinary complaint against PFG, President Russell Wasendorf, Jr. and Compliance Director Susan OMeara, charging them with failing to supervise four of Peregrines guaranteed IBs, and also failed to implement anti-moneylaundering procedures in its forex
operations. 11 Result: PFG paid $700,000 fine and agreed to beef up its accounting procedures. Copyright 2012, Confirmation.com More Complaints In 2004: The NFA and CFTC received a letter from a client expressing concern over PFGBests misuse of its customers money. In 2009: The NFA received an anonymous tip asking them
to review PFGBests bank account information for accuracy. 12 Copyright 2012, Confirmation.com NFA Makes Some Changes In the wake of the MF Global collapse, the NFA switched to Confirmation.coms online confirmation system. Notified all of their Futures Commission Merchants (FCM) that they were:
Transitioning to Confirmation.com Requiring it on all future audits 13 Copyright 2012, Confirmation.com How Wasendorf Hid the Fraud 14 Copyright 2012, Confirmation.com For Years PFG Looked Financially
Sound 15 Copyright 2012, Confirmation.com How Wasendorf Hid the Fraud Falsified bank statements and forged official letters and correspondence from the bank, as well as all transaction confirmation statements. Ordered that all US Bank statements were to be delivered directly to him. Used Photoshop, Excel, scanners, laser and ink jet printers to create bogus bank statements and forgeries of nearly every document that
came from the bank. Rented a P.O. Box to intercept bank confirmation requests and forged the documents to conceal missing money. Copyright 2012, Confirmation.com 16 Bogus US Bank Mailing Address U.S. U.S. Bank Bank National National Association Association PO
PO Box Box 706 706 Cedar Cedar Falls, Falls, Iowa Iowa 50613506130030 0030 17 Copyright 2012, Confirmation.com This Manual Process Worked So Well
that the external auditors and the NFA auditors never suspected that Wasendorf had been skimming customer accounts for 20 years. 18 Copyright 2012, Confirmation.com How the Fraud was Discovered 19 Copyright 2012, Confirmation.com
How the Fraud was Discovered National Futures Association, the regulator for PFGBest, began using Confirmation.com. NFA regulators began requesting that Wasendorf give their auditors permission to confirm PFGBest customer account information using Confirmation.com. For months Wasendorf adamantly resisted authorization in using Confirmation.com to confirm the companys bank balances. 20
On Sunday, July 8, he relented. Copyright 2012, Confirmation.com How the Fraud was Discovered Within 24 hours, the NFA began receiving confirmations through Confirmation.com confirming: The US Bank account had a balance of approximately $6 million as of December 31, 2011 instead of approximately $220 million that was reported on their US Bank statement as of December 31, 2011. 21 Copyright 2012, Confirmation.com
Peregrine Financial Group Fox Business News Interview: http://www.youtube.com/watch?v=lFzBeA f-5Ok&feature=youtu.be 22 Copyright 2012, Confirmation.com How the Prevent Fraud from Going Undetected 23
Copyright 2012, Confirmation.com Electronic Confirmations Decision Tree Level 1 Level 2 Level 3 24 Confirmation Service CPA Firm
Staff Questions Is it Secure? Responding Entity Is it legitimate? Clerk Are they
authorized? Copyright 2012, Confirmation.com Confirmation.com Helping Auditors Save Time and Control the Process 25
New: Site Redesign for auditors New: Print Fulfillment service New: AR/AP Upload feature Quicker responses Validated responders Confirm all accounts - AR, AP, Bank, Investments, Line of Credit, and 30 more Copyright 2012, Confirmation.com Confirmation.com An Award-Winning Solution Ranked #96 & #169 on the Inc. 500 List 2011 Award for Best Audit Service
2010 Readers Choice Award The CPA Technology Advisor 60,000+ Auditors, 1,000s of Responders Exclusively Endorsed by: 26 Copyright 2012, Confirmation.com Questions? 27 Copyright 2012, Confirmation.com
Thank You! To learn more visit www.confirmation.com 28 Copyright 2012, Confirmation.com
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