Focus on Finding Assets

The circumstances surrounding the dramatic downfall of Peregrine Financial Group (Peregrine)—one of the largest independent U.S. futures brokerage firms—and its sole owner and chief executive, Russell Wasendorf, illustrates the important role of asset tracing and recovery in fraud cases.

August 2012

By Mark Scott, J.D., CFE

 

The circumstances surrounding the dramatic downfall of Peregrine Financial Group (Peregrine) – one of the largest independent U.S. futures brokerage firms – and its sole owner and chief executive, Russell Wasendorf, illustrates the important role of asset tracing and recovery in fraud cases.

 

Facts 

Wasendorf’s empire began to unravel on July 9, 2012, after he attempted suicide just outside Peregrine’s Iowa headquarters – he tried to asphyxiate himself with exhaust from his car – and left a signed note in which authorities say he confessed to defrauding customers for nearly 20 years.

 

Wasendorf, who was found by employees and airlifted to a nearby hospital, was arrested on Friday, July 13, 2012, and charged by federal prosecutors for lying to government regulators, although additional charges for fraud are likely to follow.

 

The criminal complaint filed in connection with Wasendorf’s arrest contained portions of his suicide note describing the 20-year fraud. According to the complaint, the note detailed how Wasendorf embezzled customer funds and falsified bank records to dupe regulators and conceal the fraud. Wasendorf said he began taking customer funds in 1993 – only one year after he founded Peregrine – to keep the company in business. “With careful concealment and blunt authority, I was able to hide my fraud from others,” he wrote.

 

That same week, Peregrine filed for bankruptcy protection and listed more than $500 million in assets and more than $100 million in liabilities. The Commodity Futures Trading Commission (CFTC), the federal agency that regulates commodity futures and options markets in the U.S., filed a complaint alleging that Peregrine and Wasendorf misappropriated more than $200 million of customer money. “The whereabouts of the funds,” the complaint states, “is currently unknown [sic].” This, of course, raises the question: What happened to the millions of dollars allegedly embezzled by Wasendorf?

 

Officials appointed to manage the property of Peregrine and Wasendorf are currently working to locate and secure assets that can be sold to pay creditors and clients victimized by the alleged embezzlement. 

 

Found Assets 

Reports indicate that the hunt for Wasendorf’s assets has yielded, among other things, a home in Cedar Falls, Iowa; a $100,000 wine collection; interests in a real-estate developer in Romania; a state-of-the-art, $20-million office building; a high-end Italian restaurant in Cedar Falls, Iowa; a condo in downtown Chicago; $6.9 million in life insurance; a hoard of silver SpongeBob SquarePants coins; and a Hawker Beechcraft 400A jet.

 

But Michael Eidelman, the attorney acting as receiver for Wasendorf, has said that he has found less than $25 million in assets, Reuters reported on Aug. 6. This, combined with Wasendorf’s admission that the fraud lasted nearly 20 years, indicates that much recovery work is left to be done. 

 

Takeaways for Fraud Examiners 

While an extreme example, the Wasendorf case illustrates why locating assets is a critical element to most fraud examinations. Such efforts can help compensate the victims for their losses, and they serve to prevent future crime by removing the profit from criminal activity. 

 

Locating assets, however, is complex work due to fraud’s inherently hidden nature and because assets are often actively concealed, making them difficult to identify. Moreover, with the technology now available, transferring money between accounts in countries with strong bank secrecy laws is easy, complicating the process even more.

 

The information below is designed to help anti-fraud professionals navigate the complex process of locating assets. Although the process is complicated and involves multiple components, this discussion provides tips for conducting asset searches and identifies common sources of information that (if legally accessible) can help unearth an individual’s or business entity’s assets.  

 

Sources of Information 

When searching for assets, anti-fraud professionals should review:

  

Real property records

Vehicle registration records

Uniform Commercial Code (UCC) filings

Civil litigation records

Divorce records

Banking records

Tax returns and related documents

Business filings

Employment information

Insurance policy records

 

Real Property Records 

Real property records, which include property tax and ownership records, can identify unknown assets or reveal property transfers to relatives, friends or other legal entities. The tax assessor’s office maintains property tax records, and the recorder’s office, or the office that handles the registration of deeds, maintains property ownership records. Information contained in these records can include property address, owner name, purchase price at last transaction, legal description, value, mortgage information, lien holder, contractors who have worked on the property (if a mechanic’s lien has been filed) and deed type.  

 

Vehicle Registration Records 

Vehicle registration records can lead to unknown assets, the locations of other assets, and lienholder data, which can offer insight into the subject’s banking connections. Motor vehicles are registered with the state department of motor vehicles. Small watercraft are generally registered at the state level, but larger vessels are registered with the Coast Guard, and aircraft are listed with the Federal Aviation Administration (FAA).

 

Uniform Commercial Code Filings 

Uniform Commercial Code (UCC) filings are public records of secured transactions in which the debtor(s) owes a stated value to a secured party or parties. These records might identify:

 

Property financed by the subject

Collateral used to secure the loan

The subject’s bank

Who the subject does business with

Potential leads

 

In most instances, UCC filings are made in the state where the debtor is located, but financing statements relating to real property are made with the relevant county where the property is located.

 

UCC filing information is available in the relevant secretary of state office or at the county office that handles the registration of deeds. Many states post a free database of UCC filing records on the secretary of state website, and information service providers offer online access to UCC records.

 

Civil Litigation Records 

Civil litigation records can be a noteworthy source of information. They might identify a financial settlement awarded as part of the litigation and, in some cases, records contain asset information of those involved in the litigation. 

 

The majority of an entity’s civil records can be found at the county courthouse in the jurisdiction where the subject resides or does business. Court clerks maintain files on all active and closed civil suits in their jurisdictions, and information regarding these suits is public. 

 

Divorce Records 

Divorce records can contain a wealth of information, such as bank accounts, employment, investment income and other sources of income. Divorce records, however, are not public in every jurisdiction.

 

Banking Records 

Banking records are an invaluable source of information; they might furnish evidence of fraud or provide leads on sources of funds, expenditures and personal affairs. 

 

Banking records that the examiner should review, if available, include:

 

Account opening documents

Monthly account statements

Checks written on an account

Loan files

Safe deposit box records

Currency transaction reports

Bank collection department records

Mortgage loan files

 

Tax Returns and Related Documents 

Tax returns and related documents (e.g., W-2s and 1099s) explain what entities earn and what deductions they take. If available, these documents might provide indirect evidence of illicit payments, tax deductions and expenses, which can lead to unknown funds or assets.

 

Business Filings (Corporate Filings) 

Business filings, which refer to information an individual files to conduct business in a name other than his own, can provide valuable asset information. They might identify other businesses the subject owns or assets held by companies affiliated with the subject but not held directly in the subject’s name. Business filings also reveal a business’s real property, vehicles, equipment and intellectual property registered in the subject’s name.  

 

Business filings include:

Articles of incorporation filed with the secretary of state (or state corporation bureau or corporate registry office) in the state where the company does business

Foreign corporation registration, which is filed with the secretary of state 

Fictitious business names or doing business as (DBA) information, which may be filed at the county or state level

 

Employment Information 

Employment information is valuable because a subject’s occupation generally governs his earning capacity, which affects his ability to save and accumulate assets. Sources of information about a subject’s occupation include:

The Internet 

Social-networking sites like LinkedIn and Facebook 

Personal bond applications

Local newspapers 

Criminal and civil court records

 

Insurance Policy Records 

Insurance policies can reveal some of the subject’s unknown assets, and — as evidenced in the Wasendorf case — they themselves can be assets. When reviewing an insurance policy, the examiner should:

Determine the type of policy.

Determine the face amounts of coverage.

Identify who is insured.

Identify the beneficiaries.

Ensure that the policy is still in effect.

Determine how case value accumulates and what interest rate accrues if the policy is a life or annuity policy.

Determine the agent who sold the policy.

Determine the agent who services the policy.

Use a financial ratings service (e.g., A.M. Best) to determine the financial stability of the insurance.

 

Tips for Locating Assets 

Below is a list of tips for finding assets.

 

Before conducting a public records search, determine: 

The subject’s legal name and last known address

The last known county of residence for the subject or place of business for the entity

The subject’s place of employment, if dealing with an individual

Determine the subject’s unearned income (e.g., money from rental property, dividends, or interest on stocks or bonds).

Identify property (e.g., real property, bonds, letters of credit, insurance, motor vehicles, watercraft, aircraft, etc.).

Review all relevant real estate records.

Review Uniform Commercial Code (UCC) records.

If possible, obtain copies of:

Checking, savings, and money-market account statements

Investment account statements

Tax returns and schedules for at least three years

Personal financial statements submitted to any lender, credit card company or life insurance company

If the subject is an individual, obtain employment documents relating to the subject’s compensation.  

Consider using the following sources:

Internet search engines (e.g., Google, Bing, Yahoo, etc.)

Credit report, if legal

Commercial databases (e.g., Lexis, Westlaw, etc.)

Social networks

Interview  people with knowledge about the subject, such as:

Friends

Relatives

Coworkers

Current and former employees

Landlords

Neighbors

Consider what information may be available from the following sources:

County tax assessor’s office

County recorder’s office

The secretary of state’s office

County court records

Professional license records

Business filing records

Motor vehicle records

Driver’s license records 

 

Conclusion 

As evidenced in the Wasendorf case, finding assets is a critical, yet complex, part of most fraud cases. Nonetheless, there is a wealth of information that anti-fraud professionals can use to identify assets owned or controlled by an individual or business entity.

 

Sources 

The criminal case is U.S. v. Wasendorf, 12-mj-131, U.S. District Court, Northern District of Iowa (Cedar Rapids).

The bankruptcy case is In re Peregrine Financial Group Inc., 12-27488, U.S. Bankruptcy Court, Northern District of Illinois (Chicago). 

The regulatory case is U.S. Commodity Futures Trading Commission v. Peregrine Financial Group Inc., 12-cv-05383, U.S. District Court, Northern District of Illinois (Chicago).