Wasendorf sentencing memorandum

0.8 MB·

by  United States District Court

UNITED STATES OF AMERICA,

Case G:12-cr-02021-LRR Document51 Filey O1'22N3 Page Lof 12

IN THE UNITED STATES DISTRICT COLRT
FOR THE NORTHERN DISTRIC™ OF IOWA,
EASTERN DIVISION

No, CR 12-2024 LRR

Plain, GOVERNMENT'S SENTENCING

MEMORANDUM

RUSSELL R. WASENDORF, SR.

Mt.

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Defendant,

TABLE OF CONTENTS.

SUMMARY OF THE CASE.
THE ACTUAL LOSS EXCEEDS $200 000,000,

‘THE OFFENSE INVOLVED SOPHISTICATED MEANS.
GUIDELINES CALCULATION AND SENTENCE,
RESTITUTION,
CONCLUSION.

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Case &:12-cr-020214LRR Documenl $1 Filed 022/13 Page ? of 12

Pursuant to the Court's Order Setting Sentancing Hearing the government
submits the following memorandum to address issues to be decided by the Court at
sentencing, The sentencing hearing i currant scheduled for January 31, 2013, at
00 am

| SUMMARY OF THE CASE

A, Witnesses: FBI/SA Scott Irwin
‘Shannon Mareh
Brenda Cuypers

R. Bxhibits: Exhibit 1: 719/12 Windjammer Filing

Exhibit2: 7!9/12 FRX Dally Segregation Report with
backup

Exhibit 3: 7/9/12 FRX Daily Segregation Repor {revised}
Exhibit4: Fake US Bank Statement - May 2012
Exhibit§: Real US Bank Statament - May 2012
Exhibit &: Real US Bank Statement - June 2012
Exhibit 7; Real US Bank Statement - July 2012
Exhibit 8: 7/6/12 Dally Equity Renort
Exhibit 9; Invin Loss Summary
Exhibit 10: Vietin List

Cc. Issues:
(1) Whether a 25-level enhancement shoule apply pursuaull o USSG
§§2B1.1(b)(1(0} based upon a loss exceeding $200,000.000 {see

PSR AM 43, 44 at 51},

(2) Whether a two-level enhancement should apply pursuant to USSG
8281.1 (DK 10}(C} for sophisticated maans (sce PSR T 52); and

(6) The amount of restttion and manner of itibution (see PSR Hf
447, 418 and 119)

IL THE ACTUAL LOSS EXCEEDS §200,000,000
Defendant objects to the scoring of a 28+level enhancement under USSG
§281.1ib)(1}{O) based upan a loss exceeding $260,000.00. (Seo PSR YM] 43, 44 at

51}, In conclusory fashion, defendant clalms the loss is less than $200,C00,000. iPS
Case 6:L2-cr02021-LRR Document 51 Filed 0122/13 Page 9of 12

Addendum (Defendant's Objections § and 7}) Defendant's abjactior should be
overruled. As calculated in the PSR, the lass in this case exceece $215,000.00, (See
PSR Mf] 43-44; Gov. Ex. 9h.

A Legal Standards

The vurden is on the government to prove by the prepoderance of the evidence
the amount of loss. See United States v. Staples, 410 F.2d 484, 490 (2 Clr 2005).

Loss is the greater of either actual loss or intended loss, USSG §201.1,
‘comment {n.3[8}). Actual loss “means the reasonably foreseeable pecuniary harm that
resulted from the offense.’ USSG §281.1, comment (n.3{Ai()}. "The court only needs
to make a reasonable ast?nata of the loss.” USSG $281.1, comment (n.3(¢)). See
‘950 United States v. Waldner, 580 F.3d 699, 705 {8 Cir. 2008) (‘Because the loss
caused by fraud is often diffoull lo determine precisely, ‘a disiel cour is charged only
vith making @ reasonable aslimata of the loss.") (citation oritied}

Wile the loss in some fraud cases can be difficult to determing, the setual loss
in this case can be caleulated with remarkable pracision. As ofthe start of business on

July 9, 2012, PFG's customers had deposited approximately $376,990, 120.007 with

* Intheir plea agreement, che partes stipulated an upward adjustmant of atleast 25
levels applies under USSG §2B.1(b)(1}{N} based upan 3 loss in excess of $100,000,000,
(PSR TS)

® Depending upon the time of day on July 8, 2012, that a calculation Is performed,
these figures change to a relalvely insignificant degree. Tor example, the srount of
‘austomer funds required to segregated was $376.999,120.99 when caleutated by Shannon
‘Marsh al fe stat ofthe day on Monday, July 8, 2012, using figures forthe close of business
(on July 6, 2012. {See Gov. Ex. 1-2, 9}. When the calculation was revised by CFO Brenda
Cuypers later on July 9. 2012 (aflar defendant's fraud was revealec), the amount had
changed to $276,997 999.38 due to the day's account actvly. (See Gov. Ex. 3). Ganerally
‘hile the presentencs report uses the ravised figures from later in the day on July 3, 2012,
FBI Special Agent Innis lass summary (Gov. Ex. 9) uses the figures as of the close of
business on July 8, 2012 (reflecting tha fiquras reported to the NFA on the moming of July,
2012 - soe Gov. Ex. 1)
Case G1ZC-UZIZLLRR. Dooument $4 Filec 01/2212 Page 4 of 12

PFG that was supposed to be held in segregated accounts, (Gov. Ex, 1-2. 9). That
sare day, PFG's general ledger showed it had $382,223,056.38 in segrogated funds,

resulting in $5,223,935.39 in purported "Excess Seg Funds." (Gov. Ex. 12, 9),

However, of the $982,223,088.38 in supposedly sagregatod funds, $20,754,483 ot it
did not actually exist. That is, whie defendant's fabricated bank records caused PFG's
‘general ledger ta show the US Bank customer segregated account contained
$225 888,593.28 (Gov. Ex 2,6), in fact, the account contained $5,114,110 (Gov. Ex. 7,
9). When shortfall n the US Rank customar sagragated account {$220,754,483) is
subtracted fam fhe amount purportedly in segregation on the moming af July 9, 2012,
the amount actually in segregation becumes $161,468,574. (Gov. Ex.9). The result is,
that, as of the taming of July 9, 2012, a total of $215,530,547 of the tunds required to
be segregated was missing?

“The government respectfully asks that defendant's objecton to PSR paragraphs
43, 44 and 81 be ovemuled.
I THE OFFENSE INVOLVED SOPHISTICATED MEANS,

Defenclant objacts to an enhancement for sophisticated means under USSG
§281.11b}(10)(), claiming very basic, slmple means were used to execute his fraud

(PSR1162). While some of defendant's individual acts might be characterized as

simple in isolation, they were part of an exceedingly complex scheme whereby
defendant's entire business was used as a machanism to gather and putloin investor

funds.

> The same result is achioved hy faking tha $220,754.43 shortalln the US Bank
‘qustomer sagrogated accaunt, and crediting back the $5,223,035.39 in purported "Excess
‘Seg Funds,”
Case 6:17-cr-0P02L-1RR Document 51 Filed 01/22/13 Page Sot 12

A. Logal Standards

4 sentence should be enhanced by two levels ithe offense otherwise involved
sophisticated means.” USSG §281.1(b\ ONC). The government must shay that sho
cffense involved ‘especially complex or especially inticate offense conduct pertaining

te the executlon of concealment nf an nffenss

* i, comment (n.8(B)). In ether words,
the government must show defendant's conduct was ‘notably more intricate than the

garden variaty" fraud. United Stetes v. Hance, 501 F.2d 900, 909 8" Cir, 2007) (the
government must show that Hance’s mail fraud, when viewed as a whole, was notably

‘more intricate than that of tre garden-variety mail fraud scheme’

"Repetitve and
coordinated conduct, though ne one step is particularly complicatad, cam ba a
sophisticated scheme." United States v. Finck, 407 F.3d 908, 915 (2 Cir. 2005),

B. Argumant

Here, defendant's fraudulent scheme was far more sophisticated than the typical
fraud. Indeed, atleast since the early 19906, defendant oparatad P=G as tla more
than a complex mechanism to fraudulently obtain and misuse investor's funds. On this,
basis alone, a sophisticated means enhianceient should apply

‘As notedin the uncantasted portions of the prasentense report, PFG's Futures
‘Commission Merchant (FCM) registration was originally fnancee by J.C. in 1992,
‘Shortly afferwardl, in 1998 or 1994, J.C. wanted to pull aut his money, and defandant
lacked the casital to keep PFG in business. (PSR 4127). Defendant stole the required
capital atleast $250,000 — from PFG's customer searegatad funds, and used tha
money to buy out J.C. (PSR 37). Using a copy machine {see PSR 16), defendant

fabricated a bank statament ta cones

the theft of funds. (PSR Y 37}. From that point

forward, as defendant well knew, PFG was never profitable. (PSR ff 37-38}. Rather, it

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Case @12-6r-0702L-1RR Dacument $1 Filed 01/22/13 Paye 6 ul 12

incurad tons of millons in losses over the next approximately 20 years. {PSR 38}
Fueled by misappropriated invastor funds, defendant fraudulently grew’ PFG so asta
create the appearance itwas a legitimate and successful FCM. This wes a
fundamer‘al component of defendant's schomo. As rosounted inthe presentonce
report, defendant stated he believed he could make hinsell appear rch, the audrors
and regu ators wouldn't ba concomad with tha stata of his personal finances and nat
discover it was al a fraud." (PSR 4)38). By July 9, 2012, investors unvitingly
entrusted more than $376,000,000 o defendant and his fraudulent business. (Gov. Ex
1,p.4). Thus, defendant's operation of PFG was, itself, “especialy complex or
espectallyIntcate offense conduct pertaining tothe execution... of [his] offenses
USSG §281.1, comment (n.8(B).

Moreover, in order forthe fraud to be effective and sustainable for years,
defendant ratinely created and used false certfictions and forged cocuments to
deceive his customers, his accounting department, his felow corporate affcers, an
outside audinr, and mutiple regulatory agencies whose core functlon was to detect and
prevent exactly the type of criminal activity defendant perpetrated. The folowing arc
some ofthe sophisticatac steps defendant took in order to execute and vonoeal is
fraud over the years
* Inotder tobe able ta steal the money without anyone knowing it, defendant used

unt authority’ te establish nilas ane procedures at PFG so that he was the

only one to examine actual US Bark statements. (PSR 1] 28)
© Defendant stole money by personaly executing ansfers from the US Bank

sAocount and then using pholvcopy and compute technulogy to forge bank

Statements that excluded the transfers and inflated the Ralance accordingly,

(PSR 4 16-17).

© Defendant also stole money by fabricating large deposits into tha US Bank
account and then ferging bank papanwork to substantiate the purported deposits
Case G12Z-cr-02024-LRR Pocument St Filed 01/2213 Page 7 ct 12

‘and, ukimately, inflate the balance. The fabricated deposits caused PFG's
books to show “excess seg” whiere nove actually gxisied. PFG's accounting
deparment would then vransfer the purported "excess 89g" over to PI's house
‘acrount to ba used for routine business purposes and capitelizton
requirements. The forgad paperwork required for just *his aspect of the scheme
included deposit sips, copies of bank checks, and bank statements. (PSR 17)
These documents, in turn, caused PFG's general ledger and subsidiary financial
records and reparis to be manipulated ~ all so that defendart could steal
addiional cusiemar funds. (See PSR ff 17; Gov. Ex. 2 (7/812 FRX Daily
‘Segregation Report with backup)

To corceal his fraud from requlators, defendant caused falsified daily
segregalion weports to be # ectronically submitted ta the CFTC and KFA. (PSR
4M 18 and 8% see Gov. Ex 1 (709/12 WWindjammar Filing)"

Also to congaal his fraud fram regulators, defencant caused falsified rronthly
segregation reports (CFTC FORM 1-FR-TCM) fo be sent ia the CFTC. (Sea
PSR 119),

Also to conceal his fraud from regulators, defendant caused PH6's Chief
Financial Officer to send falsified year-end financial stalements including
inflated customer segregation tatals —to be sent lo the CFTC. (PSR 32},

In order fo conceal his crimes trom the NFA's auditors, defendant intercepted
‘account verification forms for the U.S. Bank account and fargad purported
respanses from US. Bank, (PSRG 20). This aspect of the scheme required
eeTendant lo establiss a Gedar Falls post office bax (P.O. Box 708) under his
control and then cause aucitors to send verification paperwork to the post office
box. Defendant fa sely certified the account balances under the fargad signature
of a US Bank representative. (See PSR 35). In order to maka auditors beliava
P.O. Box 706 belonged! lo US Bank, dafendant consistently changed US Bsnk’s
ailing address ta “P.O. Box. 708" on forged bank statements. {PSR FY 20, 23:
Gov. Ex. 4).

During an NFA audit in 2011, defendants crimes wore ncatly discovered when
{io PFG employees (other than defendant) became involved in the account
verifeation process. In order to prevent the discovery of the actual accounl
balance by PFG personnel and the NFA, defendant flew from Chicago to lowe,
convinced a PEG employee that a clerk had pullad the wrong balance far the

* The United Slates Commodity Futures Trading Commission (CFTC) is an

independent federal regutatory agency responsible for administering and enforcing the
provisions of tha Cammadily Exchange Act, 7 U.S.C. §§1 et seq, (2006), as amended, and
the Regulations pramugated thereunder, 17 C.F.R, §8 1.1 et Seq, (2012). The National
Futures Association (NFA) is a not-for-profM industty membership corporation (and
rogis:ered futures association authorized under 7 U.S.C. § 211) that is responsible, under
CFTC oversight, for certain aspects of the regulation of futures erties. (PSR W &-9},

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arcount, convinced US Bank personnel that the confirmation torm they had
received had the wrong address on il, obtained a copy of the confirmation form,
altered the confirmation farm to reflect the inflated balance. altered his home fax
machine ta pint "US Bank, Cedar Falls, 1A" in the fax header, and then used his
ome fax machine to fax the fabricated form to the NFA. (PSR { 38).

© Defendant similarly manipulated account verification procedures employed by
FFG's auditor, (PSR § 20)

‘Thase stops corstitused sophisticated means fe both execute and concoal defendant's
offense

In United States v. Halloran, £16 F.3d 940, 946 (8 Cir. 2008), the Eighth Circuit
Court of Appeals affimed the sentencing courts application of a sophisticated means
fenhancemantina case involving afar less complex scheme

To accomplish his rult-layered plot, Halloran requited the use ofa corporate

entity, numerous fraudufen: documents and forged notary stamps. His elaborate

theme also required him to manioulate official property records by recording

ficttlous ransters of property and to exploit numerous individu s by Forging thelr

sighalLres on valu frauen: documents
{dat 945, The offense conduct in this case was far more sophisticated. Defendant
used a corparate entity (PF) and is subsidlaries as @ mechanism to gacher imestors
and then steal their money ~ over the course of nearly twa decades. Defendant forged
an artay of dacumants— eluding bank records and acvounl verification forms. He
‘anipu ated P°G's general ledger by recording fictitious daposits in the US Bank
_acvount (in dillon to hiding regclar transfers from the account). He als forged the
signatures of US Bank afiials as pat of his efforts to deceive rogultnrs. Indeed,
defendant's scheme woulé not have been possible without defendant's elaborate and
sophislicatad effrs to deceive regLiators in ts highly-tegulated par of tha financial
services industry. These included defandant’s use of P.©. Box 706 and is falsifeation

of scores of legally-requitest regulatory reports.
Case 6:19-cr-09071-1RR Pacument $1 Hlled NY97NA Page Bat 1?

Defendant's objection to the scarng of a two-level enhancement for
sophisticated means, pursuant to USSG §281.1(bi(10}/C}, should be overruled.
IV, GUIDELINES CALCULATION AND SENTENCE

In accordance with paragraphs 48 though 62 of the presentence report, the
Court should calculate defendant's Total Offense Level as follows:

Base Offense Level: Pursuant lo USSG §281.1(@), dsfendant’s base offense
levelis 7.

Amount of Loss: An upward adustment of 28-levels is appropriate under
USSG §261.1(b}(1}{0} based upon an amount ef loss in excess of
$$200,000,000,

Sophisticated Means: A two-laval upward adjustment is appropriate undar
USSG §2B1.1(b¥(10}{C) based Upon the offense involving sophisticated means.

Commodities Law Violation | Officer of a Futures Commission Merchant: &
fourevel upward adjustment is appropriate under USSG §261.4(b}(18)B)
because the offense involvad a violation of commodities law and cetendant was
an officer and director of a futures commission merchant.

Number of Victims: siclevel upward adjustment is aporopriate under USSG
§2B1.1(b}(2)(C) basec upon the offense involving more than 250 victims,

Acceptance of Responsibility: Assuming the Court grants a two-level reduction
{or acceptance of resporsiblty under USSG §3E'.1(a). the United States
‘agrees for purposes of LISSG §3€ 1.1(b) hat defendant timaly natified authorities
‘of defendant's intention to antey a auily plea, and a threetevel reduction would
be appropriate under USSG §3E1.1
Total Offense Level: Although the above calculation results in a totat offense
lovel of 44, bacausa itis in excess of 43, he total offense fevel should be treated
asa level 43,

\With a Total Offense Level of 43, anc a Criminal History Category of | defendant's

sentence under the advisory United States Sentencing Guidelines becomes life

imprisonment, (See PSR {] 198}. Pursuan: to USSG §5G1.2{d), the sentences for

‘each count af convietion should be ordered to be served consecutive to one anather ta

the extent required to achieve the total punishment called for under the guidelines. In

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‘case 6:17-n-N202-1RR Dovumenl SL Filed W223. Page 10 of 12
this case, this means the advisery guidelines sentence is equal othe statutory
maximum sentence of § years imprisonment. (See PSR {| 106)

‘The government intends to respond at sentencing o any recuest by defenktanl
fora downward variance or dapartura from the acvisory guidelines sentence of 0
yeers! imprisonment
V, RESTITUTION

Pursuant to 18 U.S.C. § 9663A, resttution in this case is mandatory. Defendant
thas agreed to pay ful rastution to all victims ofthe offenses, including relevant
conduct victims. (PERT 4}

The government agraes wih the U.S, Probation Oifice ‘hat the otal amount of
restitution should equal the amount of actual ess, with defendant receiving credit for
certain amkinis recovers by the vious in this vase, (See PSRY}119). The
presentenca report calculates the amott of loss and, thus, the total amount of
restiuion, as $215.8300081.39, (PSR 44)*

‘yh the help f the “rustee ofthe Estate of Peregrine Financial Group, Inc
‘Case No, 12:27488, pening in tha Uniiad States Bankruptey Court forthe Northem
District of Ilinois (Trustee), ‘he gavemment isin the process of preparing alist ofall
+ictins farinelusion as a sealed atlaehment (atiachment A} to the Judgment this

matter, The list wil Include all victins with PEG conmniodiles “ulures accounts

® at sentencing, the government will argue that a portlon ofthe restitution judgment
is due and payabia immedia-aly. Ihe government wil raquest thal any restiutlon Judgment
imposed is collectable by al available anc reasonable means pursuant to 18 U.S.C.
§ 3664(m},

© Ag natec above, SA Inxin's calculation, using the figures as of the close of business
‘on July 6, 2012, results in a total loss of $218,630,547. (Gov. Ex. 8)

1c