Trevor Cook is currently serving a 25-year jail sentence for his Minneapolis-based Ponzi scheme, which resulted in millions of dollars in losses for his unsuspecting clients. The organizers of Ponzi schemes promise high returns to new clients and then use that money to pay off older investors who wish to “cash out” their investments, all while stealing client funds. These schemes become more expensive and difficult to run as they grow, and so they tend to implode. Cook falsely told his clients that their money would be invested in a very secure currency trading operation. Because Cook used the brokerage firm Peregrine Financial Group in the course of his fraudulent dealings, Peregrine is now embroiled in Cook’s legal troubles.
The receiver in the Cook case is R.J. Zayed. Like a trustee, a receiver is a court-appointed individual who manages the property of someone involved in the case. Zayed sued Peregrine earlier this year on behalf of over two hundred investors who had lost money in Cook’s scam. Many of these investors entrusted such a sizeable portion of their assets to Cook that they have since lost their homes and savings. Zayed alleges that Peregrine knew, or at least should have known, that something was amiss by examining Cook’s transactions. Zayed commented that Peregrine officials chose to ignore clear signs of misuse of client funds because their association with Cook was so profitable. Between 2006 and 2009, Cook provided Peregrine with client funds equal to approximately one quarter of Peregrine’s net worth in 2006.
Despite this massive influx of money, Peregrine’s assets are nowhere to be found. When conducting its investigation of Peregrine, the National Futures Association found only $5 million in assets where it expected to find approximately $225 million. Cook’s fraud accounts for some of the missing money (for example, he lost over $30 million of the $48 million that he sent to Peregrine) but it does not account for most of the missing money.
In addition, Peregrine has filed for chapter 7 bankruptcy. It is not surprising, then, that Zayed has been unable to recover any money from Peregrine for Cook’s victims. This comes as a tough blow to Cook’s former investors because Peregrine had represented one of their larger potential sources of reimbursement money. Only four percent of the money stolen by Cook has been returned to his former investors, and so Peregrine’s bankruptcy makes it that much less likely that Cook’s victims will ever be able to recover their losses.
Peregrine was already in hot water with the Zayed lawsuit and the National Futures Association investigation but its troubles continue to grow. Last Tuesday, the Commodity Futures Trading Commission sued Peregrine. Peregrine’s legal woes are so bad that its owner, Russell Wasendorf Sr., tried to kill himself a few days ago and ended up in a coma. His son, Russell Wasendorf Jr., is acting on his father’s behalf under a power of attorney.