What Can Investors Learn from the Peregrine Scandal?

By Steve A. Meyerowitz
There is much more to the apparent Peregrine financial fraud than missing customer funds and an apparent attempted suicide by the firm’s CEO – there are lessons to be learned.
Toward that end, we spoke recently with Ken Springer, a Certified Fraud Examiner who is president and founder of Corporate Resolutions Inc.  A former special agent of the Federal Bureau of Investigation, he has conducted business-related investigations and intelligence gathering for over 30 years.  Mr. Springer (pictured), who is active with a number of industry organizations that promote security, risk management, and due diligence and who is an instructor at the New York Institute of Finance on the topic of Detecting Fraud, can be reached atkspringer@corporateresolutions.com.
Financial Fraud Law Blog: What is the most important lesson to be learned from the alleged financial fraud perpetrated by Russell Wasendorf, Sr., and his firm, Peregrine Financial?
Mr. Springer: I have been asked by many, “what can we learn from this?”  And the answer is this: investors of all sizes must be vigilant and conduct their own due diligence before making investment decisions. It seems rather telling that four of the biggest fraud scandals in the last decade had one crucial component in common: they all relied on a nobody-from-nowhere accounting firm to audit multi-million dollar transactions.  Bernie Madoff, R. Allen Stanford, Sam Israel III/Bayou and now Wasendorf. The reality that all of these major scam artists used small-time accountants is more than just overwhelmingly coincidental.
Financial Fraud Law Blog: Are there other common elements to these cases?
Mr. Springer: Yes. Like Stanford, Wasendorf had been fined and sanctioned by regulatory agencies over the years for failing to keep accurate books and records, not keeping the firm properly capitalized, and unauthorized trading.  Details about these incidents were in the public domain. 
Financial Fraud Law Blog: What can investors do to limit their risks?
Mr. Springer: Investors have the right to examine every aspect of a deal before committing to it.  From patterns of lawsuits or disciplinary actions by regulators to employing junior varsity accountants to execute varsity-sized transactions, the power of scrutiny is in the hands of the investor and should be used to avoid vulnerability in any future scams.
Financial Fraud Law Blog: Thank you, Mr. Springer.