(AP) CEDAR RAPIDS, Iowa - The founder of an Iowa brokerage has signed a plea agreement with federal prosecutors in which he admits to carrying out a $200 million fraud and embezzlement scheme that bankrupted his company, prosecutors said Tuesday.
Prosecutors said Russ Wasendorf Sr. will plead guilty to mail fraud, embezzling customer funds and two counts of making false statements to regulators. U.S Magistrate Judge Jon Scoles confirmed the agreement but hasn't ruled on the matter.
Prosecutors said the agreement calls for Wasendorf to be sentenced to up to 50 years in prison.
Details of the agreement were made public during a hearing in federal court in Cedar Rapids called to determine whether Wasendorf should be freed from jail pending his plea hearing and sentencing. The hearing was continuing Tuesday afternoon.
Prosecutors have asked the judge not to release Wasendorf, who listened intently as FBI agent William Langdon laid out the case against him.
FBI agents arrested Wasendorf, 64, days after he tried to commit suicide. The arrest came while he was hospitalized at University of Iowa Hospitals and Clinics, and by then court records show he had already been cooperating with investigators.
After his arrest, Wasendorf waived his right to an immediate detention hearing, but he requested one last week.
Defense attorney Jane Kelly said the plea agreement leaves open how much prison time will be recommended for Wasendorf under federal sentencing guidelines. She indicated it would likely be far less than the maximum 50 years.
Nonetheless, Linda Livingston, a Lutheran pastor who has counseled Wasendorf in jail, testified that he has accepted the likelihood of spending the rest of his life behind bars.
Livingston said he was relieved that his fraud was uncovered and dedicated himself to trying to recover as much money as possible for his customers.
Livingston said she and her husband, former high school classmates of Wasendorf, have agreed to allow him to live in their home if he is released.
Assistant U.S Attorney Peter Deegan argued that Wasendorf remained a serious risk to commit suicide or flee if released. He said Wasendorf "has gone from being a hero to a villain" and signed a plea deal that will likely put him in prison until his death.
"What incentive does he have to show up in court?" Deegan asked.
Tuesday's development came as regulators try to unravel the complicated finances of Peregrine Financial Group, Inc., and partially compensate customers who have not been able to access their funds for two months. The trustee overseeing the company's bankruptcy outlined a plan last week for an initial distribution of $123 million in assets to about 17,000 customers, who would receive 30 percent to 40 percent of the assets they held with the firm. The payments would start by the end of September.
But the company's regulator, the U.S. Commodities Futures Trading Commission, raised concerns about the plan in a filing Sunday, arguing payments should not be processed until accounts can be verified as valid. The commission said its preliminary investigation uncovered more than $45 million in "fictitious bookkeeping entries and unusual activity" in customer accounts.
"The CFTC does not favor unnecessarily delaying customer distributions, and believes that the innocent customers of the Debtor should be compensated for their losses as soon as reasonable and practicable," agency lawyers wrote. "Nonetheless, caution is warranted to ensure that the books and records of the Debtor may be relied upon to avoid the possibility of distributions based on fictitious data."
A hearing on the plan from trustee Ira Bodenstein, which would hold back $58 million in company assets, is set for Wednesday in federal bankruptcy court in Chicago. Bodenstein said that additional distributions will occur but that no one will get 100 percent of their money back.