FBI agents arrested Peregrine Financial Group Inc. Russell Wasendorf Sr.

at a local hospital Friday, following his suicide attempt, and he appeared in federal court later in the day on charges of lying to federal regulators. Early that week authorities found an unresponsive Wasendorf, as well as a suicide note beside him in his car outside the companys headquarters in Cedar Falls, Iowa. In this tell-all note, Wasendorf detailed an elaborate fraud scheme in which he apparently embezzled over $100M from customer accounts by using false bank statements. Even more, he was able to conceal his crime of forgery for so long by being the sole individual with access to the US Bank accounts held by PFG., as well as using computer software, scanners and printers to "make very convincing forgeries of nearly every document that came from the bank," including statements, letters and other correspondence. In addition, Peregrine Financial Group, which marketed itself as PFGBest, filed for bankruptcy this past Tuesday, coincidentally the same day the industry's top regulator filed civil fraud charges alleging the firm misused customer money, and falsely claimed a bank account contained more than $220 million when it actually had about $5 million. The money in that account belonged to customers and was supposed to be kept separate from Peregrine's own money. Unfortunately, when Wasendorfs son checked his bank statement, in an account that regulators believed to have $221M, it actually showed a balance of merely $6.3M. According to officials, Wasendorf could face a wide range of additional criminal charges and decades in prison for what the prosecutor has called a $200 million scheme in which Wasendorf embezzled customer funds for 20 years. Just like any other fraudulent case, the Wasendorf scheme is a great example of how operational due diligence could have possibly been an important tool to use by an investor. Checking into management responsibilities would have been useful in making sure executives were not carrying out financial transactions or personally writing checks without anyones knowledge. Although Wasendorf was able to access the bank accounts held by his company, during the operational due diligence review, checking all financial transactions on both ends could have revealed discrepancies in the accuracy of what was being recorded compared to the bank statement. In addition, an operational due diligence review would also check into the personal background of Wasendorf, including interviewing other employees or friends on his behavior, and if they noticed anything suspicious. Even looking into his personal bank transactions could have raised several warning signs for investors after noting various suspicious or unusual transactions occurring on his account. Furthermore, technology was a big factor in this case, certain software were a key component in how Wasendorf was able to carry on his scheme for so successfully, and for so long, without being detected. Although analyzing company software is often an area that risks being overlooked much of the time, during an operational due diligence review the companys management software and operations would be thoroughly investigated. However, even though looking into a funds technology is useful, it is also up to the investor to investigate the firms software, as well as to become familiar with certain jargon and various system names. In doing this, an investor will be able to understand the risk assessment given on

the company software, instead of getting lost in all the technical terms; ending up wasting potentially value information. In any event, by deciding to use the operational due diligence process to assess any potential risks, an investor could avoid making the wrong investment, and possibly avoid a potentially life-threatening scandal.