By David Sheppard and Radu Marinas ,Reuters
NEW YORK/BUCHAREST — Russell Wasendorf Sr., the founder of failed Iowa brokerage PFGBest, had risky investments a long way from the Midwest markets where he built his name. More than a decade before he allegedly began hiding more than US$200 million of misappropriated client money in a scheme that unraveled this week, Wasendorf joined three other Chicago traders as founding investors in one of Romania’s largest real estate development groups, Avrig 35 Group, which was valued at more than US$1 billion at its height in 2007. But since 2007 the paper value of his holdings has crashed from around US$150 million to less than US$45 million, as Avrig has written down investments.
As Avrig’s complex web of dozens of firms struggles to trade its way out of difficulties, Alexander Hergan, Wasendorf’s Romanian-born business partner and a former options trader and founding member of the Chicago Board of Options Exchange (CBOE), hopes the drama in Iowa doesn’t upset the firm’s recovery. “I don’t want any kind of blemish from Russell’s situation to spill into the Avrig Group,” he said in a telephone interview from Romania. “Avrig 35 was put into insolvency just recently but we’ve been successful in working our way out of this. We plan to pay down US$50 million of our debts in the next two months. We have saved this company in the past year.” The firm, well-known in Romania for having built the country’s tallest building, adds an unlikely new dimension to the deepening mystery around Wasendorf, whose attempted suicide on Monday set off an FBI investigation, a lawsuit from regulators, and the collapse of PFGBest into bankruptcy. Avrig’s problems after the 2008 global financial crisis also shed new light on Wasendorf’s finances, the subject of intense scrutiny as investors seek to trace the missing U.S. funds. Hergan said he didn’t believe Wasendorf’s alleged misuse of PFGBest customer funds could be related to Avrig’s financial problems. Asked if he was concerned U.S. regulators may want to look at Avrig as part of their investigation, he said the group would cooperate fully with any investigation. “Of course we’ve thought about it, but we’re not concerned. They could go after his assets, they could go after his shares in Avrig Group, but the other shareholders will buy them as the value is currently depressed,” Hergan said. “There is nothing we have to hide.”