The reaches of Russell Wasendorf Sr., the PGFBest founder who recently attempted suicide, extend far beyond the collapsed brokerage. He was one of the four founding investors from Chicago in a Romanian real estate development group, Avrig 35 Group.
Reuters reported Friday that Wasendorf had invested in Avrig years ago, and had ridden the company to the top during the boom following the fall of the Communist leader Nicolae Ceaucescu. At its height in 2007, UBS Bank was advising the company about listing on the London Alternative Investment Market (AIM), and had valued it at more than $1 billion. Wasendorf’s holdings, which by then had been diluted to less than 15% because other investors had been brought in, were still worth around $150 million. By 2008, Avrig had expanded to more than 60 companies in such diverse sectors as asset management, retail and television.
But later that year, as Avrig tumbled along with the global financial crisis, so did the value of Wasendorf’s investment, falling to around a still-sizable $45 million on an original investment of $500,000.
With its plan for listing in London having fallen apart, Avrig hadn’t been able to sell a single significant property since the onset of the crash. Alexander Hergan, Wasendorf's Romanian-born business partner and a former options trader and founding member of the Chicago Board of Options Exchange (CBOE), said in the report, "When the hard times hit … the banks just stopped funding us, some when we were right in the middle of construction. The market just stopped functioning."
In July 2011, Avrig, which is famous in Romania for having built the tallest building in the country, the Bucharest Tower Center, was backed into a corner; by then, that building had stood vacant for at least three years. Creditors put together a number of petitions that tried to push Avrig into insolvency because of its increasing debts, which according to the Romanian finance ministry amounted to about 135 million lei ($36.6 million) by 2010. Hergan says that has more than doubled now to approximately $80 million.
Despite that, and despite the fact that at the end of 2010 its bank balance was only $3,600, the company is still operating, although for the last three years it has shown a loss. Capital calls issued between 2007 and 2011 brought in cash from Wasendorf, according to Avrig CEO Matthew Proskine. The largest of these was $750,000 last year, he told Reuters.
According to Hergan, “They have all been repaid with interest already."
Hergan said that last year he had thought at a meeting with Wasendorf that "he seemed a little more tense," but hadn't made anything of it at the time. He added, "I never dreamt of the possibility of him being involved in something like this. When these things happen people are left shaking their heads."
Avrig has been working hard to extricate itself from its own financial crisis. Hergan said he hoped the problems at PFGBest did not have an impact on Avrig.
"I don't want any kind of blemish from Russell's situation to spill into the Avrig Group," he was quoted saying. "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 $50 million of our debts in the next two months. We have saved this company in the past year."
Hergan also said he didn't believe the scandal at Wasendorf’s firm was related to Avrig's money troubles. While he said in response to a question that of course he was aware U.S. regulators could look more closely at Avrig as they pursued clues to the meltdown at PFGBest, he added that the group would cooperate fully with any investigation.
"Of course we've thought about it,” he said in the report, “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. There is nothing we have to hide."