U.S. Bank Sued Over Peregrine Customer Segregated Funds

The U.S. Commodity Futures Trading Commission (CFTC) filed a complaint in the U.S. District Court for the Northern District of Iowa against U.S. Bank alleging the bank unlawfully used and held Peregrine Financial Group’s customer segregated funds.

The complaint alleges that U.S. Bank was a depository institution serving Peregrine, a registered Futures Commission Merchant (FCM), and Wasendorf since 1992. From approximately September 2008 to July 2012, U.S. Bank unlawfully accepted Peregrine’s customers’ funds as security on loans it made to Wasendorf, his wife, and his construction company, Wasendorf Construction, to build an office complex for Peregrine in Cedar Falls, Iowa, says the CFTC.

CFTC regulations prohibit depository institutions from using or holding funds that belong to customers of an FCM as though they belong to anyone other than the customers, and also prohibit the extension of credit based on such funds to anyone other than the customers.

The complaint further alleges that from approximately June 2008 to July 2012, U.S. Bank improperly held Peregrine’s customers’ funds in an account U.S. Bank treated as Peregrine’s commercial checking account and knowingly facilitated Wasendorf’s transfers of millions of dollars of customers’ funds out of this account to pay for Wasendorf’s private jet, his restaurant, and his divorce settlement, among other things. U.S. Bank knew that these transfers were not for the benefit of Peregrine’s customers, according to the CFTC’s complaint.

The complaint says Wasendorf defrauded more than 24,000 Peregrine clients and misappropriated more than $215 million over two decades using a customer-segregated account at U.S. Bank. In connection with that fraud, says the CFTC, Wasendorf misrepresented to the National Futures Association and to Peregrine’s auditor that Peregrine’s customer segregated account at U.S. Bank contained $200 million or more, when in fact the average balance since May 2005 was only $15.7 million. On July 10, 2012, the CFTC instituted a civil action against Wasendorf and Peregrine, CFTC v. Peregrine Financial Group, Inc. and Russell Wasendorf Sr., 1:12-cv-05383 (N.D. IL July 10 2012).

Wasendorf was also criminally charged by the United States Attorney’s Office for the Northern District of Iowa, pled guilty, and on January 23, 2013 was sentenced to 50 years in prison and ordered to pay more than $215 million in restitution.
In this litigation, the CFTC seeks an injunction against U.S. Bank for further violations of the CEA and CFTC Regulations, restitution, disgorgement, and civil monetary penalties, among other appropriate relief.

A statement emailed by U.S. Bank’s press office said the bank was sympathetic to the victims of Mr. Wasendorf’s self-admitted fraud. “U.S. Bank was also a victim of the same fraud – one that the CFTC failed to detect,” it said. “This lawsuit is without merit and represents an inappropriate attempt to reassign blame to U.S. Bank. The bank did nothing wrong and we will defend ourselves vigorously.”