Peregrine Financial Group Inc., a futures brokerage, is being probed by the Federal Bureau of Investigation and sued by a commodities regulator in the wake of a suicide attempt by the firm founder Russell Wasendorf Sr.
Peregrine has a $200 million “shortfall” in customer funds, according to a Commodity Futures Trading Commission complaint filed today in federal court in Chicago.
“The whereabouts of the funds is currently unknown,” the CFTC said, alleging they were misappropriated by the firm and its founder.
Wasendorf is in a coma after trying to kill himself yesterday outside Peregrine’s Cedar Falls, Iowa, offices, according to the agency’s complaint, which names him and the company as defendants. The CFTC seeks a court order freezing Peregrine assets and preserving its paperwork.
The National Futures Association, an industry self- regulator, said yesterday that Peregrine reported it had about $400 million in customer-segregated funds on or about June 29, of which $225 million was on deposit at U.S. Bank.
The regulator said it learned that its chairman “may have falsified bank records” after finding only $5 million on deposit.
“We are involved in the investigation,” Sandy Breault, an FBI spokeswoman in Omaha, Nebraska, said today in a telephone interview. The bureau is “currently reviewing the facts of the situation,” she said.
“Some accounting irregularities are being investigated regarding company accounts” after “a recent emergency involving Wasendorf, a suicide attempt,” Peregrine told its customers yesterday in an e-mailed message. A copy was obtained by Bloomberg News and confirmed by Patricia Campbell, a company spokeswoman in Chicago.
The National Futures Association “and other officials” have frozen all customer money, the firm’s e-mail said. Wasendorf owns the entire firm, it said.
Campbell today didn’t reply to voice-mail and e-mail requests for comment on the federal probe and CFTC lawsuit.
Sheriff Tony Thompson of Black Hawk County, Iowa, said Wasendorf was found in his car with a note, whose contents the sheriff declined to divulge. A hose ran from the vehicle’s exhaust pipe into the passenger compartment, he said.
An officer with the sheriff’s office arrived at the Peregrine offices just after 8 a.m. yesterday where paramedics were attending to Wasendorf, according to the police report which was e-mailed to Bloomberg News. Wasendorf was breathing as he was taken from his car and was incoherent, according to the report. He was later air lifted to University of Iowa Hospitals in Iowa City, it said.
“A note was found in the vehicle that indicated possible discrepancies with accounts at Peregrine Financial Group,” the report said.
Peregrine started as Wasendorf & Son Inc. in 1980, according a time line on the firm’s website. It evolved into Peregrine in 1990 and moved its headquarters to Chicago. Two years later it was incorporated as a futures commission merchant.
In 2009 the firm opened a new office at One Peregrine Way in Cedar Falls, according to the website.
The possible loss of customer money at Peregrine follows the bankruptcy of MF Global (MFGLQ) Holdings Inc. last year, where as much as $1.6 billion in missing client cash has yet to be recovered by trustees overseeing the liquidation of the firm.
Futures industry leaders including CME Group Inc. (CME) Chairman Terrence Duffy said MF Global’s failure was the first time a futures brokerage’s collapse led to the loss of customer money, which is supposed to be segregated in separate accounts.
Jefferies Group Inc. (JEF) has a clearing relationship with Peregrine and after the broker couldn’t meet a margin call it “began an orderly liquidation” of the firm’s trades, the New York-based investment banking firm said today in a statement.
“Jefferies does not expect to incur any loss in respect of PFG,” it said in the statement. The bank said it will hold all proceeds from the liquidation in segregated accounts.
The NFA prohibited Peregrine from soliciting or accepting new customer accounts or funds, placing trades for customers except to liquidate positions or distributing customer money.
Wasendorf invested in Sentinel Management Group Inc., the futures broker that filed for bankruptcy in 2007. He said he lost a “tiny” amount of money in the collapse yet had many friends and colleagues who were among the victims.
“It’s disbelief that someone could get away with this kind of shell accounting,” Wasendorf said at the time.
The brokerage offered futures, cash, foreign exchange and options on futures trading.
Peregrine was sued this year by a court-appointed receiver in Minnesota and accused of ignoring red flags that Peregrine customer Trevor Cook was operating a Ponzi scheme.
Cook was sentenced to 25 years in prison for operating “one of the largest Ponzi schemes in Minnesota history,” receiver R.J. Zayed said in the complaint.
Supposedly profitable investments by Cook and others with Peregrine “ultimately lost more than $30 million” in accounts that Peregrine “permitted Cook to open, maintain and manage in the face of overwhelming red flags of fraud or insolvency,” the suit said.
Cook and others “transferred tens of millions of dollars, totaling approximately $48 million,” to Peregrine accounts from their customers.
Jennifer Muchoney, whom the lawsuit lists as a lead attorney in the case for Peregrine, couldn’t be reached yesterday after normal business hours in Chicago.
The case is U.S. Commodity Futures Trading Commission v. Peregrine Financial Group Inc., 12-cv-5383, U.S. District Court, Northern District of Illinois (Chicago).