A customer of Peregrine Financial Group Inc., whose founder is accused by regulators of misappropriating more than $200 million, sold a claim on the bankrupt futures brokerage for about 20 cents on the dollar, a trader said.
The U.S. customer claim was for almost $20,000, said Joseph Sarachek, managing director of claims trading at CRT Capital Group LLC, which buys and sells distressed debt. A record of the trade, due to be filed in bankruptcy court in Illinois today, would be the first to appear on the docket.
Traders are getting calls from Peregrine customers who don’t know how much they’ll be paid, or when. Closing a trade is risky for the buyer because probes into the fraud confessed to by Peregrine founder, Russell Wasendorf Sr., could delay payment for years, Sarachek said.
“It’s a much more complex situation than MF Global Inc. because of the fraud,” he said. “Given the fact that Wasendorf confessed to a 20-year fraud, this is part Madoff and part MF Global.”
U.S. customers of brokerage MF Global, whose trustee has returned most of their money, have always been able to sell their claims in the high 70 cents on the dollar, Sarachek said. Larger claims on Bernard Madoff’s brokerage have climbed to about 65 cents as the trustee liquidating the con man’s estate gets access to more money for distributions after 3 ½ years, he said.
His current bet on Peregrine is that customers “probably” won’t get less than 20 cents on the dollar over several years, limiting CRT’s risks.
Peregrine’s July 10 bankruptcy, cutting off customers’ access to their accounts, came less than a year after the failure of MF Global, whose clients are still missing $1.6 billion. Wasendorf may have funded his personal investments with Peregrine brokerage money, a receiver said in a court filing.
The Peregrine bankruptcy case is Peregrine Financial Group Inc., 12-27488, U.S. Bankruptcy Court, Northern District of Illinois (Chicago). The CFTC regulatory 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).