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Peregrine Ruling May Mean Full Payment for Some Customers

A long line of bidders register prior to an auction of the contents of the corporate offices of Peregrine Financial Group Inc. in Cedar Falls, Iowa in December 2012. Peregrine filed to liquidate in July after the National Futures Association said more than $200 million in customer funds were missing. Photographer: Steve Pope/Bloomberg
A long line of bidders register prior to an auction of the contents of the corporate offices of Peregrine Financial Group Inc. in Cedar Falls, Iowa in December 2012. Peregrine filed to liquidate in July after the National Futures Association said more than $200 million in customer funds were missing. Photographer: Steve Pope/Bloomberg

March 20 (Bloomberg) -- Peregrine Financial Group Inc.’s Chapter 7 trustee won court approval to create three classes of firm commodity customers, a ruling that he said may lead to full repayment for one class of account holders.

U.S. Bankruptcy Judge Carol A. Doyle in Chicago today approved trustee Ira Bodenstein’s request to divide for claims payment purposes account holders who traded on U.S. commodity exchanges from those who traded on exchanges outside the country and those who hold warehouse receipts for taking or making delivery under commodity contracts.

The division may enable customers who traded on foreign commodities exchanges to be repaid in full, Bodenstein said after the hearing.

“We anticipate that they’ll get close to all their money,” Bodenstein said. There may even be a surplus, he said.

Peregrine, a Cedar Falls, Iowa-based commodities firm with offices in Chicago, filed to liquidate in July after the National Futures Association said more than $200 million in customer funds were missing.

The firm’s founder, Russell Wasendorf Sr., who is now serving a 50-year prison sentence for fraud and embezzlement, stole mostly from customers who traded on U.S. exchanges, the trustee said.

Peregrine had more than 24,000 customer accounts, about 17,000 of which were commodity accounts, according to a Feb. 25 filing by Bodenstein. The firm had about $28 million in foreign futures customer balances when it went bankrupt, according to the same document.

Customers’ Objection

One objection to the classification plan was lodged today by attorney Michael O’Rourke on behalf of Peregrine foreign currency and precious metals trade customers who he said don’t appear to belong in any of the three categories.

“You have to say you’re in one of them,” an attorney for Bodenstein, Geoffrey Goodman, said in court. “It doesn’t prejudice their rights,” he told Doyle.

Anne W. Stukes, a Commodity Futures Trading Commission lawyer who attended the meeting by phone, told the judge a limited number of categories are available under CFTC regulations.

Bodenstein told Doyle the creation of categories was “an important step,” in the claims reconciliation and payment process.

Lawyer’s Opposition

“It isn’t so much that I’m opposed to their classification,” O’Rourke’s New York-based co-counsel, Vivian Drohan, said after the hearing in a telephone interview. “I’m opposed to their leaving out the forex and metals group and concerned that their rights are preserved.”

About $47 million is owed in the aggregate to Peregrine clients such as hers, none of which was invaded by Wasendorf, she said. She’s filed a lawsuit within the bankruptcy asking that her clients be repaid in full.

Doyle in September approved Bodenstein’s request to make a $123 million interim distribution to futures account holders, under which domestic futures market customers received a 30 percent payout and those trading on foreign markets a 40 percent payout.

In a separate filing yesterday, the trustee asked the court for permission to subpoena documents and, if necessary, testimony from a Peregrine accountant, Victor DiMaggio and firms with which he’s been associated.

The case is In re Peregrine Financial Group Inc., 12-bk-27488, U.S. Bankruptcy Court, Northern District of Illinois (Chicago).

To contact the reporter on this story: Andrew Harris in the Chicago federal courthouse at aharris16@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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