CFTC Sues U.S. Bank Over Peregrine Client Account Funds

U.S. Bank NA used Peregrine Financial Group Inc. client funds as security for loans to firm founder Russell Wasendorf Sr., who has since been jailed for fraud, according to the Commodity Futures Trading Commission.

The regulator, in a lawsuit filed today in federal court in Cedar Rapids, Iowa, accuses the U.S. Bancorp unit of violating federal Commodity Exchange Act account-segregation rules and seeks an order for restitution to firm clients who suffered losses because of the bank’s alleged actions.

The CFTC claims U.S. Bank officials held Peregrine customer funds in an account the lender treated as though it was the firm’s commercial checking account, enabling Wasendorf to transfer money out of it to pay for items including a private plane, a restaurant he owned and his divorce settlement.

“U.S. Bank knew that these transfers were not for the benefit of Peregrine’s customers,” the agency said in the complaint.

Wasendorf was sentenced in January to 50 years in prison after pleading guilty to charges of fraud, embezzlement and making false statements. Prosecutors said he stole more than $200 million from the Cedar Falls, Iowa-based futures firm.

His crimes came to light in July when he tried to commit suicide in his car outside the firm’s offices. In a written statement found at the scene, Wasendorf said he had been stealing from Peregrine for almost 20 years.

Customer Funds

The firm filed for bankruptcy the next day, hours after it and Wasendorf were sued by the CFTC for misappropriating customer funds.

The Commodities Exchange Act and CFTC regulations bar banks from using or holding client funds of futures firms “as though they belong to anyone other than the customers,” the regulator today said in a statement announcing the suit.

Tom Joyce, a spokesman for the Minneapolis-based bank, said in an e-mailed statement that the lender is sympathetic to Wasendorf’s fraud victims. He also said the bank did nothing wrong.

“U.S. Bank was also a victim of the same fraud -- one the CFTC failed to detect,” Joyce said. “As he has admitted, Wasendorf actively deceived the bank. At no time did we have any knowledge that Wasendorf was running a fraudulent scheme.”

The case is U.S. Commodity Futures Trading Commission v. U.S. Bank NA, 13-cv-02041, U.S. District Court, Northern District of Iowa (Cedar Rapids).

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