U.S. Bank has been ordered by a judge to pay the Peregrine Trustee with $18 million, a fraction of the misappropriated $215 million to the more than 24,000 defrauded customers in 2012.
At the time of its failure in July 2012, Peregrine was the nation’s second largest non-bank, non-clearing futures commission merchant (FCM). U.S. Bank maintains branch offices in Cedar Falls, Iowa, where Peregrine and its owner, Russell Wasendorf, Sr., were located.
U.S. Bank was a depository for Peregrine and held a customer segregated funds account that Wasendorf used to defraud more than 24,000 Peregrine clients and misappropriate over $215 million of customers’ money. On July 10, 2012, the CFTC instituted a civil action against Wasendorf and Peregrine. Wasendorf was also criminally charged, pled guilty, and on Jan. 23, 2013 was sentenced to 50 years in prison and ordered to pay more than $215 million in restitution.
During the relevant period of the CFTC’s action, June 2008 through July 2012, Wasendorf withdrew and transferred approximately $36 million from the US Bank customer segregated funds account to persons and entities that were not Peregrine customers and U.S. Bank regularly withdrew its account fees from the customer segregated funds account for both Peregrine and non-Peregrine accounts held at the bank.
On Feb. 4, 2015, Chief Judge Linda R. Reade of the U.S. District Court for the Northern District of Iowa ordered U.S. Bank from committing future violations of the Commodity Exchange Act (CEA) and the CFTC’s Regulations that prohibit any depository institution, like U.S. Bank, from holding, disposing of, or using 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 Order also requires U.S. Bank to pay $18 million to the court-appointed Trustee for Peregrine that will be returned to Peregrine customers that held domestic futures accounts.
CFTC director of enforcement Aitan Goelman stated: “Russell Wasendorf stole enormous sums of money that Peregrine’s customers entrusted to him. He is responsible for his crimes. However, that fact does not excuse U.S. Bank’s failure to meet its own responsibilities to safeguard Peregrine’s customer funds that it held. As this litigation and its resolution demonstrate, the CFTC will be relentless in pursuing recovery on behalf of innocent investors.”
The court’s Order arises from a Complaint filed by the CFTC on June 5, 2013 charging U.S. Bank with improperly holding and using a Peregrine customer segregated funds account by treating the account like a regular business checking account, thereby allowing Wasendorf to withdraw customer money for non-customer purposes from June 2008 through July 2012.
At that time, U.S. Bank had no policies, procedures or training specifically applicable to FCM customers or customer segregated funds. During the relevant period, Wasendorf withdrew approximately $36 million to persons and entities that were not Peregrine customers and U.S. Bank regularly withdrew its account fees from the customer segregated funds account for both Peregrine and non-Peregrine accounts held at the bank.
After the CFTC initiated its investigation in July 2012, U.S. Bank implemented new policies and procedures specifically applicable to FCM customer segregated funds accounts.