By Chelsey Dulaney
An Iowa district court has ordered U.S. Bancorp to pay $18
million to customers of the now-defunct Peregrine Financial Group
Inc, the U.S. Commodity Futures Trading Commission said
Wednesday.
The company's U.S. Bank unit was the home of a Peregrine account
holding funds that were misappropriated by Peregrine founder
Russell Wasendorf Sr. before the firm's failure in 2012, the CFTC
said. The account was used to defraud more than 24,000 clients and
misappropriate more than $215 million in customer money, it
added.
CFTC alleged in a 2013 complaint that U.S. Bank allowed Mr.
Wasendorf to withdraw and transfer about $36 million from the U.S.
Bank account to non-Peregrine customers by essentially treating the
account like a business checking account. U.S. Bank implemented new
procedures specific to customer segregated funds accounts in 2012
after the CFTC began its investigation, according to CFTC.
In a statement, U.S. Bancorp said it was pleased to have reached
the resolution with the CFTC and noted it didn't admit any
wrongdoing.
"Like PFG's customers, U.S. Bank was subject to this
sophisticated fraudulent scheme," a representative for the bank
said.
The Iowa brokerage collapsed in 2012 after the exposure of its
founder's fraud and filed for Chapter 7 bankruptcy liquidation that
July.
"Russell Wasendorf stole enormous sums of money that Peregrine's
customers entrusted to him. He is responsible for his crimes," said
Aitan Goelman, CFTC director of enforcement. "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."
Mr. Wasendorf was arrested after confessing to the fraud in a
failed suicide attempt and was later convicted. A federal judge
sentenced him in 2013 to 50 years in prison, which he is currently
serving in Terre Haute, Ind.
Write to Chelsey Dulaney at Chelsey.Dulaney@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires