Cedar Falls, Iowa – On June 5, 2013, the U.S. Commodity Futures Trading Commission (CFTC) filed a complaint in U.S. District Court for the Northern District of Iowa against U.S. Bank National Association, alleging the unlawful use and holding of customer funds belonging to Peregrine Financial Group, Inc. The complaint centers around the actions of Russell R. Wasendorf Sr., the owner of Peregrine, and the bank’s alleged failure to protect those funds.
The CFTC alleges that U.S. Bank, the fifth largest bank in the nation with branches in Cedar Falls, knowingly violated regulations designed to protect customer funds held by Futures Commission Merchants (FCMs) like Peregrine. Specifically, the complaint details how, from approximately September 2008 to July 2012, U.S. Bank improperly used Peregrine’s customer funds as collateral for loans issued to Wasendorf, his wife, and his construction company, Wasendorf Construction, L.L.C. These loans were used to finance the construction of a new office complex for Peregrine in Cedar Falls.
Further, the CFTC claims that U.S. Bank improperly held customer funds in a standard commercial checking account for Peregrine and facilitated the transfer of millions of dollars to cover Wasendorf’s personal expenses, including a private jet, a restaurant, and his divorce settlement. The agency asserts that U.S. Bank knew these transfers were not benefiting Peregrine’s customers.
According to the complaint, Wasendorf defrauded over 24,000 Peregrine clients, misappropriating more than $215 million over two decades through misuse of the segregated customer account at U.S. Bank. He also allegedly misrepresented the account balance to the National Futures Association and Peregrine’s auditor, claiming it held over $200 million when the average balance was only $15.7 million since May 2005.
Wasendorf was previously charged in a civil action by the CFTC (CFTC v. Peregrine Financial Group, Inc. and Russell Wasendorf Sr.) and criminally by the U.S. Attorney’s Office for the Northern District of Iowa. He pled guilty and was sentenced on January 23, 2013, to 50 years in prison and ordered to pay over $215 million in restitution.
The CFTC is seeking an injunction against U.S. Bank to prevent further violations, as well as restitution, disgorgement of profits, and civil monetary penalties. David Meister, the CFTC’s Director of Enforcement, emphasized that banks have independent responsibilities to protect customer funds, and that Wasendorf’s crimes do not absolve U.S. Bank of its obligations.
Source: CFTC.gov
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