Federal regulators blame U.S. Bank in fraud suit


The U.S. Commodity Futures Trading Commission accuses U.S. Bank of mishandling the funds of a brokerage firm that collapsed, the Star Tribune reports.

The former chief executive officer of Peregrine Financial Group Inc. was convicted of defrauding customers out of more than $200 million. Russell Wasendorf Sr. is now serving a 50-year prison sentence.

The civil lawsuit filed Wednesday claims U.S. Bank, the lead bank of Minneapolis-based U.S. Bancorp, failed to protect the remaining assets of the Iowa-based brokerage, Minnesota Public Radio notes.

The complaint alleges that "U.S. Bank improperly held Peregrine’s customers’ funds in an account U.S. Bank treated as Peregrine’s commercial checking account and knowingly facilitated Wasendorf’s transfers of millions of dollars of customers’ funds out of this account to pay for Wasendorf’s private jet, his restaurant, and his divorce settlement, among other things. U.S. Bank knew that these transfers were not for the benefit of Peregrine’s customers," according to a news release.

The Business Journal says U.S. Bank released the following statement on the charges:

"Like the CFTC, we are sympathetic to the victims of Mr. Wasendorf’s self-admitted fraud. U.S. Bank was also a victim of the same fraud – one that the CFTC failed to detect. This lawsuit is without merit and represents an inappropriate attempt to reassign blame to U.S. Bank.

"The regulatory program in place at the time allowed Wasendorf to intercept regulator communications that were intended for the bank and to falsify bank responses to those communications, all without the bank’s knowledge – as Mr. Wasendorf has already admitted.

"Wasendorf’s scheme to keep the bank in the dark included creating a P.O. Box to intercept communications from the regulator to the bank. 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 bank did nothing wrong and the bank will defend itself vigorously. Banks are not responsible for losses generated by customers who are fraudsters.

"The lawsuit itself accuses the bank of violating technical regulations that have never been interpreted by any court to apply when a bank is not notified that it was holding customer segregated funds. The CFTC’s theory against the bank is unprecedented, seeking to impose responsibilities that the bank never had and alleging violations that it never committed."

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