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From Securities Regulation Daily, June 24, 2015

U.S. Bank agrees to settle Peregrine Financial Group customer claims for $44.5 million

By Lene Powell, J.D.

U.S. Bank National Association agreed to pay $44.5 million to former customers of collapsed futures commission merchant Peregrine Financial Group, Inc. to resolve claims that the bank allowed Peregrine’s CEO to use customer funds “as a personal checking account” to perpetuate a 20-year fraud. The proposed settlement was granted preliminary approval by the federal district court for the Northern District of Illinois (In re Peregrine Financial Group Customer Litigation, June 23, 2015, Ellis, S.).

Skimming by CEO. Under CFTC rules, futures commission merchants must keep customer funds in specially designated accounts separate from the firm’s own accounts. Peregrine held customer segregated funds in an account at U.S. Bank. Over the course of about 20 years, Peregrine CEO Russell Wasendorf, Sr. systematically stole about $215 million from the customer account, covering his tracks by intercepting communications between the bank and regulators and substituting fake forms. After the theft was discovered in 2012, Peregrine folded. In January 2013, Wasendorf was sentenced to 50 years in prison.

A number of Peregrine customers filed suits against the bank, which were consolidated into a single class action. The consolidated complaint asserted that U.S. Bank committed fraud by omission, breached its fiduciary duty, and aided and abetted Wasendorf in violation of the Commodity Exchange Act. In September 2014, the court dismissed the aiding and abetting claim but allowed the fraud and breach of fiduciary duty claims to proceed to discovery.

In February 2015, U.S. Bank resolved CFTC charges by agreeing to pay $18 million to the Peregrine trustee for treating the customer funds as though they belonged to Peregrine.

Settlement. Class counsel said the settlement was an “excellent result” for the class, representing a recovery of more than 20 percent of the diverted $215 million, and said there was no significant opposition to the terms. Class members will be notified and will have an opportunity to voice their opinions about the settlement. Plaintiffs said they will move for a fee award of not more than 31 percent of the settlement fund.

The case is No. 1:12-cv-05546.

Attorneys: Michael C. Dell'Angelo (Berger & Montague, P.C.) for Plaintiffs. Nicholas P. Iavarone (Iavarone Law Firm) for Russell R Wasendorf, Jr. Paul R. Dieseth (Dorsey & Whitney LLP) for U.S. Bank, N.A. Joshua M. Grenard (Mayer Brown) for JPMorgan Chase Bank, N.A.

Companies: Veraja-Snelling Co.; U.S. Bank, N.A.; JPMorgan Chase Bank, N.A.; Peregrine Financial Group, Inc.

MainStory: TopStory CommodityFutures FraudManipulation IllinoisNews

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