Peregrine Financial may have "viable" claims versus banks: trustee

SAN FRANCISCO Fri May 10, 2013 2:36pm EDT

SAN FRANCISCO (Reuters) - Peregrine Financial Group's bankruptcy estate may have "viable" claims against JPMorgan Chase & Co and U.S. Bancorp for harm done to clients of the now-failed brokerage, and may pursue them in court, Peregrine's trustee said in a filing this week.

The trustee, Ira Bodenstein, wants the federal bankruptcy court in Chicago to put on hold a lawsuit by the firm's former clients against the father-son duo that formerly ran the brokerage and the banks that handled their business. In the filing, Bodenstein said the lawsuit could interfere with his efforts to return money to creditors and former Peregrine Financial customers.

The firm, once one of the largest U.S. independent futures brokerages, filed for bankruptcy last July after its founder and CEO Russell Wasendorf Sr. confessed to bilking his clients of more than $100 million in a nearly 20-year-long fraud.

Wasendorf Sr. is now serving what is expected to be a lifelong sentence in a high-security prison.

His son, Russell Wasendorf Sr., says he had nothing to do with the scam and is on the verge of bankruptcy himself. <ID:L2N0DN1U4>

But the banks that held money for the brokerage and its customers are seen as having deeper pockets, and for months the trustee has had them in his sights.

JPMorgan has $18.2 million and U.S. Bank hold $6 million of Peregrine Financial's funds, according to the trustee's statement of cash dated April 15. The banks say that at least some of that money is theirs.

A JPMorgan spokeswoman and a U.S. Bancorp spokesman declined to comment on the allegations in the lawsuit.

"Although the Trustee's investigation remains ongoing, the facts reviewed to date suggest that the Estate possesses a number of viable claims against the Wasendorf Defendants as well as the Bank Defendants," the trustee said in Wednesday's filing.

The allegations in the lawsuit by clients "provide ample basis to conclude that the Wasendorf Defendants and the Bank Defendants breached a variety of duties owed to PFG and caused harm to all of PFG's creditors," the filing continued.

If that lawsuit is not stayed, the trustee argued, the banks could use it as a defense against the trustee's claims.

Wasendorf Sr. stole over $215 million from clients over the years, using faked bank statements to fool regulators, U.S. prosecutors said. Most customers have gotten less than a third of their money back.

(Reporting by Ann Saphir; editing by Andrew Hay)

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Comments (1)
Dragos111 wrote:
Ira and Price Waterhouse would appear to be working for the interests of the customers. If you look at how they have stretched this thing out though, they really are not. Together the bills they have put in for court approval exceed the value of the assets they have been selling. (That does not include the building and customer accounts held by banks, the easy to measure assets, just all the other assets they have worked for 9 months on to sell.)

The customers would have been better off if, on July 10th, the day of the bankruptcy, they had simply taken all the desks, all the computers, all the software, etc. and tossed it out on the front sidewalk for scavengers to pick up. Instead they have sucked up many millions in customer funds, padding their paychecks all along the way.

This whole thing should have been concluded before the end of the year.

May 10, 2013 8:30pm EDT  --  Report as abuse
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