SAN FRANCISCO/NEW YORK (Reuters) - Six weeks after the collapse of Peregrine Financial Group, tensions are rising between customers clamoring for the release of frozen funds and a bankruptcy trustee skeptical of records at a brokerage whose CEO confessed to forging financial data.
Customers say Ira Bodenstein, the trustee in charge of recovering client money, is delaying payouts and keeping the customers in the dark as to why.
Bodenstein told a lawyer for client advocate group the Commodity Customer Coalition he would aim to present a plan for initial payouts by about August 10, according to the coalition's internal communications, obtained by Reuters.
But that date passed without explanation, said coalition leader James Koutoulas. "We haven't gotten any information," Koutoulas said in an interview on Tuesday. "I'm not saying (Bodenstein) is a nefarious guy or anything, but I don't get a sense of urgency."
Bodenstein rejects the criticism, saying the firm's fabricated financials make him doubt the accuracy of the firm's accounting for its 24,000 clients.
"The case is about fraud, and yet we are supposed to just quickly shoot money out the door?" Robert Fishman, a lawyer for Bodenstein, said to Reuters late Tuesday.
"They do not appreciate the magnitude of this problem, and how the trustee had better be sure that he's sending the right money to the right person before he sends it."
Peregrine Financial, which was also known as PFGBest, filed for bankruptcy in Chicago on July 10, a day after CEO Russell Wasendorf Sr. attempted suicide and left a signed note describing how he bilked clients for years by forging bank statements and other documents.
Wasendorf was indicted earlier this month for submitting false financial reports to regulators since at least 2010. The Commodity Futures Trading Commission sued Wasendorf and his firm for misappropriating more than $200 million of client money.
"When we look at a piece of paper this company produces, what is to tell us it is accurate, as opposed to a byproduct of the fraud?" Fishman said. "The worst thing the trustee could do is make a distribution to someone who is not entitled to it."
The trustee is still preparing his motion to get court approval to distribute some of the money, Fishman said.
But as delays drag on, Peregrine's former customers are suffering. Several have already gone out of business.
Two commodity trading advisers, Bouchard Capital and Cervino Capital Management, have closed their doors.
Michael "Mack" Frankfurter, Cervino's former managing director, said he is working now as a consultant. "I feel really, really bad for our clients," he said, adding that about a third of Cervino's book was impacted by Peregrine's troubles.
West Palm Beach, Florida-based Aboco Futures, with customer accounts ranging from $500 to more than $1 million, has stopped operating. "I have farmers that are not trading, and are not hedging," said Aboco's managing member, Mark Sackoor. "We need some kind of resolution."
And Fort Collins, Colorado-based coin dealer David Emslie says Peregrine's shut-down left him with no way to hedge against swings in the gold market. "I don't really expect to see much of anything back," Emslie said.
Koutoulas, the leader of the clients' coalition, says trustee Bodenstein ought to release about $100 million, or 25 percent of the funds Peregrine said it had before its collapse.
"That would not only be a reasonable amount, it would also be incredibly helpful," he said. "It lets (customers) at least open a new account or pay the bills."
Internal communications show that the commodity traders' coalition is preparing its own motion to expedite the payout process. But whether and when the motion will be filed with the court remains unclear.
At least one high-ranking coalition member has called for an immediate filing, but others promote holding off and ratcheting up the pressure for Bodenstein to present his own plan, the documents show.
A lawyer for the coalition declined to comment on Tuesday.
Trustee lawyer Fishman said Bodenstein is "rowing as hard as (he) can" to move the process along. Complaining "isn't going to make us row any faster," he said, adding that "We are going to have a motion filed as soon as we are able."
Koutoulas argues that if the trustee in fallen broker MF Global's MFGLQ.PK liquidation in New York was able to return customer funds within hours or days -- albeit by employing dozens of lawyers to work around the clock -- then Bodenstein should be able to do the same in Peregrine.
Fishman said MF Global was completely different because there was no clear long-running fraud.
While regulators are still looking to patch an estimated $1.6 billion shortfall in customer money at MF Global, the company's books and records are seen as more trustworthy.
James Giddens, the trustee in MF Global's liquidation, within hours of his appointment won approval to make initial transfers of customer accounts to other brokers. Within two weeks, Giddens had made a motion to return to customers 60 percent of the value of their accounts.
In Peregrine, Bodenstein must work closely with the CFTC to vet proposals before they are presented to the court, Fishman said. But that doesn't mean the regulator is calling the shots, he said.
"They don't make the trustee's decisions about what to do and what not to do," Fishman said, but added that "it is always in our best interest to get them on board with anything we do."
Reporting by Ann Saphir in San Francisco and Nick Brown in New York; Editing by Gary Hill