Peregrine Financial Group's bankruptcy trustee plans to return $123 million to former customers of the futures brokerage, the first they would see of their funds since Peregrine's mid-July collapse but far short of a figure that would make them whole.
About 17,000 futures customers are eligible for the distribution, with customers of U.S. exchanges getting 30 percent of their funds, and traders on non-U.S. exchanges getting 40 percent, according to a court filing late Wednesday.
The claims of the broker's other 7,000 customers, who traded currency and metals, "will be addressed separately," the filing said.
The payout is far less, and far later, than was the case with MF Global, where most customers had received 72 percent of their funds within weeks of the firm's October 31 collapse. They are expected eventually to get back nearly all of their money.
Clients of Peregrine Financial are not.
While regulators say customer funds at MF Global were wrongly taken from customer accounts over just a few frantic days before the firm's collapse, Peregrine CEO Russell Wasendorf Sr. allegedly siphoned customer money for years, and in a confession said he already spent most of it.
Peregrine Financial's trustee, Ira Bodenstein, has confirmed the existence of only about $181 million in customer funds, the filing shows. That's less than half of the $400 million the company recorded having on its books, according to the trustee.
"My feeling is I'll wind up with about half of my money," said former Peregrine customer Chris Johnston, who had between $500,000 and $1 million with the firm. "I think we're all hoping that they might be able to find more assets."
Peregrine Financial filed for bankruptcy protection on July 10, a day after Wasendorf attempted suicide and confessed to a long-running fraud. He was arrested on July 13 and indicted last month on charges of lying to regulators and stealing from customers over a period of at least three years.
Wasendorf said in a suicide note that he had been bilking customers for nearly the entire 20 years of the brokerage's existence, and had spent most of it on keeping the firm afloat and building a state-of-the-art headquarters in Cedar Falls, Iowa, that now stands empty.
'WASTE OF TIME'
About 12,600 of the broker's smallest customers could receive funds by September 28. Futures customers with accounts of more than $50,000 will need to wait until as late as October 15 before the trustee validates their balances and begins releasing funds, according to the filing.
James Koutoulas, lead attorney for customer advocacy group the Commodity Customer Coalition, said he was happy with the amount to be distributed but faulted the trustee for lack of clarity on exactly how the distribution will be made.
"The distribution ‘plan' has yet to make the simple determination of whether to issue the distribution via check, wire transfer, or bulk transfer to another futures commission merchant," Koutoulas said, using industry language for futures brokerage.
The filing asks that futures brokerages be permitted to take over the customer accounts through a bid process run by the trustee.
That process drew immediate criticism from one of Peregrine Financial's biggest former clients, Attain Capital, which called it a "waste of time."
"We can't think of any FCM (futures commission merchant) that would want to make a bid," said Attain Capital's spokeswoman, Lauren Nelson, who added that her view is shared by several of Peregrine Financial's other bid clients.
Getting brokerages involved would needlessly slow things down, Nelson said.
"All of us have already identified the firms we will be doing business with moving forward, which means those FCMs who bid will be paying for business that will be transferred out immediately," she said.
Bodenstein said in the filing he believes there are a "limited number" of brokers that would be interested in taking on Peregrine Financial's former customers.
The trustee continues to seek the return of the firm's money, and in a filing earlier this week said he was considering lawsuits to help him do that.
Separately, a receiver for Wasendorf is putting the CEO's Iowa and Chicago homes on the block, as well as the firm's headquarters, to raise money to return to creditors and customers.
He has not said how much he expects to be able to raise.
(With reporting by Tanya Agrawal in Bangalore and P.J. Huffstutter in Chicago; Editing by Gerald E. McCormick, John Wallace, Dan Grebler, Gary Hill)