July 13, 2012 / 12:18 PM / 8 years ago

Bankrupt broker Peregrine has two months to wind down

CHICAGO (Reuters) - Bankrupt brokerage Peregrine Financial Group Inc, which collapsed this week after its founder was accused of fraud, can retain 56 employees for two months in order to wind down its operations, a bankruptcy court ordered on Friday.

Judge Carol Doyle granted a motion to keep the company going and pay the employees until September 13. Neither Russell Wasendorf Sr, the owner and founder whose attempted suicide on Monday set off the dramatic collapse of the company, nor his son Russell Jr, the company’s president, was among the employees.

“The Trustee believes that the continued operation of the debtor’s business is both necessary to maintain the value of the assets and to allow him to maximize the recovery from the liquidation,” trustee Ira Bodenstein said in the filing.

Bodenstein can ask the judge to extend the company’s operations after two months.

Wasendorf Sr was reportedly in a coma earlier this week after attempting to take his own life, setting off a chain of events including the freezing of his business, the alleged discovery of an over $200 million shortfall in the broker’s client funds and a Federal Bureau of Investigation enquiry.

His current status is unclear. Two employees said they were told earlier this week that he was conscious, but Randall Lending - who is lawyer for the receiver for Wasendorf Sr - said on Friday he was “told” Wasendorf was still incapacitated. He did not say who had told him. The Iowa City hospital has declined to comment on his condition this week.

Separately, Michael Eidelman, who was originally appointed to be the receiver for both Peregrine and Wasendorf, said late on Thursday that Russell Jr had relinquished power of attorney, which his father had signed over only last week.

The trustee does not intend to solicit new customers or market Peregrine services to the public, according to the filing.

On July 10, Peregrine Financial Group filed to liquidate under Chapter 7 of the U.S. bankruptcy code, with between $500 million and $1 billion of assets, between $100 million and $500 million of liabilities, and between 10,000 and 25,000 creditors.

The Commodity Futures Trading Commission (CFTC) earlier alleged that Peregrine Financial Group and its owner defrauded customers and lied to regulators to hide a shortfall that now exceeds $200 million.

The case is: Peregrine Financial Group Inc, Case No. 12-27488 U.S. Bankruptcy Court, Northern District Of Illinois (Eastern Division)

Reporting by Sakthi Prasad; editing by Jeffrey Benkoe and Andre Grenon

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