The Commodity Futures Trading Commission filed a civil lawsuit Wednesday accusing U.S. Bank of illegally handling customer funds from failed brokerage firm Peregrine Financial Group.
U.S. Bank held funds of the collapsed Peregrine, whose founder and CEO, Russell Wasendorf Sr., was found guilty of stealing $215 million from customers over two decades and sentenced in January to 50 years in prison. The crimes were uncovered after a botched suicide attempt, in which Wasendorf Sr. left a suicide note confessing to the fraud.
U.S. Bank, the lead bank of Minneapolis-based U.S. Bancorp, maintains branch offices in Cedar Falls, Iowa, where Peregrine was located. Wasendorf Sr. used a U.S. Bank account containing investor funds to commit his fraud, the CFTC said.
Between 2008 and July 2012, U.S. Bank unlawfully accepted Peregrine customer funds as security on loans it made to Wasendorf Sr., his wife and his construction company to build an office complex for Peregrine in Cedar Falls, according to the commission.
The CFTC also claims that U.S. Bank improperly held Peregrine's customers' funds in an account that the bank treated as Peregrine's commercial checking account, and knowingly allowed Wasendorf Sr.'s transfers of millions of dollars of customers' funds out of that account to pay for his private jet, a restaurant he owned and his divorce settlement, among other things. Peregrine filed for bankruptcy protection last July.
U.S. Bancorp spokesman Tom Joyce said in a statement that while the bank is sympathetic to the victims of Wasendorf Sr.'s fraud, the CFTC's lawsuit "is without merit and represents an inappropriate attempt to reassign blame to U.S. Bank."
Joyce added that Wasendorf Sr. has admitted he "actively deceived" the bank and emphasized that U.S. Bank at no time had any knowledge of the fraudulent scheme.
The regulator's suit was filed in the U.S. District Court for the Northern District of Iowa. The CFTC is seeking an injunction against U.S. Bank for further violations of the Commodity Exchange Act and federal regulations, along with restitution and civil monetary penalties.
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