U.S. Bank is being examined by investigators in relation to its role in overseeing client funds allegedly misappropriated by Peregrine Financial Group, according to a person familiar with the matter.
Meanwhile, the failed brokerage filed to liquidate in bankruptcy after the U.S. Commodity Futures Trading Commission sued it, effectively shutting it down, alleging a $200 million “shortfall” in client funds.
Peregrine listed assets of more than $500 million and debt exceeding $100 million in a Chapter 7 petition filed Tuesday, July 10, in U.S. Bankruptcy Court in Chicago.
Peregrine, which was tied to the busted Trevor Cook Ponzi scheme in Minneapolis, maintained an account holding client funds at a U.S. Bank branch near its headquarters in Cedar Falls, Iowa, according to court filings, and authorities are examining whether PFG Chief Executive Russell Wasendorf Sr. supplied fake bank documents to auditors to mask illicit use of his clients’ money, according to several people close to the investigation.
“Given we provided banking services to Peregrine Financial, we are cooperating fully with authorities,” said a spokesman for U.S. Bancorp, U.S. Bank’s Minneapolis-based parent.
Wasendorf, who attempted suicide Monday morning, is at the center of a probe into the futures and currency brokerage, which filed for bankruptcy Tuesday after regulators uncovered what they called “missing” funds and alleged fraud. He was later admitted to a University of Iowa hospital in critical condition.
His condition was not known Wednesday morning. A spokeswoman for Peregrine did not respond to requests for comment.
Regulators now are looking into the potential role of a U.S. Bank employee whose name and signature may have been used by Wasendorf in his alleged fraud, according to one person close to the probe. Investigators aim to determine whether this person was complicit in the alleged scheme, the person said.
The bank has yet to be formally contacted by law enforcement officials about the employee in question, the person said.
Local law enforcement officials said they had turned over material relating to the case to the FBI. Wasendorf also maintains several other accounts at U.S. Bank, including a personal account and an account for his restaurant, the person said.
The National Futures Association, an industry self-regulator, said Monday that Peregrine reported it had about $400 million in customer-segregated funds on or about June 29, of which $225 million was on deposit at U.S. Bank.
The regulator said it learned that Peregrine’s chairman “may have falsified bank records” after finding only $5 million on deposit. The brokerage offered futures, cash, foreign exchange and options on futures trading.
Peregrine also played a key role in the Cook Ponzi scheme, which operated out of Minneapolis and Burnsville until it collapsed in 2009. On Feb. 1 of this year, the court-appointed receiver in the Cook case, R.J. Zayed, filed a federal civil suit against Peregrine, accusing the firm of fraudulent transfers to numerous accounts controlled by Cook.
Trevor Cook pleaded guilty in 2010 to multiple fraud counts and is in prison.
This report includes information from the Pioneer Press and Bloomberg News.
