Showing posts with label SEGREGATED FUNDS. Show all posts
Showing posts with label SEGREGATED FUNDS. Show all posts

Friday, February 6, 2015

$18 MILLION TO BE RETURNED TO CUSTOMERS OF PEREGRINE FINANCIAL GROUP, INC.

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION
Federal Court Orders U.S. Bank National Association to Pay $18 Million to Peregrine Customers

U.S. Bank held the Peregrine Financial Group, Inc. customer segregated funds account that Russell Wasendorf, Sr. used to misappropriate customer funds

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that on February 4, 2015, Chief Judge Linda R. Reade of the U.S. District Court for the Northern District of Iowa entered a Consent Order imposing a permanent injunction against U.S. Bank National Association (U.S. Bank) and ordering the bank to pay $18 million dollars to be returned to Peregrine Financial Group, Inc. (Peregrine) customers.

At the time of its failure in July 2012, Peregrine was the nation’s second largest non-bank, non-clearing Futures Commission Merchant (FCM).  U.S. Bank maintains branch offices in Cedar Falls, Iowa, where Peregrine and its owner, Russell Wasendorf, Sr. (Wasendorf), were located.  U.S. Bank was a depository for Peregrine and held a customer segregated funds account that Wasendorf used to defraud more than 24,000 Peregrine clients and misappropriate over $215 million of customers’ money.  On July 10, 2012, the CFTC instituted a civil action against Wasendorf and Peregrine, CFTC v. Peregrine Financial Group, Inc. and Russell Wasendorf, Sr., 12-cv-05383 (N.D.IL July 10, 2012) (see CFTC Press Release and CFTC Complaint 6300-12).  Wasendorf was also criminally charged, pled guilty, and on January 23, 2013 was sentenced to 50 years in prison and ordered to pay more than $215 million in restitution.  U.S. v. Russell Wasendorf, Sr., 12-cr-2021(N.D.IA).

During the relevant period of the CFTC’s action, June 2008 through July 2012, Wasendorf withdrew and transferred approximately $36 million from the US Bank customer segregated funds account to persons and entities that were not Peregrine customers and U.S. Bank regularly withdrew its account fees from the customer segregated funds account for both Peregrine and non-Peregrine accounts held at the bank.

The Order enjoins U.S. Bank from committing future violations of the Commodity Exchange Act (CEA) and the CFTC’s Regulations that prohibit any depository institution, like U.S. Bank, from holding, disposing of, or using funds that belong to customers of an FCM as though they belong to anyone other than the customers, and also prohibit the extension of credit based on such funds to anyone other than the customers.

The Order also requires U.S. Bank to pay $18 million to the court-appointed Trustee for Peregrine in In re Peregrine Financial Group, Inc., BK Case No. 12-27488 (N.D.IL) that will be returned to Peregrine customers that held domestic futures accounts.

CFTC Director of Enforcement Aitan Goelman stated: “Russell Wasendorf stole enormous sums of money that Peregrine’s customers entrusted to him.  He is responsible for his crimes.  However, that fact does not excuse U.S. Bank’s failure to meet its own responsibilities to safeguard Peregrine’s customer funds that it held.  As this litigation and its resolution demonstrate, the CFTC will be relentless in pursuing recovery on behalf of innocent investors.”

The court’s Order arises from a Complaint filed by the CFTC on June 5, 2013 charging U.S. Bank with improperly holding and using a Peregrine customer segregated funds account by treating the account like a regular business checking account, thereby allowing Wasendorf to withdraw customer money for non-customer purposes from June 2008 through July 2012 (see CFTC Press Release and Complaint 6601-13, June 5, 2013).

In the Order, the parties adopt the undisputed facts from the court’s November 19, 2014 Summary Judgment Order (see Order under Related Links). There the court found that on August 3, 1992, Peregrine opened an account at a predecessor to U.S. Bank and designated the account a “Peregrine Financial Group, Inc. Customer Segregated Account.”  U.S. Bank provided two letters to Peregrine acknowledging the account contained customer money, would be properly segregated, and maintained in accordance with the CEA.  However, during the relevant period alleged in the CFTC Complaint, no U.S. Bank employee that had responsibility for the customer segregated funds account understood that the account was a customer segregated funds account or understood the meaning of that account designation.  At that time, U.S. Bank had no policies, procedures or training specifically applicable to FCM customers or customer segregated funds.  During the relevant period, Wasendorf withdrew approximately $36 million to persons and entities that were not Peregrine customers and U.S. Bank regularly withdrew its account fees from the customer segregated funds account for both Peregrine and non-Peregrine accounts held at the bank.

After the CFTC initiated its investigation in July 2012, U.S. Bank implemented new policies and procedures specifically applicable to FCM customer segregated funds accounts.

CFTC Division of Enforcement staff members responsible for this action are Robert Howell, Susan Gradman, Joy McCormack, Stephanie Reinhart, Ashley Burden, Jennifer Diamond, Jon Kramer, Elizabeth Pendleton, Scott Williamson, and Rosemary Hollinger.

Sunday, December 28, 2014

MF GLOBAL HOLDINGS LTD. ORDERED TO PAY $1.212 BILLION TO COVER CUSTOMER CLAIMS RESULTING FROM IMPROPER USE OF FUNDS

FROM:  U.S. JUSTICE DEPARTMENT 
December 24, 2014
Federal Court in New York Orders MF Global Holdings Ltd. to Pay $1.212 Billion in Restitution for Unlawful Use of Customer Funds and Imposes a $100 Million Penalty

Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) has obtained a federal court consent Order against Defendant MF Global Holdings Ltd. (MFGH) requiring it to pay $1.212 billion in restitution or such amount as necessary to ensure that claims of customers of its subsidiary, MF Global Inc. (MFGI), are paid in full. The CFTC previously filed and settled charges against MFGI for misuse of customer funds and related supervisory failures in violation of the Commodity Exchange Act and CFTC Regulations (see CFTC Press Release 6776-13). MFGI was required to pay $1.212 billion in restitution to its customers, as well as a $100 million penalty. MFGH’s restitution obligation is joint and several with MFGI’s restitution obligation, pursuant to which a substantial portion of the restitution obligation has already been paid (see CFTC Press Prelease 6904-14). The consent Order, entered on December 23, 2014, by Judge Victor Marrero of the U.S. District Court for the Southern District of New York, also imposes a $100 million civil monetary penalty on MFGH, to be paid after claims of customers and certain other creditors entitled to priority under bankruptcy law have been fully paid.

The consent Order arises out of the CFTC’s amended Complaint, filed on December 6, 2013, charging MFGH and the other Defendants with unlawful use of customer funds. In the consent Order, MFGH admits to the allegations pertaining to its liability based on the acts and omissions of its agents as set forth in the consent Order and the amended Complaint.

The CFTC’s amended Complaint charged that MFGH controlled MFGI’s operations and was responsible for MFGI’s unlawful use of customer segregated funds during the last week of October 2011. In addition to the misuse of customer funds, the amended Complaint alleged that MFGH is responsible for MFGI’s (i) failure to notify the CFTC immediately when it knew or should have known of the deficiencies in its customer accounts, (ii) filing of false statements in reports with the CFTC that failed to show the deficits in the customer accounts, and (iii) use of customer funds for impermissible investments in securities that were not considered readily marketable or highly liquid, in violation of CFTC regulations.

The CFTC’s litigation continues against the remaining Defendants, Jon S. Corzine and Edith O’Brien.

The CFTC appreciates the assistance of the U.S. Attorneys’ Offices for the Southern District of New York and the Northern District of Illinois, the Federal Bureau of Investigation, the Securities and Exchange Commission, and the Financial Conduct Authority in the United Kingdom.

The consent Order recognizes the cooperation of MFGH and requires MFGH’s continued cooperation with the CFTC.

Staff from the CFTC’s Division of Swap Dealer and Intermediary Oversight, Division of Clearing and Risk, and Office of Data and Technology assisted in this matter. CFTC Division of Enforcement staff members responsible for this matter are David W. Oakland, Chad Silverman, K. Brent Tomer, Douglas K. Yatter, Steven Ringer, Lenel Hickson, and Manal Sultan.

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