URGENT >> BULLETIN >> MOVING: CFTC Sues U.S. Bank, Saying It Permitted Now-Jailed Scammer Russell R. Wasendorf Sr. To Borrow Against Customer Funds To Finance Iowa Headquarters Building Of Epic Fraud Scheme
Russell R. Wasendorf Sr., before his two-decade old fraud scheme collapsed in 2012 and affected 24,000 investors.
URGENT >> BULLETIN >> MOVING: (UPDATED 2:54 P.M. EDT U.S.A.) The CFTC has gone to federal court in the Northern District of Iowa, accusing U.S. Bank National Association of permitting now-jailed scammer Russell R. Wasendorf Sr. of Peregrine Financial Group to use Peregrine customer funds as security “on loans it made to Wasendorf, his wife, and his construction company, Wasendorf Construction, L.L.C., to build an office complex for Peregrine in Cedar Falls, Iowa.”
Not only that, the CFTC charged, U.S. Bank also permitted Wasensorf to treat investor funds held by the bank as if they were held in “Peregrine’s commercial checking account and knowingly allowed and facilitated Wasendorf’s transfers of customer funds out of this account to pay for Wasendorf’s private airplane, his restaurant and his divorce settlement.”
U.S. Bank is the fifth-largest bank in the United States. It is based in Minneapolis.
Forbes is reporting this afternoon that U.S. Bank denies the charges and is blaming the CFTC for not detecting Wasendorf’s fraud.
Wasendorf is serving a 50-year prison sentence for his long-running fraud scheme that led to Peregrine’s spectacular collapse last summer.
Federal law and CFTC regulations “prohibit depository institutions, like U.S. Bank, from using or holding funds that belong to customers of a Futures Commission Merchant (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 agency said.
Customer funds must be held in segregated accounts, the CFTC said, alleging that “U.S. Bank knew that these transfers were not for the benefit of Peregrine’s customers.”
Through the bank in 2010, the CFTC alleged, Wasendorf used an account at the bank holding customer funds to pay more than $2.46 million as part of a divorce settlement to his ex-wife.
All told, the CFTC said, between June 2008 and June 2012, more than $118 million floated through a U.S. Bank account under Wasendorf’s control, with about 94 percent of that sum consisting of customer funds.
“[M]ore than 30% of those funds were used by Wasendorf for personal expenditures and his other companies,” the CFTC alleged.
At least $5 million went to a Wasendorf restaurant known as My Verona. More than $13.5 million went to an entity known as Wasendorf & Associates and more than $2.5 million went to a Wasendorf “personal investment in Romania,” the CFTC said.
Meanwhile, between June 2008 and June 2012, he transferred more than $1.1 million from an account holding customer funds to Wasendorf Air LLC, “the holding company for Wasendorf’s private airplane,” the CFTC charged.
“The Commodity Exchange Act and Commission rules protecting customer funds impose obligations on banks that hold those funds,” said David Meister, the CFTC’s director of enforcement. “As should be apparent from today’s action, we will seek to hold a bank to account if it falls short on complying with customer fund protection obligations. Wasendorf stole vast sums of customer money, but his crimes do not excuse U.S. Bank from its own independent responsibilities.”
Wasendorf, the CFTC said, “defrauded more than 24,000 Peregrine clients and misappropriated more than $215 million over two decades using a customer segregated account at U.S. Bank.”
