Lack of oversight of a US bank has been the main reason for the founder of one of the biggest brokerage services in the US to run away with $125 million from customers. A judge ruled Wednesday it has to pay $18 million, to avoid facing a lawsuit.
The money will be paid to clients whose accounts were used to engage in the country’s commodities futures trading through the recently demised Peregrine Financial Group, Inc. The settlement was approved by U.S. District Judge Linda Reade.
The settlement ended a civil action filed by the U.S. Commodity Futures Trading Commission which accused the U.S. Bank of inappropriately giving Peregrine founder Russell Wasendorf Sr several opportunities in misappropriating customer money.
The former founder and CEO of the Iowa-based brokerage company, was convicted of defrauding the company $215 million is now in prison serving a 50 year incarceration. He was stealing from the company for more than twenty years while working as its top official. The chicanery was carried out time and again by making fake bank records to trick bank regulators into believing that Peregrine’s customer account had more money when in fact didn’t.
The commission was seeking a $36 million settlement money, however the $16 million is s step in the right direction for Peregrine’s thousands of customers. The company is also known as PFGBest. Customers will only get a reimbursement of up to 44 percent of their investments at the time of the company’s insolvency. There’s a chance for it to increase over 50 percent said John Roe, co-founder of the Commodity Customer Coalition, a nonprofit advocating on their behalf.
“While you don’t get everything you want in litigation, the fact that we were able to get a substantial recovery for customers in a shorter time window is commendable,” he said. “It makes the best of a very bad situation.”
He said most of Wasendorf’s assets have been freed, and the lawsuit represented “the last great pot of money available for PFG customers to go after.” The case also revealed a surprising lack of internal controls at U.S. Bank, he said.