U.S. Bank NA, which held customer money for Peregrine Financial Group Inc., knew or should have known the collapsed commodities brokerage had insufficient funds on deposit, a firm client claimed in a new lawsuit.
Peregrine filed for Chapter 7 liquidation last month, hours after the Commodity Futures Trading Commission sued the Cedar Falls, Iowa-based company and founder Russell Wasendorf Sr. for allegedly misappropriating more than $200 million in customer funds.
"Even if U.S. Bank had no direct knowledge of Wasendorf Sr.'s fraud until it became public, U.S. Bank was grossly negligent in failing to detect the fraud," Marcus Ibrahim said in his complaint filed today in federal court in Chicago.
Before trying to commit suicide on July 9, Wasendorf wrote a confession in which he admitted altering U.S. Bank statements to conceal his wrongdoing, according to an affidavit filed upon his arrest four days later.
The National Futures Association, an industry self- regulator, froze Peregrine's accounts on July 9 and announced it had only $5 million on deposit at U.S. Bank and not the $225 million the firm claimed to have there days earlier.
Ibrahim's complaint is at least the fourth to be filed by Peregrine clients since the firm's collapse. It is the first to name the U.S. Bancorp (USB) unit as a defendant. Each of the complaints seeks class action, or group status, on behalf of all Peregrine customers who lost money as a result of the alleged fraud.
Wasendorf, who is charged with lying to federal regulators and is in federal custody, is a defendant in this and in each of the previous complaints, as has his son, firm President Russell Wasendorf Jr., firm Vice Chairman Neil Aslin and other company executives.
"We believe the case is without merit," Tom Joyce, a spokesman for Minneapolis-based U.S., said in a phone interview. Having reviewed the historic account activity, "the company does not believe there is any evidence of employee involvement in the fraudulent activity," he said.
The bank said in a quarterly report filed today for the period ended June 30 that it was cooperating with a court- appointed receiver in the CFTC case, with the Chapter 7 bankruptcy trustee and with the federal government's investigation into the actions of the firm and its chairman- founder.
Lawyers for plaintiffs in two of the other three client cases tentatively agreed to their consolidation before U.S. District Judge Sharon Johnson Coleman in Chicago. Peregrine maintained offices in that city.
Robert Foote, an attorney for the plaintiff in the remaining case, Beau Wolinsky of Danville, Kentucky, didn't respond to a voice-mail message seeking comment today on whether he agreed to a consolidation.
The new case is Ibrahim v. Wasendorf Sr., 12-cv-06137, District Court, Northern District of Illinois (Chicago).
The bankruptcy case is Peregrine Financial Group Inc., 12-27488, U.S. Bankruptcy Court, Northern District of Illinois (Chicago). The regulatory case is Commodity Futures Trading Commission v. Peregrine Financial Group Inc., 12-cv-05383, U.S. District Court, Northern District of Illinois (Chicago). The criminal case is U.S. v. Wasendorf, 12-mj-131, U.S. District Court, Northern District of Iowa (Cedar Rapids).