Commodities broker Fintec Group Inc. and U.S. Bank NA have settled a class action lawsuit that claimed the bank helped cover up a former Peregrine Financial Group (PFG) CEO’s misuse of more than $200 million in customer funds. The suit, brought on behalf of companies that had independent introducing broker agreements with the now-bankrupt Peregrine, alleged that due to Peregrine’s illicit actions, the broker companies were denied commodities and futures commissions they were entitled to and lost security deposits entrusted with Peregrine.
Fintec said U.S. Bank was responsible for aiding and abetting fraudulent conduct by Peregrine by allowing it and CEO Russell Wasendorf to make unauthorized withdrawals from customer accounts at U.S. Bank. Fintec alleged that U.S. Bank violated the Commodity Exchange Act, committed fraud, aided and abetted the theft of the funds and was negligent in the handling of those funds. Fintec alleged further that because of Peregrine’s bankruptcy, it lost out on commissions payable for the month of June and for the days of July 2012 before Peregrine’s bankruptcy. It also said it has not had a $50,000 security deposit returned. Based on relevant financial regulations, Fintec said that U.S. Bank had a duty to safeguard customer funds deposited in the bank, and that it knew or should have known that Peregrine was misusing the funds, based on the withdrawals.
The suit came after two other complaints were filed against U.S. Bank over the alleged misuse of PFG customer funds. One was filed by Peregrine customers not including brokers like Fintec. Then another was filed by the U.S. Commodity Futures Trading Commission. Wasendorf admitted to stealing $100 million from Peregrine and was sentenced in January to 50 years in prison.
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