U.S. District Judge Sara L. Ellis, an Illinois federal judge, has given preliminary approval to a $44.5 million settlement to resolve a class action accusing U.S. Bank NA of facilitating the $215 million theft of customer funds at now-bankrupt futures merchant Peregrine Financial Group Inc. U.S. District Judge Ellis gave preliminary approval to the settlement and also approved certification of the class for purposes of the settlement.
The settlement resolves claims brought by futures account holders and customers of Peregrine. U.S. Bank was charged with a breach of fiduciary duty and fraud by omission surrounding the activities of former depositor Peregrine and its now-imprisoned CEO Russell Wasendorf. A fairness hearing is set for Oct. 13.
Peregrine’s public problems began in July 2012, when the National Futures Association took action against the company, and Wasendorf was found unconscious in a car outside the company’s offices in Cedar Falls, Iowa, in what was reported as an apparent suicide attempt. According to Wasendorf’s statement, he was the only person in the company with access to Peregrine’s U.S. Bank accounts and that he consistently gave the accounting department counterfeit statements he often made within hours of receiving the original versions.
Peregrine filed for Chapter 7 bankruptcy, just hours after the U.S. Commodity Futures Trading Commission sued it for fraud. Criminal charges against Wasendorf followed, and in September 2013 he pled guilty to embezzling at least $100 million in investor funds and overstating the amount of customer funds by at least $210 million.
The futures-account class action claimed that it was “commercially unjustifiable” not to investigate Wasendorf’s use of a segregated account to determine whether Wasendorf was improperly moving customer money around, citing numerous suspicious circumstances surrounding the maintenance of the account. The suit had also targeted JPMorgan Chase Bank NA, which reached a $15 million settlement in March 2014 with Peregrine’s bankruptcy trustee. U.S. Bank objected to the settlement, but said if the current settlement is approved, it would drop its appeal. In April, U.S. Bank settled a similar class action brought by Fintec Group Inc. on behalf of commodities brokers who did business with Peregrine.
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