The Commodity Futures Trading Commission (CFTC) Tuesday filed a complaint in a federal court in Illinois against broker Peregrine Financial Group Inc. (PFG) and its CEO and owner, Russell Wasendorf Sr., alleging that they committed fraud by misappropriating customer funds, violated customer fund segregation laws and lied in financial statements filed with the agency.
The complaint, which was filed in the U.S. District Court for the Northern District for Illinois, alleges that a shortfall of customer funds in segregated accounts exceeds $200 million, and it adds that the “whereabouts of the funds is currently unknown.” The CFTC has asked the court to freeze assets and to appoint a receiver to take over the firm, which trades a full range of products, including energy commodities.
The complaint was filed one day after Wasendorf attempted suicide outside of the company’s office in Cedar Falls, IA. The company provided no details on his condition.
The National Futures Association (NFA) is PFG’s designated self-regulatory organization and is responsible for monitoring and auditing the company for compliance with the minimum financial and related reporting requirements. According to the CFTC complaint, in the NFA audit this month, PFG falsely represented that it held more than $220 million of customer funds when in fact it held approximately $5.1 million.
The CFTC alleges that PFG and Wasendorf failed to maintain adequate customer funds in segregated accounts from at least February 2010 through the present, as required by the Commodity Exchange Act (CEA) and agency regulations. It further contends that defendants made false statements in filings with the Commission regarding customer funds.
The CFTC asked the court to enjoin PFG and Wasendorf from carrying out their alleged illegal activities. “Unless immediately restrained and enjoined by this court, additional PFG customer funds may be misappropriated or dissipated, and defendants PFG and Wasendorf are likely to continue to engage in the acts and practices alleged in the complaint.”
The agency specifically urged the court to issue a restraining order barring defendants from “destroying, altering or disposing of, or refusing to permit authorized representatives of the Commission to inspect, when and requested, any book and records or other documents, and prohibiting any person from withdrawing, transferring, removing, dissipating, or disposing of any funds, assets or other property.”
The Commission further called on the court to enter an order assessing a civil penalty against defendants and any successors in the amount of $140,000 for each violation of the CEA Act or regulation committed after Oct. 23, 2008, or triple the monetary gain to each defendant for each violations, whichever is higher.
This case is eerily similar to the $600 million in missing customer funds from MF Global Inc., which ultimately led to the company’s demise (see Daily GPI, Nov. 14, 2011). That case also involved misuse of customer funds.
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