US Bank ordered to pay $18 million to former Peregrine customers

CEDAR FALLS — A Cedar Falls bank has been ordered to pay $18 million to customers who were defrauded by the former Peregrine Financial Group, a case that sent Peregrine's founder to federal prison.

Chief Judge Linda Reade of the U.S. District Court for the Northern District of Iowa on Wednesday entered a consent order imposing a permanent injunction against U.S. Bank.

The order stems from a complaint filed by the federal Commodities Futures Trading Commission on June 5, 2013, charging US Bank with improperly holding and using a Peregrine customer segregated funds account by treating the account like a regular business checking account.

US Bank held a customer segregated funds account for Peregrine that company founder Russell Wasendorf Sr. used to defraud more than 24,000 Peregrine clients and misappropriate over $215 million of customers' money.

According to the CFTC complaint, Wasendorf withdrew and transferred approximately $36 million between June 2008 and July 2012 from the US Bank customer segregated funds account to people and entities that were not Peregrine customers. U.S. Bank also regularly withdrew its account fees from the customer segregated funds account for both Peregrine and non-Peregrine accounts held at the bank.

US Bank will pay $18 million to the court-appointed trustee for Peregrine that will be returned to the firm's customers that held domestic futures accounts.

On July 10, 2012, the CFTC instituted a civil action against Wasendorf and Peregrine.

Wasendorf also was criminally charged, pleaded guilty, and on Jan. 23, 2013, was sentenced to 50 years in prison and ordered to pay more than $215 million in restitution.

During the period alleged in the CFTC complaint, no U.S. Bank employee that had responsibility for the customer segregated funds account understood that the account was a customer segregated funds account or understood the meaning of that account designation.

At that time, U.S. Bank had no policies, procedures or training specifically applicable to customer segregated funds.

After the CFTC launched its investigation in July 2012, U.S. Bank implemented new policies and procedures specifically applicable to customer segregated funds accounts.