Peregrine Trustee Looks to Pay $123M to Customers

Industries Reuters

Peregrine Financial Group's bankruptcy trustee is seeking court approval to distribute $123 million to former customers of the futures brokerage, the first they would see of their funds since Peregrine's collapse in mid-July.

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The broker's 17,000 futures customers would be eligible for the distribution, which would return about 30 percent of their funds, according to a court filing late Wednesday. The trustee, Ira Bodenstein, has about $181 million on hand, the filing shows.

That is about $195 million short of what the company told regulators it had in customer funds when it last filed an official report. Federal prosecutors and regulators now say that report was false.

"A great deal of customers will be satisfied that something is coming back, rather than nothing at all," said Chu Galloway, a former Peregrine customer and employee. "There should be a push to make the customers 100 percent whole -- but I don't know where those funds will come from."

Some customers say they have become resigned to recovering only a relatively modest portion of their funds.

"My feeling is I'll wind up with about half of my money," said former Peregrine customer Chris Johnston, who had between $500,000 and $1 million with the firm. "I think we're all hoping that they might be able to find more assets."

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Peregrine filed for bankruptcy protection on July 10, a day after its chief executive, Russell Wasendorf Sr., attempted suicide and confessed to a long-running fraud. He was arrested on July 13 and indicted last month on charges of lying to regulators and stealing from customers over a period of at least three years.

Wasendorf said in a suicide note that he had been bilking customers for nearly the entire 20 years of the brokerage's existence, and had spent most of it on keeping the firm afloat and building a state-of-the-art headquarters in Cedar Falls, Iowa, that now stands empty.

FIRST WAVE

About 12,600 of the broker's smallest customers could receive funds by Sept 28; futures customers with accounts of more than $50,000 will need to wait until as late as October 15 before the trustee validates their balances and begins releasing funds, according to the filing.

The claims of the broker's other 7,000 customers, who traded currency and metals, "will be addressed separately," the filing said.

James Koutoulas, lead attorney for customer advocacy group the Commodity Customer Coalition, said he was happy with the amount to be distributed but said the trustee has taken too long to make the payout and had failed to be clear on exactly how the distribution will be made.

"The distribution 'plan' has yet to make the simple determination of whether to issue the distribution via check, wire transfer, or bulk transfer to another futures commission merchant" Koutoulas said, using industry language for futures brokerage.

The filing asks that futures brokerages be permitted to take over the customer accounts through a bid process run by the trustee.

In the failure of the much larger MF Global last October, CME Group Inc and the trustee managed a transfer of accounts to new futures brokerages within days.

Having another broker take over Peregrine's accounts would speed the process of moving customer funds into customer hands, Koutoulas said. Cutting checks could delay the process, he said.

The trustee said in the filing he believes there are a "limited number" of brokers that would be interested in taking on Peregrine Financial's former customers. He was not immediately available to comment on Thursday.

The trustee continues to seek the return of the firm's money, and in a filing earlier this week said he was considering lawsuits to help him do that.

Separately, a receiver for Wasendorf is putting the CEO's Iowa and Chicago homes on the block, as well as the firm's headquarters, to raise money to return to creditors and customers.