U.S. regulators on Thursday asked a federal court not to dismiss their lawsuit against a bank tied to the blow-up of brokerage Peregrine Financial, saying the bank helped bring about millions of dollars of losses for Peregrine customers.
At issue is a lawsuit filed by the U.S. Commodities Futures Trading Commission in June against U.S. Bank N.A., a unit of U.S. Bancorp, based in Minneapolis. The lawsuit accused the bank of letting Peregrine founder Russell Wasendorf Sr secure loans against money that belonged to his brokerage's customers.
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The lawsuit was the first against a bank tied to the collapse of Peregrine, which filed for bankruptcy protection in July 2012 after Wasendorf confessed to bilking his clients of more than $100 million in a nearly 20-year-long fraud.
Wasendorf began serving a 50-year sentence in February.
Attorneys for U.S. Bank filed a motion to dismiss the lawsuit earlier this month, saying the CFTC was trying to shift responsibility for a Ponzi scheme to the bank, even though the bank itself was a victim of the scheme.
Attorneys for U.S. Bank could not immediately be reached for comment on Thursday.
In a response to the lawsuit in June, U.S. Bancorp spokesman Tom Joyce denied the allegations and said the lawsuit was "an inappropriate attempt to reassign blame to U.S. Bank."
In its lawsuit, the CFTC said the bank knowingly facilitated the transfer of millions of dollars of customer funds to pay for Wasendorf's private jet, his restaurant and his divorce settlement, among other things.
The lawsuit, filed in the U.S. District Court for the Northern District of Iowa, said the bank had a segregated account for Peregrine's customer funds but treated the account as if it were "a Peregrine commercial checking account."
In a court filing on Thursday, the CFTC said more than $325 million flowed through the segregated customer account between May 2005 and June 2012, and that Wasendorf misappropriated about $215 million of that amount.
U.S. Bank knew the account held customer funds but executed withdrawals on Wasendorf's behalf anyway, the CFTC said.
Restitution is appropriate because the customer losses would not have occurred if the bank had not executed the withdrawals, the CFTC said.
The case is: U.S. Commodity Futures Trading Commission vs U.S. Bank, N.A., U.S. District Court, Northern District of Iowa, No 13-cv-2041.
(Reporting by Dena Aubin; Editing by Joseph Radford)