Peregrine Financial Group's bankruptcy estate may have "viable" claims against JPMorgan Chase & Co and U.S. Bancorp for harm done to clients of the now-failed brokerage, and may pursue them in court, Peregrine's trustee said in a filing this week.
The trustee, Ira Bodenstein, wants the federal bankruptcy court in Chicago to put on hold a lawsuit by the firm's former clients against the father-son duo that formerly ran the brokerage and the banks that handled their business. In the filing, Bodenstein said the lawsuit could interfere with his efforts to return money to creditors and former Peregrine Financial customers.
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The firm, once one of the largest U.S. independent futures brokerages, filed for bankruptcy last July after its founder and CEO Russell Wasendorf Sr. confessed to bilking his clients of more than $100 million in a nearly 20-year-long fraud.
Wasendorf Sr. is now serving what is expected to be a lifelong sentence in a high-security prison.
His son, Russell Wasendorf Sr., says he had nothing to do with the scam and is on the verge of bankruptcy himself.
But the banks that held money for the brokerage and its customers are seen as having deeper pockets, and for months the trustee has had them in his sights.
JPMorgan has $18.2 million and U.S. Bank hold $6 million of Peregrine Financial's funds, according to the trustee's statement of cash dated April 15. The banks say that at least some of that money is theirs.
A JPMorgan spokeswoman and a U.S. Bancorp spokesman declined to comment on the allegations in the lawsuit.
"Although the Trustee's investigation remains ongoing, the facts reviewed to date suggest that the Estate possesses a number of viable claims against the Wasendorf Defendants as well as the Bank Defendants," the trustee said in Wednesday's filing.
The allegations in the lawsuit by clients "provide ample basis to conclude that the Wasendorf Defendants and the Bank Defendants breached a variety of duties owed to PFG and caused harm to all of PFG's creditors," the filing continued.
If that lawsuit is not stayed, the trustee argued, the banks could use it as a defense against the trustee's claims.
Wasendorf Sr. stole over $215 million from clients over the years, using faked bank statements to fool regulators, U.S. prosecutors said. Most customers have gotten less than a third of their money back.
(Reporting by Ann Saphir; editing by Andrew Hay)