Peregrine customers to get 30-40% of money back
By David Roeder Business Reporterfirstname.lastname@example.org September 12, 2012 2:04PM
Updated: October 15, 2012 9:28AM
The trustee running the collapsed futures brokerage Peregrine Financial Group Inc. can start planning to return $123 million to customers, a federal bankruptcy judge ruled Wednesday.
Judge Carol Doyle approved Trustee Ira Bodenstein’s proposal to distribute the money starting near the end of September. But to meet an objection from a federal regulator, the Commodity Futures Trading Commission, Bodenstein agreed to work with the agency on verifying that the accounts are valid.
Bodenstein will hold back $58 million in the accounts to pay possible claims against the bankrupt firm.
The restitution will amount to 30 percent to 40 percent of what futures trading customers had with Peregrine, which filed for Chapter 7 bankruptcy July 10, a day after regulators shut it down. Regulators acted when founder and chairman, Russell Wasendorf Sr., attempted suicide. He left a note that confessed to fraud, prosecutors said.
Tuesday, prosecutors said he signed a plea agreement admitting to a $200 million fraud carried out over many years. Bodenstein said he has confirmed Peregrine’s holdings for customers total $181.5 million, when it last reported having $400.5 million.
No customer will get 100 percent restitution, Bodenstein said, but he declined to make a more specific estimate Wednesday.
Wasendorf, 64, is in an Iowa jail and faces up to 50 years in prison.
His firm did business as PFGBest and was a prominent operation in the Chicago futures markets, although its was headquartered in Cedar Falls, Iowa. Its shutdown affected thousands of smaller traders and those who deal in futures on behalf of other customers, including some who had money tied up in the 2011 collapse of the MF Global brokerage.
Doyle set a further hearing in the case for 8:30 a.m. Sept. 21, at which Bodenstein and the CFTC are to discuss progress on account verification.
The CFTC said it was worried about returning money too quickly because its initial investigation turned up evidence of $45 million in “fictitious bookkeeping entries.”
Doyle overruled some customers’ objections to the repayment procedure, saying an adequate cash reserve is being left for unsettled disputes. “I think they are being pretty conservative about what they are distributing,” she said.
An attorney for Peregrine customers urged Doyle not to let CFTC concerns bog down the repayment process. “At some point, enough verification is enough,” said attorney Stephen Bobo, representing the Commodity Customer Coalition.
The initial repayments would go to owners of 17,000 futures accounts. Peregrine also had more than 7,000 accounts in foreign exchange and metals trading, and Bodenstein said those will be dealt with later.
He said no fraud has been alleged in foreign exchange and metals, but determining their value is more complicated.