Another CFTC Suit Centered On Missing Client Segregated Funds

Another CFTC Suit Centered On Missing Client Segregated Funds

The MF Global debacle is still unwinding. The question of using customer money which is supposed to be segregated for their protection remains a key issue. With no resolution near, the CFTC has another matter regarding a futures commission merchant and segregated funds.

This action involves Peregrine Financial Group, Inc., a Chicago futures merchant, and its owner Russell R. Wasendorf. The National Futures Association, the designated self-regulatory organization for monitoring and auditing the firm's compliance, was conducting an audit this month, according to the CFTC's complaint. Peregrine claimed during the audit to have over $220 million in customer funds. In fact the NFA was only able to find about $5.1 million.

Examination of the records disclosed that on February 28, 2010 firm records showed it had $207 million in the xxx1845 customer segregated account. On March 30, 2011 the firm records listed a balance of $218 million in the same account. On July 9, 2012 the firm records showed a balance of $225 million in the account. Subsequently, the regulator learned that the chairman of the firm may have falsified bank records.

The CFTC's complaint claims that from at least February 2010 the firm failed to maintain adequate customer funds in segregated accounts, as required by the Commodity Exchange Act and the applicable regulations. It also alleges that the firm and its chairman, both of whom are defendants in the action, made false statements about the segregated funds. Mr. Wasendorf is reported to have attempted suicide earlier this week.

The complaint seeks a freeze order, the appointment of a receiver and monetary relief including fines and restitution. The action is pending. CFTC v. Peregrine Financial Group, Inc., Case No. 12-cv-5383 (N.D. Ill. Filed July 10, 2012).

For more cutting edge commentary on developing securities issues, visit SEC Actions, a blog by Thomas Gorman.

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