Another Futures Commission Merchant Files for Bankruptcy Protection Amid Charges of Failure to Account for Customer Funds

Peregrine Financial Group, Inc. (PFG), a registered futures commission merchant (FCM), is reportedly missing approximately $215 million in customer funds and has been sued by the Commodity Futures Trading Commission (CFTC) in the US District Court for the Northern District for Illinois, Eastern Division. In the complaint filed against PFG and its founder and CEO, Russell R. Wasendorf, Sr., the CFTC seeks, among other things, preliminary and permanent injunctions and asserts claims for fraud by misappropriation, failure to segregate customer funds, and making false statements.

The lawsuit was commenced just a day after the National Futures Association barred PFG from trading, after discovering that PFG’s customer segregated account had a shortfall. It appears that PFG and Wasendorf have filed false reports with the CFTC (representing that it held in excess of $220 million in the customer seg account, when, in fact, the account held approximately only $5.1 million) and misappropriated customer funds. As a result, PFG’s business has been suspended and the company filed for Chapter 7 protection in the U.S. Bankruptcy Court in the Northern District of Illinois, Case No. 12-27488. According to their voluntary petition, PFG has assets of $500 million to $1 billion.

It is also likely that many issues facing PFG in bankruptcy will be similar to those addressed in the MF Global Inc.’s case, including protection of customer funds and accounts and moving margins to a new FCM expeditiously. There will be several key distinctions, however, that will have a serious impact on potential recoveries for customers.

At Arent Fox, we have a group of professionals advising our clients on dealing with the multitude of issues arising out of a bankruptcy by an FCM, including assisting customers with protecting their rights with regard to their property. For additional information, please feel free to contact the authors or any other contact you may have in the Arent Fox’s Bankruptcy and Financial Restructuring Group.

About the Authors

George Angelich is a partner in Arent Fox’s Bankruptcy and Financial Restructuring practice where he focuses on corporate reorganization and bankruptcy matters. George V. Utlik is an associate in Arent Fox’s Bankruptcy and Financial Restructuring practice, where he represents clients in corporate reorganization and liquidation matters and focuses on protection of creditors’ rights. Mr. Angelich and Mr. Utlik are based in New York City and currently represent commodities customers and counter parties in the MF Global insolvency and bankruptcy proceedings.