By Jacqueline Palank
U.S. Bancorp's U.S. Bank will pay Peregrine Financial Group
Inc.'s former customers $44.5 million to settle litigation over the
bank's alleged role in the multimillion-dollar fraud that brought
down the brokerage.
The deal, filed last week in U.S. Bankruptcy Court in Chicago,
resolves litigation brought by former Peregrine customers alleging
that U.S. Bank enabled a fraud in which Peregrine founder Russell
Wasendorf Sr. plundered more than $215 million from brokerage
customers over nearly two decades. The bank has said it wasn't
aware of the fraud and was a victim of the fraud itself.
Earlier this year, a district judge ordered U.S. Bank to pay $18
million to Peregrine customers in connection with a separate
lawsuit brought by the U.S. Commodity Futures Trading Commission.
The CFTC's lawsuit alleged that the bank allowed Mr. Wasendorf to
tap into a bank account that was supposed to be kept safe for
customers.
The lawsuit that U.S. Bank is moving to settle now sought more
than $200 million in damages from U.S. Bank and other defendants,
including Mr. Wasendorf.
Of the $44.5 million that the bank has promised to hand over to
drop the litigation, court papers show approximately $30 million is
expected to be made available to Peregrine's U.S.-based customers
in the brokerage's bankruptcy liquidation. The remainder of the
payout is expected to go to the customers' lawyers.
U.S. Bank will also withdraw its challenge to a similar
settlement reached with J.P. Morgan Chase Bank last year, allowing
that deal--which pledges about $15 million to Peregrine
customers--to close.
Another component of the settlement grants U.S. Bank a $3
million unsecured claim against the brokerage in its bankruptcy
case. The bank previously sought more than $6 million.
The bankruptcy court is slated to review the deal, the product
of mediation that began last fall, at a July 16 hearing. The deal
is also subject to the approval of a district court.
Peregrine filed for chapter 7 bankruptcy liquidation in July
2012. Mr. Wasendorf, the brokerage's founder and former chief
executive, was arrested the same month after confessing to the
fraud in a failed suicide attempt. He was later convicted of
stealing more than $215 million in customer funds from more than
13,000 victims over a nearly 20-year span.
Write to Jacqueline Palank at jacqueline.palank@wsj.com
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