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The CFTC Officially Frowns On Accepting Brokerage Customer Money As Collateral For Loans To Brokerage's Owner

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It says so right here in this lawsuit.

U.S. Bank NA used Peregrine Financial Group Inc. client funds as security for loans to firm founder Russell Wasendorf Sr., who has since been jailed for fraud, according to the Commodity Futures Trading Commission.…

The CFTC claims U.S. Bank officials held Peregrine customer funds in an account the lender treated as though it was the firm’s commercial checking account, enabling Wasendorf to transfer money out of it to pay for items including a private plane, a restaurant he owned and his divorce settlement.

“U.S. Bank knew that these transfers were not for the benefit of Peregrine’s customers,” the agency said in the complaint….

The Commodities Exchange Act and CFTC regulations bar banks from using or holding client funds of futures firms “as though they belong to anyone other than the customers,” the regulator today said in a statement announcing the suit.

For its part, U.S. Bank tells a somewhat different story.

Tom Joyce, a spokesman for the Minneapolis-based bank, said in an e-mailed statement that the lender is sympathetic to Wasendorf’s fraud victims. He also said the bank did nothing wrong.

“U.S. Bank was also a victim of the same fraud -- one the CFTC failed to detect,” Joyce said. “As he has admitted, Wasendorf actively deceived the bank. At no time did we have any knowledge that Wasendorf was running a fraudulent scheme.”

CFTC Sues U.S. Bank Over Peregrine Client Account Funds [Bloomberg]


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