A client said the bank was "grossly negligent" in failing to detect the fraud.
CHICAGO - U.S. Bank, which held customer money for Peregrine Financial Group Inc., knew or should have known the collapsed commodities brokerage had insufficient funds on deposit, a Peregrine client claimed in a new lawsuit.
Peregrine filed for Chapter 7 liquidation last month, hours after the U.S. Commodity Futures Trading Commission sued the Cedar Falls, Iowa, company and founder Russell Wasendorf Sr. for allegedly misappropriating more than $200 million in customer funds.
"Even if U.S. Bank had no direct knowledge of Wasendorf Sr.'s fraud until it became public, U.S. Bank was grossly negligent in failing to detect the fraud," Marcus Ibrahim said in his complaint filed Friday in federal court in Chicago.
Before trying to commit suicide on July 9, Wasendorf wrote a confession in which he admitted altering U.S. Bank statements to conceal his wrongdoing, according to an affidavit filed upon his arrest four days later.
The National Futures Association, an industry self-regulator, froze Peregrine's accounts on July 9 and announced it had only $5 million on deposit at U.S. Bank and not the $225 million the firm claimed to have there days earlier.
Ibrahim's complaint is at least the fourth to be filed by Peregrine clients since the firm's collapse. It is the first to name the U.S. Bancorp unit as a defendant. Each of the complaints seeks class action, or group status, on behalf of all Peregrine customers who lost money as a result of the alleged fraud.
Wasendorf, who is charged with lying to federal regulators and is in federal custody, is a defendant in this and in each of the previous complaints, as has his son, firm President Russell Wasendorf Jr., firm Vice Chairman Neil Aslin and other company executives.
"We believe the case is without merit," Tom Joyce, a spokesman for Minneapolis-based U.S. Bancorp, said in a phone interview. Having reviewed the historic account activity, "the company does not believe there is any evidence of employee involvement in the fraudulent activity," he said.