The U.S. Commodities Futures Trading Commission’s (CFTC) lawsuit on U.S. Bank National Association – a unit of U.S. Bancorp (USB) – had made it quite evident that the futures and option markets regulator was not letting the bank go off the hook easily. Now, the U.S. District Judge’s decision to go ahead with the scheduled trial early next year further adds to the bank’s woes.
U.S. Bancorp has been facing CTFC’s wrath over allegations that it intentionally allowed Russell Wasendorf – the founder of Peregrine Financial Group – to use customers’ money deposited at the bank for his personal interests leading to a $215 million scam.
According to the court’s order, the final decision now rests with the jury, which will scrutinize the involvement of U.S. Bancorp in the whole scam and their final verdict will determine whether the bank will be let off or has to shell out $35.6 million as compensation for customer losses.
The bank had previously defended itself by representing itself as a victim. However, CTFC turned a deaf ear to the bank’s appeal, finding it equally guilty in the whole case. Further, the bank counterattacked CTFC in its court filings by pointing out the latter’s failure in uncovering the fraud.
However, the District Judge refuted these claims against CTFC by stating that despite CFTC’s failure to discover the deceit in the 1999 audit, it has every right to follow an enforcement action.
Recalling the Peregrine Fraud Case
Last year, the fraud concerning Peregrine came to the forefront and shook the entire futures industry, which was already reeling under the impact of the collapse of MF Global in late 2011.
CFTC accused U.S. Bank of failing to follow the rules and allowing Wasendorf to limit both access and information about an account holding millions of dollars of Peregrine's customer finances to himself. This, according to CTFC, helped Wasendorf to keep the scam under wraps for a long time.
In Feb 2013, Wasendorf began serving his 50-year imprisonment sentence after pleading guilty to duping thousands of customers of $215 million. Following this, CTFC shifted its focus on U.S. Bank National Association and sued it to obtain further justice for the cheated customers.
Our Take
Since the requests by U.S. Bancorp and CTFC to rule in their favor were rejected by the judge, the trial in January next year will determine the fate of this case.
Currently, U.S. Bancorp holds a Zacks Rank #3 (Hold). Some better-ranked financial stocks include State Street Corporation (STT), BancFirst Corporation (BANF) and American International Group, Inc. (AIG). All these stocks carry a Zacks Rank #2 (Buy).
(We are reissuing this article to correct a mistake. The original article, issued on Nov 20, 2014, should no longer be relied upon.)
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