Resolving the lawsuit of the brokerage firm – Peregrine Financial Group, Inc.’s customers, U.S. Bancorp’s USB core banking unit – U.S. Bank National Association – has agreed to pay $44.5 million to the customers of Peregrine. U.S. Bancorp representative Dana Ripley stated that the company is satisfied with the settlement, which will not impact second-quarter 2015 results of the bank.
U.S. Bank was accused of inappropriately handling an account at the bank, which was created for the benefit of Peregrine customers. The lawsuit claimed that the owner of Peregrine, Russell Wasendorf, Sr. misappropriated funds from this account and used it for his personal benefits. The bank was indicted for fraud by omission, breach of fiduciary duty and violation of the Commodity Exchange Act.
The bank agreed to the fraud but said that it was also unaware of the fraud. The lawsuit seeks more than $200 million in damages from the bank including other defendants and Mr. Wasendorf. Out of total settlement amount of $44.5 million, $30 million will be paid to Peregrine’s U.S.-based customers, while the remaining amount will be paid to the customers’ lawyers.
Peregrine was based in Cedar Falls, Iowa and was one of the largest non-banks, non-clearing FCM when it collapsed in Jul 2012. U.S. Bank served as a depository for Peregrine and held a customer segregated funds account that Wasendorf used to handle.
As per terms of the settlement, U.S. Bank will receive $3 million as unsecured claim against Peregrine in its bankruptcy case though the bank wanted more than $6 million. However, the bankruptcy court will review the deal, which also awaits a district court approval.
Previously, in Feb 2015, putting an end to a CFTC (The U.S. Commodity Futures Trading Commission) charge, U.S. Bank was also ordered to pay $18 million to customers of Peregrine. In Jun 2013, CFTC accused U.S. Bank of inappropriately handling a Peregrine customer segregated funds account by treating the account like a regular business checking account, which aided the owner of Peregrine, Russell Wasendorf, Sr., to take $215 million from clients in the period between Jun 2008 and Jul 2012.
Banks across the globe have been facing increasing scrutiny for their business practices. Many of the firms have paid billions of dollars as fines and compensation to settle lawsuits and probes. Many investors have lost their hard-earned money as a result of such business malpractices. Such settlements help restore their confidence in law-enforcement agencies. Moreover, it reduces the existing litigation burden of banks.
U.S. Bancorp currently carries a Zacks Rank #3 (Hold). Some-better ranked stocks in the finance space include KeyCorp. KEY, The PNC Financial Services Group, Inc. PNC and German American Bancorp Inc. GABC. All three stocks sport a Zacks Rank #2 (Buy).
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