Fed Says U.S. Bank Complicit in Wasendorf's $215 Million Theft

Was U.S. Bank complicit in Russell Wasendorf Sr.'s theft of over $200 million?

The federal government thinks so - the U.S. Commodity Future Trading Commission filed a complaint in U.S. District Court today saying the bank knowingly facilitated Wasendorf’s transfers of millions of dollars of customers’ funds to pay for a private jet, his downtown Cedar Falls restaurant myVerona and his divorce settlement, among other things.

Wasendorf, the founder and one-time CEO of now-defunct brokerage firm Peregrine Financial Group, was arrested last July and is serving 50 years in federal prison after pleading guilty to treating customer funds as his personal piggy bank and misappropriating around $215 million.

In the complaint, the CFTC says that from approximately September 2008 to July 2012, U.S. Bank unlawfully accepted Peregrine’s customers’ segregated funds as security on loans it made to Wasendorf, his wife, and his construction company, Wasendorf Construction, L.L.C., to build Peregrine's headquarters in Cedar Falls.

The complaint alleges from approximately June 2008 to July 2012, U.S. Bank improperly held Peregrine’s customers’ funds in an account U.S. Bank treated as Peregrine’s commercial checking account and knowingly facilitated Wasendorf’s transfers of millions of dollars of customers’ funds out of this account to pay for personal expenses. 

U.S. Bank knew that these transfers were not for the benefit of Peregrine’s customers, according to the complaint.

However, U.S. Bank decried the allegations. Forbes Magazine printed a prepared statement from bank officials which said they were also deceived by Wasendorf:

"As he has admitted, Wasendorf actively deceived the bank. At no time did we have any knowledge that Wasendorf was running a fraudulent scheme. The bank did nothing wrong and the bank will defend itself vigorously," the statement reads. "Banks are not responsible for losses generated by customers who are fraudsters. The lawsuit itself accuses the bank of violating technical regulations that have never been interpreted by any Court to apply when a bank is not notified that it was holding Customer Segregated funds."

U.S. Bank, which has branches in Cedar Falls, is the nation's fifth largest bank.