On Sept. 5, Peregrine Financial Group bankruptcy trustee Ira Bodenstein filed a motion to distribute funds to the broker’s commodity customers. The plan called for two waves of distributions — the first to customers with account balances of $50,000 or less, the second to those with larger accounts.
But Commodity Futures Trading Commission (CFTC) swiftly nixed that plan: In a Sept. 9 court filing, the agency asked the court to delay authorization of Bodenstein’s proposal until the trustee has performed “reasonable due diligence to ensure that the data underlying the distribution are reliable.”
According to the filing, the CFTC recommended that Bodenstein undertake validity tests for accounts affected by the first distribution wave. But, the filing says, Bodenstein failed to complete any of these tests before filing his distribution motion, telling the agency only that he would take steps in the future to validate customer accounts. The CFTC asked the court to delay authorization until the trustee explains the validity tests he has completed, the results of those tests and his reasoning as to why the testing is sufficient to ensure validity.
“[The CFTC] believes that the innocent customers of the Debtor should be compensated for their losses as soon as reasonable and practicable,” the complaint reads. “Nonetheless, caution is warranted to ensure that the books and records of the Debtor may be relied upon to avoid the possibility of distributions based on fictitious data. This is especially true given the magnitude of the proposed distributions--$123 million.”
Earlier today, a judge approved Bodenstein’s proposal to allow FCMs to enter bids for a bulk transfer of Peregrine customers’ business, but she deferred a ruling on his distribution plan.