As if the Peregrine Financial Group (PFG) fraud story could not get any more peculiar, Russell Wasendorf Jr. and his wife Amber filed a lawsuit against US Bank and one of its employees last Friday, alleging that the bank failed to disclose pertinent information about his father’s finances and misuse of customer funds.
Much of the lawsuit centers on various guaranty agreements that Wasendorf Jr. and his wife signed in connection with the construction of PFG’s Cedar Falls Ia. headquarters in 2007. To build the offices, Wasendorf Sr. formed the limited liability company Wasendorf Construction, giving his son 90% ownership in the company (although Wasendorf Sr. allegedly retained control of its business affairs).
The suit also asks that a judgment be entered against bank employee Hope Timmerman “in an amount that will fully and fairly compensate the plaintiffs for their damages plus exemplary damages.”
According to the lawsuit, Wasendorf Sr.’s personal assets, including PFG, would serve as collateral for the construction loans. When US Bank asked for additional guaranty agreements from the younger Wasendorf, he allegedly told them that he and his wife did not have nearly enough assets to guarantee the loans.
According to the lawsuit, the couple signed the agreements only after the bank assured them that it was “intimately familiar with the nature, value and status of Wasendorf Sr.’s assets” and that those assets “materially exceeded any obligation due under the proposed guaranty agreements.”
Following PFG’s July collapse, Wasendorf Construction defaulted on its loan. Now Wasendorf Jr. claims that he would never have signed the agreements if he had known the true state of PFG’s finances. He has asked the court to rescind all guaranty agreements related to Wasendorf Construction.
The suit also claims that US Bank and Timmerman violated Commodity Futures Trading Commission (CFTC) rules regarding treatment of customer-segregated funds.
The suit claims that the “845” account in which PFG deposited customer funds was not a designated Customer Segregated Account but a PFG corporate account that allowed Wasendorf Sr. to freely access funds. It states: “At no time did US Bank reject any of the deposits that were endorsed ’Customer Segregated Account‘ and which were accompanied by a deposit slip stating that the account was a customer Segregated Account, as it was required to do by [CFTC regulations]. Instead, in violation of [CFTC rules], US Bank deposited the said customer checks in the 845 account. … at no time did US Bank inform the CFTC or PFG that checks that were designated as customer segregated funds were being deposited into an account that was not designated as a segregated funds [account].”
The lawsuit goes on to claim that US Bank allowed Wasendorf Sr. to wire funds out of account 845 in violation of CFTC rules.
The suit also claims Wasendorf Sr. instructed Timmerman that she was not to answer any inquiries regarding account 845 to anyone other than Wasendorf Sr., even though there were two other signatories on the account, and that he had gone so far as to demand an employee be fired who contacted the PFG accounting office regarding a routine matter involving the account.
It also states that on May 16, 2011, a woman identifying herself as Timmerman contacted the National Futures Association claiming that a previous account confirmation sent by her was erroneous and a corrected confirmation (showing approximately $221 million in funds) would be faxed shortly. The original confirmation sent on May 13 indicated the 845 account held $7.2 million in funds.
The suit claims Wasendorf Sr. was only able to perpetuate this fraud through the acquiescence of US Bank and Timmerman.