Judge rejects U.S. Bank's motion to dismiss CFTC lawsuit

Reuters

Nov 5 (Reuters) - A federal judge rejected U.S. Bank'smotion to dismiss a lawsuit that accused the bank of lettingPeregrine Financial founder Russell Wasendorf Sr secure loansagainst money that belonged to his brokerage's customers, acourt filing showed.

In June, the Commodities Futures Trading Commission (CFTC)filed a lawsuit against U.S. Bank N.A., a unit of U.S. Bancorp, saying the bank had a segregated account forPeregrine's customer funds but treated the account as if it were"a Peregrine commercial checking account."

CFTC argued in its lawsuit that more than $325 millionflowed through the segregated customer account between May 2005and June 2012, and that Wasendorf misappropriated about $215million of that amount.

The lawsuit was the first against a bank tied to thecollapse of Peregrine, which filed for bankruptcy protection inJuly 2012 after Wasendorf confessed to bilking his clients in anearly 20-year-long fraud.

Wasendorf began serving a 50-year sentence in February.

Lawyers for U.S. Bank filed a motion to dismiss the lawsuit,saying the CFTC was trying to shift responsibility for a Ponzischeme to the bank, even though the bank itself was a victim ofthe scheme.

However, Judge Linda Reade on Tuesday rejected U.S. Bank'sarguments, paving the way for the lawsuit to proceed for furtherhearings.

"The court shall deny the motion to the extent that it asksthe court to dismiss the Commission's claim that U.S. Bankimproperly held Peregrine customer funds," Reade wrote in herruling.

U.S. Bank could not immediately be reached for comment byReuters outside regular business hours.

The case is: U.S. Commodity Futures Trading Commission vsU.S. Bank, N.A., U.S. District Court, Northern District of Iowa,No 13-cv-2041.

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