Reuters: Regulatory News: WRAPUP 1-Peregrine clients lose patience as trustee seeks money

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WRAPUP 1-Peregrine clients lose patience as trustee seeks money Jul 26th 2012, 00:23 Wed Jul 25, 2012 8:23pm EDT * Trustee hires PwC as forensic accountants * Regulator questions whether Wasendorf acted alone * Customers say process too slow By Ann Saphir and P.J. Huffstutter and Sarah N. Lynch CHICAGO/WASHINGTON, July 25 (Reuters) - Peregrine Financial Group's bankruptcy trustee has hired a team of forensic accountants to help figure out what money remains at the failed futures brokerage as impatient customers complain about delays in getting even some of their money back. "They're not telling us anything, other than it's going to be weeks before they tell us anything," said Tim Rea, founder of New Zealand-based Transworld Capital Management Ltd, with about $900,000 in Peregrine accounts. Bankruptcy trustee Ira Bodenstein told Reuters on Wednesday he had hired PricewaterhouseCoopers to help figure out what remains at the failed futures brokerage after its founder's arrest this month and confession to years of stealing from customers. PricewaterhouseCoopers, one of the world's largest accounting firms, had a brief window into Peregrine's books over a decade ago when it was hired as part of settlement over capital rules between the brokerage and Commodity Futures Trading Commission. Caroline Nolan, a spokeswoman for PwC, said the firm was hired to do limited procedures under the CFTC order. "PwC has never been Peregrine's auditor," she said. The fraud at Peregrine came to light after the firm's founder and chief executive, Russell Wasendorf Sr., attempted suicide on July 9 and left a signed note describing how he bilked customers of more than $100 million over a nearly 20-year period, partly by forging bank statements. The brokerage filed to liquidate the next day. Wasendorf's admission detailed how he used little more than a rented post office box, Photoshop software and inkjet printers to dupe regulators by intercepting bank confirmation requests in the mail and forging the documents to conceal missing money. Peregrine's frontline regulator on Wednesday told a U.S. House Agriculture Committee hearing on Wednesday: "The simple fact is that Wasendorf's forgeries fooled us, and fooled us for longer than any of us would like." National Futures Association President Daniel Roth later told CNBC television there was "a legitimate cause for question" about whether Wasendorf acted alone, citing the volume of documents that needed to be doctored to pull off the fraud. Wasendorf remains in jail pending a bail hearing set for Friday. He has so far been charged with lying to regulators. FINDING THE MONEY Michael Eidelman, the receiver for Wasendorf's assets, believes that at least some of the missing money is tied up in property that can be sold to raise money for bilked customers. He is looking at Wasendorf's real estate, insurance policies, a restaurant, a jet and a huge wine collection in his effort to track down saleable assets. But traders like Rea are growing frustrated. Neither he, nor any of the other 24,000 customers at the Cedar Falls, Iowa-based firm, have gotten any of their money back. "How hard is it to figure out where the funds are? This is more than just a financial loss. This is my livelihood," said Rea. The collapse of Peregrine, also known as PFGBest, came only nine months after futures customers suffered another shock with the demise of the much larger MF Global brokerage, with an estimated $1.6 billion in customer funds missing. At the hearing, some lawmakers excoriated regulators for missing fraud. "I've got to take a deep breath, because you have some major problems," said Florida Republican Steve Southerland, "You represent an industry that has an integrity crisis." Terrence Duffy, executive chairman of exchange operator CME Group, the frontline regulator for MF Global, vowed to fix that. "Any breach of trust relating to customer funds is absolutely unacceptable," he said. It took a little over two weeks after the failure of MF Global last year for the bankruptcy trustee in that case to ask for court approval to give customers about 60 percent of their cash back. . "PFG is moving real slow: there's no plan yet for any kind of bulk distribution," said James Koutoulas, CEO of Typhon Capital Management, which had money tied up at both MF Global and Peregrine Financial. Unlike MF Global customers, Peregrine customers have not rushed to sell their claims against the firm because they don't have any idea what the brokerage's assets and liabilities are, said Joseph Sarachek, managing director of special situations for CRT Capital, which buys distressed debt. CRT, which has been offering 20 cents to 22 cents on the dollar for claims, has only bought one Peregrine claim so far, from a client who had $19,000 in an account at the brokerage. "The bottom line is very little is known right now, very, very little," Sarachek said. INITIAL DISTRIBUTION "The first question is to figure out where things stand," said Fred Grede, bankruptcy trustee for Sentinel Management, a failed futures brokerage whose CEO was indicted last month on federal fraud charges. The forensic accountants will be checking on exactly what assets and liabilities are actually at the firm, he said. Once that is done, the trustee may make "some sort of initial distribution," Grede said. The next step, he said, will be to trace where any missing money went. "I would expect that to be a lengthy, painstaking process." For trader Rea, that's small comfort. Not knowing when he might get access to his funds, or how much of the $900,000 he might fully recover, Rea is considering a potentially drastic step to raise money and get back into trading -- selling his beach house. "We're all working with no information," he said. Link this Share this Digg this Email Reprints

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