Can you imagine having your bank account frozen for two months?
Customers of Peregrine Financial Group Inc. have been left in such a lurch since the futures brokerage collapsed in July after a review of its segregated customer accounts revealed millions of dollars missing.
Peregrine founder Russell Wasendorf Sr., a well-known figure in Chicago's futures markets, allegedly confessed in a suicide note to bilking customers in a long-running fraud. He has pleaded not guilty to lying to regulators.
Lately, though, some Peregrine customers have directed their ire at a mild-mannered Chicago bankruptcy lawyer.
Ira Bodenstein took control of Peregrine, or PFGBest as it was known, after it filed for bankruptcy July 10. He is a court-appointed trustee hired to manage the liquidation of the failed broker.
One of his first orders of business is returning money to more than 24,000 customers who range from small-time farmers to sophisticated pension funds. They are still waiting, though there is now a proposed timetable for recouping some of their money.
Aggrieved Peregrine clients have missed potential trading opportunities at a time of great economic uncertainty. For some the situation is more dire because they have been unable withdraw money from their brokerage accounts to pay a mortgage or college tuition for a child.
Companies that trade commodities for clients also are hanging in the balance. Some have gone out of business or turned to cost cutting and capital calls to survive.
One commodities trader said Bodenstein was fiddling "like Nero with Rome burning."
Bodenstein doesn't have much experience in the futures industry or winding down firms as large as Peregrine. He chooses his words carefully and lets his attorney, Robert Fishman, do most of the talking.
They acknowledge the unhappiness with their performance.
In his defense, Bodenstein faces a herculean task that was made more complicated by an alleged fraud that federal authorities are investigating. Bodenstein says he has been methodically reviewing Peregrine's books to ensure the accuracy and integrity of customer accounts.
"One of our most important tasks is trying to figure out what in front of us is accurate and what information is part of the fraud," Fishman said. "We know there was fraudulent bank information but we don't know if there was fraudulent customer information."
But customers are wondering why they have not received at least a partial distribution of their property. Customers of MF Global, a much larger futures brokerage that failed in October, had some funds returned within two months of the bankruptcy.
Peregrine customers say there is a huge pot of money sitting at Jefferies & Co., which executed trades for Wasendorf's firm, that should be returned immediately.
"That money is safe and intact," said James Koutoulas, chief executive of commodities fund Typhon Capital Management, who co-founded the Commodity Customer Coalition after MF Global's collapse to draw attention to the plight of customers and is now monitoring Peregrine's bankruptcy.
Fishman, though, said "we have to get to a certain comfort level before we start dishing money out."
Late Wednesday night, Peregrine customers finally got a bit of good news. Bodenstein filed a plan with the bankruptcy court in Chicago to return funds to customers. The trustee said he had about $181 million on hand and plans to initially transfer $123 million to customers.
The first distribution is scheduled for Sept. 28, pending court approval of the plan. But that's not soon enough for some customers. Bodenstein intends to solicit bids from other futures brokerages that may be interested in buying the accounts. A spokeswoman for Chicago-based Attain Capital Management said the bidding process is a waste of time.
"We were one of PFGBest's largest clients, and have been on the phone with several of the other major players this morning," said Lauren Nelson of Attain Capital. "All of us have already identified the firms we will be doing business with moving forward, which means those FCMs (futures commission merchants) who bid will be paying for business that will be transferred out immediately."
Bodenstein said he fielded calls from customers all day Thursday and the reaction to his distribution plan has generally been favorable.
"They see we are making progress," he said.
But there's still a substantial amount of customer money missing. Regulators say as much as $215 million. The bankruptcy case will be a test of patience.