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TheStreet Open House

Victims Jockey To Maximize Refunds In PFGBest Case

By RYAN J. FOLEY

IOWA CITY, Iowa (AP) â¿¿ The judge overseeing the bankruptcy of an Iowa brokerage is facing an unusual decision about how to distribute its remaining assets: Should customers whose highly-regulated accounts were looted by the founder get larger refunds than those who had riskier investments that weren't touched?

Customers who traded foreign currency through Peregrine Financial Group, Inc. say their money is sitting in bank accounts that can be traced directly to them â¿¿ and they want it back. Yet seven months after the company collapsed when Chairman Russell Wasendorf Sr. confessed to a stunning fraud, they haven't received a dime. Other customers who traded commodities such as oil and corn have received up to 40 percent back â¿¿ even though Wasendorf looted their accounts to expand his business empire and fund his lavish lifestyle.

Wasendorf is expected to be sentenced Thursday to a lengthy prison term for embezzling up to $215 million that investors trusted with the Cedar Falls-based company, nicknamed PFGBest. But it could be months before customers learn how much they will be refunded â¿¿ which observers say will likely be no more than 50 or 60 percent of their money and could be less for some.

The outcome will be shaped by how U.S. Bankruptcy Judge Carol Doyle decides to treat different types of PFGBest customers. Should commodities investors â¿¿ who were promised their funds would be protected and given priority in case of bankruptcy â¿¿ get larger refunds than customers in the lightly-regulated foreign currency market, known as forex? Or should forex customers get all of their money back because it wasn't stolen?

Peregrine's bankruptcy trustee has so far given preference to commodities customers. In an initial distribution of funds last fall, customers that traded options and futures on regulated exchanges received 30 or 40 percent of their money back. Meanwhile, forex customers have not received anything because the trustee found their accounts were not "commodity contracts," which are given first priority for payouts when a brokerage goes bankrupt. The trustee has said that payouts for forex customers will be decided through the course of the case.

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