A plan to sell Peregrine Financial Group's most valuable asset - the failed brokerage's gleaming headquarters - to raise money for bilked customers is being held up by a dispute between the company president and the bank that guaranteed the loan on the building.
The two sides are battling over whether the president and son of Peregrine's chief executive should stay on the hook as guarantor of the $6.6 million mortgage for the firm's Cedar Falls, Iowa, headquarters. The CEO has confessed to stealing money from customers for nearly 20 years, using some of it to pay for the building.
The face-off illustrates the competing interests in the case that threaten to slow the process of liquidating assets and returning money to customers, who have been cut off from access to their accounts since the firm collapsed in July.
Peregrine filed for bankruptcy on July 10, a day after CEO Russell Wasendorf Sr. attempted suicide and admitted to bilking customers out of millions of dollars.
Wasendorf, 64, was arrested on July 13. On Tuesday, he agreed to plead guilty to wire fraud, lying to regulators and embezzling customer funds, crimes that could put him in jail for as long as 50 years.
Publicly, all sides say they want to put the customers first following the scandal. But the dispute over the headquarters - made public on Wednesday by Peregrine President Russell Wasendorf Jr.'s lawyer - is blocking progress.
At stake is the $10 million or more that the building could fetch. That is the price the receiver appointed by a bankruptcy court estimates he could sell it for, according to the lawyer, Nicholas Iavarone.
Michael Eidelman, the receiver, did not immediately respond to a request for comment.
To sell the building, the receiver needs full control of the headquarters, owned by Wasendorf Construction, which built the headquarters on a wooded property next to a golf course. Wasendorf Jr. owns 90 percent of the construction company.
Wasendorf Jr. is "willing" to turn over his stake to the receiver, but only if U.S. Bank, which loaned the Wasendorfs money for the building, agrees not to seek payments on the mortgage for nine months, Iavarone said.
No payments are currently being made.
U.S. Bank is willing to hold off on seeking payments, if Wasendorf Jr. gives up his right to any defenses related to his guarantee of the loan.
Wasendorf Jr.'s lawyer, Nicholas Iavarone, is balking.
"U.S. Bank would only need such a waiver if the bank fraudulently induced my client to sign the guaranty agreements," he wrote in an email to the receiver on Tuesday.
U.S. Bank is seeking to protect itself as well.
"We continue to cooperate fully with the receiver on this matter and continue to hold discussions we believe will benefit all appropriate parties," a bank spokesman told Reuters.
Eidelman, the receiver, said in an interview on Tuesday that he did not believe he would ever find nearly enough of money Wasendorf Sr. spent to plug the shortfall in customer funds.
Former Peregrine customers moved a step closer to getting some of their money back on Wednesday after a bankruptcy court judge allowed the bankruptcy trustee to begin laying the groundwork for the return of $123 million to customers.
(Editing by Andre Grenon)