III. Conclusion BONY’s handling of Sentinel’s Seg 1 accounts was subject to the requirements of 7 U.S.C. § 6d. Moreover, the representations made by BONY, which were required by regulation in order for BONY to obtain Sentinel’s business, create a regulatory estoppel that bars BONY from denying Sentinel’s status as an FCM or otherwise denying that 7 U.S.C. § 6d governs the Seg 1 accounts in this case. Respectfully submitted, Terry S. Arbit General Counsel Bradford M. Berry Deputy General Counsel /sMartin B. White Martin B. White Counsel 10 Case 1:08-cv-02582 Document 32-2 Filed 08/01/2008 Page 10 of 11 Dated: August 1, 2008 Commodity Futures Trading Commission Three Lafayette Centre 1155 21st Street, N.W. Washington, D.C. 20581 (202) 418-5129 (phone) (202) 418-5124 (fax) 11 Case 1:08-cv-02582 Document 32-2 Filed 08/01/2008 Page 11 of 11

The Chic~go Mercantile Exchange, THE CME Group, Inc. (The "Exchange" Defendants), These Bank defendants actually did cause Plaintiffs' life savings to be defalcated in the first instance when each Bank Defendant actually transferred Plaintiffs' special deposits which are also "customer segregated accounts" as defined by 7 U.S.C. § 6d(b) and 17 C.F. R. 1.20, et. seq. to W asendorf who used these proceeds in part to funQ Peregrine Financial Group, Inc. ("PFG") . In order for PFG to maintain its Adjusted Net Capital Requirement as all Future Commission Merchants ("FCM' s") are required to do under CFTC Rule 1.1 7, Wasendorf had to cheat, because he simply did not have enough capital to meet the Adjusted Net Capital Threshold which is based on a ratio using customer segregated accounts.

Pledging customer securities to support Sentinel‟s proprietary trading is a flagrant violation of Section 4d(b) of the Commodity Exchange Act (“CEA”), which makes it “unlawful” to treat customers assets as “belonging to the depositing futures commission merchant” (here, Sentinel). 7 U.S.C. § 6d(b). The same is true even without the protections of the CEA.

(October 6, 1967) (purpose of language later codified as 7 U.S.C. § 6d(b) is to prevent customer funds from “being used to offset liabilities of the commission merchant”); Senate Rep. No. 947, Amendment of Commodity Exchange Act at 7, 90th Cong., 2d Sess. (January 18, 1968) (purpose of language later codified as 7 U.S.C. § 6d(b) is to prevent customer funds from “being used to offset liabilities of the commission merchant or otherwise being misappropriated”); see also Craig v. Refco, 624 F. Supp. 944, 946 (N.D. Ill. 1985), aff’d 816 F.2d 347 (7th Cir. 1987) (“Congress was concerned with FCMs’ practice of using customer margin funds to satisfy their own debts . . . .”). In addition, important policy concerns support Black River’ position here.

Even if Sentinel were not an FCM at all, the funds at issue are indisputably property “accruing to [FCM] Case 1:08-cv-02582 Document 19 Filed 06/30/2008 Page 11 of 16 12 customer[s] as the result of [commodity] trades or contracts.” 7 U.S.C. § 6d(a)(2). BONY is just as clearly a person who has received such funds “for deposit in a separate account.”

Id. (ECF No. 66) at ¶¶ 1, 124 (emphasis added). The wording of the class definition was modified slightly in the final amended consolidated complaint to “all persons or entities who held money, property, and/or securities pursuant to 7 U.S.C. § 6d(a)(2), at [PFG], as of the bankruptcy of PFG on July 10, 2012.” Id. (ECF No. 398). U.S. Bank entered into a settlement agreement in the Illinois Class Action on June 18, 2015, in which it denied any fault, liability, or wrongdoing.

. The wording of the class definition was modified slightly in the final amended consolidated complaint to “all persons or entities who held money, property, and/or securities pursuant to 7 U.S.C. § 6d(a)(2), at [PFG], as of the bankruptcy of PFG on July 10, 2012.” Id. (ECF No. 398). U.S. Bank entered into a settlement agreement in the Illinois Class Action on June 18, 2015, in which it denied any fault, liability, or wrongdoing.

From at least February 2010 through the present, PFG and Wasendorf failed to segregate customer funds by depositing and holding such funds in the 1845 customer seg account, and instead used customer funds for purposes other than those intended by its customers. By this Case: 1:12-cv-05383 Document #: 7 Filed: 07/10/12 Page 6 of 14 PageID #:157 6 conduct, PFG and Wasendorf violated Section 4d(a) of the Act, as amended, 7 U.S.C. § 6d(a)(2), and Regulations 1.20(a), 17 C.F.R. §§ 1.

Interrogatory No. 4(x): x. The segregation and other requirements of the following CEA, CFTC, and SEC rules in relation to Sentinel: (1) Section 4(b) of the CEA (7 U.S.C. § 6b); (2) Section 4d(a)(2) of the CEA (7 U.S.C. § 6d(a)(2)); (3) Section 4d(b) of the CEA (7 U.S.C. § 6d(b)); (4) CFTC Rule 1.20 and its subdivisions (17 C.F.R. § 1.

Plaintiffs, therefore, were never part of the putative class.4 4 The final order defined the class as follows: “Settlement Class” means all persons or entities who held money, property, and/or securities pursuant to 7 U.S.C. § 6d(a)(2) at PFG as of July 10, 2012. Excluded from the Settlement Class are: (i) all 30.7 Customers; (ii) any Person named as a defendant in the Consolidated Amended Class Action Complaint (including any immediate family members of such defendant and any parent, subsidiary or affiliate of any defendant) who held money, securities, or property at PFG; (iii) any parent, subsidiary or affiliate of PFG that held money, securities, or property at PFG and that could otherwise be deemed to be a member of the Settlement Class; and (iv) any Persons that exclude themselves from Case 1:16-cv-05508-VSB Document 124 Filed 12/15/17 Page 8 of 36