The Corporate Observer : Washington D.C. Class Action Lawyer & Attorney : Steven Berk Law Firm : Consumer Protection, Corporate Abuse : The Corporate Observer Blog

WAMU’s complicity in the scheme resulted in the defrauding of millions of dollars from thousands of investors.

Berk Law, the Law Offices of Keith L. Miller, in tandem with Cotchett Pitre & McCarthy filed an action in the United States District Court for the Northern District of California on behalf of victims of a $150 million Ponzi scheme involving thousands of defrauded investors and the promise of safe, high yield CDs. The scheme, centered in Napa, California, was the brainchild of William Wise, who has a long a record of securities violations. The defendant in the case is Washington Mutual Bank, which Wise used to facilitate the operation of his scheme[1].

Specifically, Wise used two branches of WAMU located in Napa California to deposit, transfer and wire throughout the world the money earned from his illicit activities. Eventually, as Wise’s account grew, WAMU’s branch manager in Napa suggested he obtain a remote deposit facility (often referred to as a reverse ATM). Before that device was provided, WAMU was required to audit Wise. WAMU also suggested Wise obtain software offered to the bank’s larger clients to direct and manage a high volume of wire transfers. This tool again required a WAMU audit. This second audit was run from WAMU’s treasury department in Seattle, Washington. By providing these special services, WAMU knowingly provided Wise with his own private “bank within a bank”.

As the complaint alleges, WAMU learned of Wise’s illicit scheme thorough two audits by two different managing departments, but nevertheless allowed Wise’s activities to remain unchecked. WAMU’s complicity in the scheme resulted in the defrauding of millions of dollars from thousands of investors.

During this time period, WAMU had been operating under a Consent Decree issued by the US Office of Thrift Supervision in 2007. The decree was in direct response to WAMU’s previous failures to comply with numerous federal anti-money laundering statutes including the International Money Laundering Abatement and financial Anti-Terrorism Act of 2001, the Money Laundering Control Act of 1986, and the Bank Secrecy Act of 1970. The Consent Decree, among other things, ordered strict compliance with bank secrecy and money laundering requirements, and called for new and improved policies for maintaining compliance with federal banks secrecy and money laundering laws.

Steven N. Berk, Counsel for the plaintiffs remarked, “WAMU’s history of putting profits above compliance to capitalize on the mortgage bubble is well documented, but only now are we seeing that same corporate culture spilling over into taking risks in other areas such as the support of illegal and shady investment schemes.”

Assisted by Zach Kady

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The culture of Bank of America appears to place profits over compliance

October 23, 2009

A Complaint filed yesterday in Federal District Court in Tampa, Florida alleges that Bank of America was at the center of yet another Ponzi scheme. The operator of this scheme, 27 year-old Beau Diamond, defrauded hundreds of investors from Florida and around the country of at least $37 million. He claimed to be an experienced trader in off exchange foreign currencies. In truth, he had no such experience and was not registered to sell securities or trade foreign currencies for others. 

Nevertheless, Bank of America, as alleged in the Complaint, accepted Mr. Diamond into its Premier Banking and Investment Division. According to the Bank’s promotional materials, as a Premier customer, young Mr. Diamond received “close personal attention,” “priority customer service” and “expertise in banking and investment services.” Providing these services over a 32 month stretch surely alerted the bank to the scope and nature of Diamond’s illegal activities. 

Steven N. Berk, Co-lead Counsel for the investors, explained that “the lifeblood of a Ponzi scheme is the ability of the scheme’s operator to claim legitimacy and have a banking facility that can accept and distribute large sums of money from a significant number of individuals. Bank of America was critical in providing both. Without the active support and backing of, in this case, one of the nation’s largest banks, Ponzi schemers like Mr. Diamond would be relegated to using off shore banks and other dubious financial arrangements. Many investors would no doubt be scared away. But with a Bank of America on their side, these schemes can too easily metastasize.”

This matter is strikingly similar to at least 3 other cases filed around the country where Bank of America has been alleged to have had actual knowledge of, and provided substantial support to, a Ponzi scheme.[1] In all of these cases, the schemes originated and operated out of tiny Bank of America branches. 

This case originated in a branch with only 5 employees located in Siesta Key Florida. “It defies common sense to believe that those employees would not have known Diamond was engaged in some type of illegal enterprise. He was under 30, had no business experience, no securities licenses, and no employees. Yet he amassed nearly forty million dollars from hundreds of individuals and in many cases quickly wired that money off shore, or spent the money on luxury items and gambling.” 

Berk also noted that “Bank of America’s support of several Ponzi Schemes (where innocent investors lost hundreds of millions) appears unfortunately consistent with other questionable conduct such as the Bank’s failure to advise its shareholders of $6.5 billion dollars paid in bonuses to Merrill Lynch executives (a case being prosecuted by the SEC) and investing heavily in the sub-prime mortgage market racking up tens of billions in losses. The culture of Bank of America appears to place profits over compliance.”

Berk Law is working on this matter with the Florida firms of Randall Smith of Lakin & Smith and Andre Perron of Ozark, Perron & Nelson, P.A.

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Con artists love money transfers because they enable them to receive their marks' money before their victims even know that they have been swindled.

On October 20, 2009, the Federal Trade Commission ("FTC") announced that MoneyGram will pay $18 million to settle FTC charges that MoneyGram knew or intentionally looked the other way as some of its agents participated in fraud. The FTC alleged that between 2004 and 2008, MoneyGram agents aided con artists who tricked US consumers into wiring more than $84 million within the US and to Canada, and because the $84 million is based on consumer complaints to MoneyGram, the actual consumer losses is likely much higher.

According to the FTC, MoneyGram knew, or should have known, that 131 agents out of MoneyGram's more than 1,200 agents, were responsible for over 95% fraud complaints MoneyGram received in 2008 regarding money transfers to Canada. A similar small percent was responsible for over 96% of overall fraud complaints in 2006.

Be wary of money transfers–they are essentially the same as sending cash. Con artists love money transfers because they enable them to receive their marks' money before their victims even know that they have been swindled. Usually, you cannot reverse a money transfer or trace a money transfer. The con artist can pickup the money from multiple locations making them hard to track, and it gets even harder to track the con artists if they have accomplices within the money transfer company.

The FTC's consumer alert "Money Transfers Can Be Risky Business," available online at: http://www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt034.shtm , lists several types of common scams involving money transfers. Here are some of the common schemes.

The Counterfeit Check Scheme: You receive a check with instructions to deposit it and wire some or all of the money back. Banks make the money available within days, before the check clears. Uncovering a fake check can take weeks. When it is discovered that a fake check turns out to be fraudulent, you still owe the bank for the money you withdrew.

Variations of the counterfeit check scheme includes: phony lotteries and sweepstakes where you receive a check in the mail for winning some sort of lottery or sweepstake. You just need to deposit the cashier's check and wire back money to pay for taxes and fees. The scammers like this one because by calling it a foreign lottery or sweepstake, they can convince people to wire money to people they don't know. Of course, when the cashier's check eventually bounces, you are responsible for the money you withdrew. Another variant is the overpayment scam, especially common on online classified ads like Craigslist: someone responds to your post and offers to use a cashier's, corporate, or personal check to pay for the item. Somehow, they write a check for more than the item price and ask you to wire back the difference. Once again, when the check is eventually found to be fake, you owe the bank for the amount you wired. One last variant of the counterfeit check scheme is the mystery shopper scam, where you are hired to be a mystery shopper and evaluate the services of a wire transfer company. You're given a check to deposit in your personal bank account, withdraw cash, and wire the money using a certain money transfer service. Once again, the check is eventually determined to be fake and you're on the hook for the amount you wired.

Online Purchase Scams: When online shopping, a seller insisting on a money transfer as the only payment method should be a red flag. If this is the only option you're given for paying, odds are good it's a scam.

Advance Fee Loans: Some scammers advertise for loans or credit cards regardless of your credit, and then require you pay a fee via a money order to apply. Once again, if you have to wire money for applying to receive a loan or credit card, odds are good it's a scam.

Family Emergency Scam: Some scammers call and pretend to be a relative in an emergency and say they need you to wire them money. Check with your actual family before wiring anyone money under these circumstances!

If you have already fallen for a money transfer scheme, here is what the FTC says to do: "call the money transfer company immediately to report the fraud and file a complaint. You can reach the complaint department of MoneyGram at 1-800-MONEYGRAM (1-800-666-3947) or Western Union at 1-800-448-1492. Ask for the money transfer to be reversed. It’s unlikely to happen, but it’s important to ask. Then, file a complaint with the FTC. Visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261."

Assisted by: Jed Sorokin-Altmann

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