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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There was news earlier this week of Madoff Lieutenant Frank DiPascali’s expansive guilty plea (to 10 felony counts).  This broad plea accompanied by loud hints of expansive cooperation with the federal government raises the question of whether Mr. DiPascali was Madoff’s main man; his aide de camp, his Tonto, his Robin, his Hutch, his Watson or his Sundance Kid. 

 DiPascali admitted under oath he fictionalized customer statements for over 20 years.  Using various mechanisms, they together wrote one novel (phony account statements) after another – each more fanciful than the last.   No doubt DiPascali worked closely with Madoff and knows where many of the bodies are buried.

 But was this the guy who repeatedly stumped the SEC, an array of other regulators, scores of investors and the street for all those years. 

 I think not. 

 Nothing in his background suggests the level of genius required in:

finance

math

technology;

politics; and

fiction

DiPascali attended Archbishop Molloy High School in Briarwood Queens.  Everything he learned about Wall Street – he learned from Madoff who took him in as a “research analyst” in 1975.    His genius was his loyalty– but did he have the stuff of a mastermind or even an number 2. 

I don’t think so. 

Not that mastermind criminals need an advanced degree from MIT.  (think Jesse James and John Dillenger).

My gut (and a little experience as a  federal prosecutor) says this isn’t the guy -- this scheme had too many moving parts.  Over 6000 investors and $65 billion just for starters.  Remember, since Madoff was not buying stocks or bonds or any securities for that matter

– they had a lot, a lot of money to move.

So I put DiPascali at VP of Operations -- an inside guy.  He likely knows no more than Peter Madoff, Chief of Compliance or the Madoff sons but likely less than Ruth Madoff and other “friends of Bernie”.  I would keep my eye on Madoff’s banker at JPMorganChase.  In all those years, they had to know – securities were not being purchased and money was just circling from new to old investors. 

 So maybe that explains why Judge Sullivan denied Dipascali his release:

a release that the government had agreed to. 

Maybe Judge Sullivan recognizes Dipascali has every reason to flee – 125 years of reasons to flee – and he has nothing more to give the feds.  But surely someone else does?

Steve Berk, August 12, 2009

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