Anyone who regularly reads our Due Diligence blog knows that we are not fans of Bank of America. The bank has paid over $20 billion in fines and penalties yet continues to misbehave. It is almost as if big fines have simply become a cost of doing business.
It’s not just the government that has been hot on the heels of America’s perennial “too big to fail” bank, however. Shareholders, homeowners and Ponzi scheme victims have been suing the bank as well.
Ponzi scheme victims? Yes! This month Bank of America settled a major lender liability lawsuit brought by victims of disbarred lawyer Scott Rothstein’s $1.2 billion Ponzi scheme.
Although there are no court documents on file memorializing the settlement yet, numerous media reports confirm a settlement has been reached.
Dozens of investors who lost money investing in Scott Rothstein’s Ponzi scheme sued Bank of America. They claimed that the bank knew about the massive fraud yet ignored the warning signs and failed to file required suspicious transaction reports. Both Bank of America and TD Bank once held funds raised by Rothstein. TD Bank previously paid $170 million to make the case against it go away.
One of the victims suing the bank was the Von Allmen family who reportedly lost $82 million to Rothstein. They claim they were long time customers of Bank or America and relied on the bank for investment advice. The family says the bank knew Rothstein was dirty and a “crook” but failed to warn them. Instead, they claim the bank encouraged Rothstein to deposit more money.
The victims’ lender liability suit claims the once the bank suspected the fraud, bank employees were instructed not to create a paper trial and not discuss their suspicions in emails.
No Bank of America employees have been criminally charged although a TD Bank Vice President is pleading guilty to criminal charges related to the Rothstein fraud.
The amount of the settlement has not yet been announced. One banking analyst said of the settlement and Bank of America, “The last thing a bank wants to do is face a jury. Everybody dislikes banks, and Bank of America is at the top of the list…”
Often when a Ponzi scheme is uncovered, the person directly responsible for the losses is either a fugitive or broke. Prosecutors can obtain restitution orders but enforcing them is usually impossible -- much of the money has usually been spent on lavish lifestyles and / or the person ordered to pay is busy making 10¢ per hour in a prison work program.
Unlike other lawyers, we focus on the deep pockets in a case and those often belong to the banks. Fraudsters need bank accounts to carry out their scams and usually the first people to spot the warning signs and red flags are bankers.
Banks have a legal duty to file suspicious activity reports with the U.S. Treasury and close accounts of suspected money launderers. They also should be performing due diligence checks of customers making large deposits. In our experience, however, some banks turn a blind eye in the hopes of keeping big depositors happy.
When a bank facilitates a Ponzi scheme or other fraud, lender liability laws kick in. These laws allow us to hold banks responsible for victims’ losses.
Need more information? Contact one of our lender liability lawyers today. For more information, contact Brian Mahany at (414) 704-6731 (direct). Consultations are always confidential, always free and without obligation.
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