Associated Bank is back in the spotlight. The Green Bay, Wisconsin bank has lost its second challenge against a lender liability lawsuit alleging the bank aided in a scheme defrauding 700 investors out of nearly $200 million by violating the Bank Secrecy Act and federal anti-money laundering regulations. Luckily, a court-appointed receiver continues to pursue the case and the victims could potentially recover some of their losses.
Associated Bank’s String of AML Law Violations
Back in 2012, the Comptroller of the Currency alleged Associated Bank’s practices were in violation of anti-money laundering (AML) regulations and the Bank Secrecy Act. The claims resulted in a consent judgement and Associated agreed to take remedial measures.
Two years later, Associated Bank’s AML program was criticized for:
- Failure to perform acceptable customer due diligence and risk assessments, employ a protocol to monitor suspicious activity and detect high-risk clients,
- Demonstrated deficiencies in AML knowledge and training, and
- Failure to file Suspicious Activity Reports in a timely manner.
Associated paid the federal government a $500,000 fine, though did not admit to any of the alleged misconduct.
Trevor Cook Ponzi Scheme Triggers Lender Liability Lawsuit Against Associated Bank
Associated was sued in 2013 for allegedly aiding Burnsville, Minnesota money manager Trevor Cook in carrying out a $200 million dollar Ponzi scheme that defrauded over 700 investors. A receiver appointed to collect the victims’ assets claimed lender liability allegations against Associated Bank for facilitating Trevor Cook’s fraudulent behavior.
The receiver asserted that Cook guaranteed investors all futures trades were completed nightly, making the investments “risk-free,” and promised above-average yields. A mere half of the investor funds were actually traded and most of this was eventually lost. The remaining money was either recycled back into the scheme, paying returns to yet more investors, or used by Cook for gambling or to purchase a personal submarine, elaborate jewel-encrusted Faberge eggs and luxury cars.
However, the lawsuit succeeded in reclaiming only a minute portion of the defrauded funds, leaving claims of lender liability.
A Minneapolis judge dismissed an April 2013 lender liability lawsuit against Associated, but an appeal by the receiver earlier this year resulted in reversal of the decision and reinstatement of the case. Associated once again sought dismissal, arguing that a Wisconsin state court had dismissed a similar lawsuit. Recently, the court held that Wisconsin case did not constrain the suit. The case may be headed for trial if a settlement is not reached soon.
Allegations set forth by the receiver suggest that Associated Bank afforded Cook considerable assistance by engaging in “atypical banking activities,” including:
- Allowing Cook to open an account using an alias,
- Shifting funds between personal and business accounts, and
- Permitting Cook to withdraw an amount of $600,000 cash without engaging in due diligence or filing a suspicious transaction report.
According to the Bank Secrecy Act, a suspicious activity report or currency transaction is required for such a large cash withdrawal. Federal regulations require financial institutions to be familiar with their patrons. Transferring funds between accounts and transactions involving large amounts of money should trigger, at minimum, an examination of corporate records and a client consultation.
The receiver feels, had the bank practiced even brief due diligence, the investors would have suffered significantly less financial loss.
Lender liability is difficult to demonstrate unless you can prove a bank has exhibited a pattern of carelessness or inattention to bank policies and procedures. In the lender liability suit against Associated, the jury will have to determine whether the bank put its own financial interests above concerns around Cook’s activities, their duty to adhere to proper banking practices, Bank Secrecy Rules and the federal AML.
Kudos to Associated Receiver for Pursuing Lender Liability Claims
The investors who experienced financial losses from this massive fraud scheme are fortunate that a receiver was appointed to collect assets and that he chose to raise lender liability claims. In many cases involving large fraud schemes, investors’ funds have already disappeared with the offender once some sort of action is initiated and the victims are left with next to nothing.
Unfortunately, when a receiver isn’t involved, private efforts to reclaim funds can actually be cost prohibitive. Our law firm is one of the few that takes lender liability cases for individual investors, or groups of two or more investors, against banks, auditors and other parties. We have handled cases in 29 jurisdictions with a minimum loss of generally $1 million.
Want to learn more? Contact attorney Brian Mahany at [hidden email] or call his direct line at (414) 704-6731 for a strictly confidential, no obligation consultation.