125 - Defrauded? Sue a Bank!

Washington Mutual Bank (now owned by JPMorgan Chase after the mortgage crisis plunged its balance sheet into dust) was citied in the recent past for AML regulatory violations. WaMu is now accused of having been lax in its due diligence of a customer who perpetrated a USD150-million Ponzi scheme in a civil suit brought about by investors fleeced in the Ponzi scheme.

It would appear that the fleeced investors firmly believe that if a bank is vigilent in its fight against money laundering, it should be able to detect a major fraudster, especially after having conducted two audits while in the process of granting the fraudster "reverse ATM" capabilities and advanced cash management software.

As more investors become fleeced in Ponzi schemes, more lawyers will realise that the best target to make investors whole is the bank that offered services to the fraudster. In a litigious society, this game will play out often, especially against those banks who incur regulatory sanctions for AML non-compliance.

Banks now have another reason to boost AML compliance, however that challenge is particularly accute, given the slashing of budgets within most financial institutions' financial crime risk management functions.

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http://newsblaze.com/story/2009111814350800001.wi/topstory.html

Washington Mutual Facilitates a Multi-Million Dollar Ponzi Scheme

Newswise - Attorneys have filed an action in the US District Court for the Northern District of California accusing yet another bank of nurturing a Ponzi scheme. The complaint was filed as a class action suit 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.

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.

Berk Law, and the Law Offices of Keith L. Miller, in tandem with Cotchett, Pitre & McCarthy filed the case. 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."

The suit names JPMorganChase as the successor in interest to WAMU and seeks damages from JPMorganChase for the thousands of defrauded investors.

Source: NewsWise