The Miami Herald broke the story last night (see link at bottom of post) that Wells Fargo, which merged with Wachovia Bank in December 2008 and assumed its liabilities, has been sued for $68 million by the court-appointed receiver in the George Theodule Ponzi scheme in Florida. Theodule largely targeted the Haitian-American community in his scheme — in part by trading on religion, in part by routing money to the scheme through “investment clubs” and in part by making investors believe a “regulatory agency” that later proved to be bogus was keeping their money safe.
Allegations contained in the complaint by receiver Jonathan Perlman are both mind-numbing and stunning, perhaps especially given the fact that Wachovia was charged criminally in a separate case in March 2009 with willfully failing to establish an anti-money laundering program and opening its doors to an international cocaine cartel. Wachovia settled the criminal case by entering into a deferred prosecution agreement with the Justice Department and agreeing to pay $160 million.
Now, with the filing of the complaint by Perlman, Wachovia’s allegedly lax standards have jumped up to bite it again.
Among the dramatic allegations against the bank:
- A Wachovia branch in Lake Worth, Fla., accepted Theodule’s business after Washington Mutual (WAMU), his original bank, rejected it after observing a pattern of suspicious transactions. The Wachovia branch that opened multiple accounts for Theodule was “just down the street” from the WAMU branch — and Wachovia did not call WAMU to make any inquiries about Theodule.
- Wachovia did not review Theodule’s website and did not verify the corporate standing of his business.
- Wachovia initially misclassified Theodule’s business as a “Professional Service Provider with a business activity designation of ‘Money Service Business.’” The initial classification triggered an internal Wachovia review on the very same day he opened the accounts. Several days later, Wachovia determined that Theodule actually was a “financial advisor” in the “investment business” — and the bank changed the business designation to “Securities/Commodities.”
- Wachovia’s own reclassification of Theodule’s business gave it the knowledge that Theodule owed a fiduciary duty to his clients. Regardless, Wachovia did nothing to confirm that either Theodule or his companies were properly licensed. A “simple inquiry” to licensing agencies would have shown they were not. Not even cursory Google research was performed. The Ponzi nature of the business “would have been self-evident” had even basic research been performed.
- Wachovia missed suspicions about Theodule that had been raised online, including information that suggested he had lied about being the “finance director at several large companies” and truthful assertions that “investment clubs” were funding his operations.
- Within five weeks of the opening of Theodule’s accounts at Wachovia, 36 “investment club” accounts suddenly were opened at Wachovia. The club accounts fed Theodule’s Ponzi scheme. During the first month alone, the club accounts fed $2.2 million to the Ponzi. Theodule’s sister, wife and the best man at his wedding all opened feeder accounts at Wachovia.
- A large sum of cash — actual currency — from trusting investors was deposited into the feeder accounts. Wachovia then transferred the deposits to Theodule’s business account. During the first month, Wachovia permitted Theodule to withdraw $235,000 in actual “greenbacks,” even though the bank knew the money belonged to investors.
- Wachovia made “special accommodations for Theodule’s extraordinary cash withdrawals by agreeing to deliver large amounts of cash through the drive-thru window in order to reduce the risk of theft from having Theodule or a Creative Capital employee walk out of the branch carrying the large bags of cash Wachovia was providing.”
- Wachovia noticed suspicious activity in a feeder account opened in the name of Wealth Builders Circle LLC, which was managed by Dorothy Delisfort, (who went on to become Theodule’s wife). The bank froze the Wealth Builders Circle account but did not freeze Theodule’s accounts. The bank lifted the freeze on the Wealth Builders Circle account four days later — after it received a fax from a Theodule company. The fax purported to be a “business plan.” Among the assertions in the fax was that the Theodule company was following “the lessons learned by the great investing minds of our time . . . including Warren Buffet . . .”
- Theodule and his cohorts laundered more than $10 million through Wachovia between May 9, 2008, and July 31, 2008. They withdrew from the bank nearly $5 million more than they deposited.
Read the Miami Herald story from last night.
(NOTE: At the moment, the complaint is available on the newspaper’s website. It is worth a full read. An exhibit from the SEC case attached to the complaint lists the names of the “investment clubs.” One of the names referenced is Crowne Gold Inc. Many of the clubs had high-sounding names. It was not immediately clear if the Crowne Gold Inc. referenced in the Wachovia lawsuit was the same Crowne Gold Inc. referenced in court filings in the EMG/FinanzasForex case. The alleged EMG/Finanzas scheme was yet-another scheme pitched from the ASA Monitor and TalkGold forums — and some of the money has been linked to the international narcotics trade. It also is worth noting that scammers routinely use the names of business titans such as Warren Buffet to pull off massive swindles. As noted above, the lawsuit against Wachovia in the Theodule case alleges that Buffet’s name was used to sanitize the Theodule caper.)
