$102 Million Demand on Banks for Ponzi

     BROOKLYN (CN) – JPMorgan Chase and HSBC Bank owe $102 million for turning a “blind eye” to a man’s 30-year, multimillion-dollar Ponzi scheme, 29 investors claim in court.
     Leak plaintiff Alexander Marchak and 28 others, from Brooklyn, Staten Island, New Jersey, Pennsylvania, California and Florida, sued the banks in Kings County Supreme Court on June 3.
     They say the banks were “complicit” in Phillip G. Barry’s 30-year Ponzi scheme that he used to fund “speculative” real estate ventures.
     “Each of the banks had before it the very nuts and bolts of a Ponzi scheme: money deposited by each bank’s customers into each account to purportedly buy and sell securities – money that was obtained by that customer from hundreds of innocent investors – was not used to buy and sell securities, but instead was merely transferred by the customer into his own coffers or to redeem investments in patterns that could serve no legitimate business purpose,” the lawsuit states.
     “If the public is to have any faith or confidence in the banks and the banking system, the banks must ensure that their depositors are not misusing the financial system to commit criminal acts,” according to the 40-page complaint.
     The SEC sued Barry in September 2009, claiming he ran a $40 million Ponzi scheme through his shell companies Leverage Group, Leverage Option Management Co. and North American Financial Services since 1979.
     “With the willing participation of each of the defendants, Barry conned hundreds of investors into investing over $40 million in the Leverage investment funds by promising high, but false, rates of investment returns with guaranteed safety,” according to the new complaint.
     The plaintiffs say Barry promised 12.55 percent annual returns and that investors could cash in at any time – charges that echo the SEC’s complaint.
     But investors say that when they tried to cash out, Barry threw up roadblocks and stalled, and bounced checks to investors who insisted.
     He also doctored quarterly statements to keep investors off his trail, according to the complaint. Plaintiffs say he used the bank accounts to give the false impression that he was running a legitimate business.
     The banks should have known something was up when money came in but never went out, failed to notice that “large numbers” of checks bounced, and that big cash withdrawals were made, according to the lawsuit.
     It claims that from 2004 to 2009, the banks allowed Barry to bounce at least 1,623 checks, to the tune of $46,000 in overdraft fees.
     “The unusual activities should have triggered [an] investigation not only by the banker in charge of each of the accounts, but should also have triggered each bank’s … monitoring system,” according to the complaint.
     The scheme was facilitated by banks “willing to look the other way and would ignore the anomalous account activity,” the investors say.
     “Each of the defendants ignored years of suspicious and inexplicable activity in the Barry/Leverage accounts,” according to the complaint. “In return, each of the defendants earned revenues.
     “Each of the defendants made money and Barry/Leverage made money.”
     But investors say some of them lost their life savings and retirement funds.
     Representatives with JPMorgan Chase & Co. did not respond to a request for comment. An HSBC representative declined to comment.
     Plaintiffs seek $11.1 million in punitive damages each on seven counts, including breach of trust, aiding and abetting, unjust enrichment, fraud and negligence. They also want another $25 million in exemplary damages.
     Named as defendants are JPMorgan Chase & Co.; JPMorgan Chase Bank NA; M&T Bank Corp.; HSBC North America Inc., and DBA HSBC Bank USA NA, as successor in interest to Commerce Bank.
     Plaintiffs are represented by Nicholas Timko with Kahn Gordon Timko & Rodriguez.

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