PHILADELPHIA (CN) - An attorney for customers of a failed bank sued the Department of Justice for the name of a Federal Reserve official who may have known of the bank fraud as it was happening.
Howard Langer, a founding partner of Langer, Grogan & Diver, sued the Department of Justice in Federal Court on June 25. He wants to see the "source document" for a letter prosecutors used against First Bank of Delaware, which agreed to a $15 million settlement, and folded in November 2012.
Prosecutors charged the bank with knowingly allowing scammers to withdraw money from customers' accounts despite multiple red flags. Langer represented plaintiffs in the case and in a similar case against Salt Lake City-based Zion Bank.
Among those red flags were a high rate of returns - transactions sent back because they are unauthorized or the customer has insufficient funds.
"Returns are rare," the complaint states. "If a single account is generating a significant number of returns it is an indication that fraudulent activity may be present because returns occur either when a consumer stops payment after realizing that she or he has been defrauded or after a consumer discovers that unauthorized charges have posted to his or her account."
Prosecutors used a May 2010 letter that an unnamed official at the Federal Reserve sent to a First Bank of Delaware employee, implying that the official was aware of the high rate of returns at the bank.
The letter said: "(A) return rate of 10 percent (which is on its face significantly in excess of industry norms) would likely be regarded by bank supervisory agencies and/or law enforcement agencies as prima facie evidence that your bank knew or should have known that your [third-party payment processors and/or merchants] had engaged in fraudulent activities. Whether a return rate of 10 percent might expose your bank to potential liability is an issue that we urge you to consider carefully in consultation with your legal counsel." (Parentheses in complaint, which cites the May 10 letter.)
Langer filed a Freedom of Information Act request in 2013, which the Department of Justice refused in May 2014. The Justice Department referred his appeal to the Federal Reserve, which told him that it is not subject to FOIA.
Langer wants to see the "source document" for the letter, and costs of suit.
He filed the case pro se, in his own name - not the name of his law firm.
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