CLAYTON, Mo. (CN) - Eighty-one customers claim in court that Cole Taylor Bank aided and abetted a $50 million Ponzi scheme by failing to monitor accounts.
Phillip Rosemann et al. sued Cole Taylor Bank in St. Louis County Court on nine counts, including aiding and abetting fraud, conspiracy, breach of contract, breach of fiduciary duty and negligence.
The plaintiffs claim the bank's oversights allowed Martin Sigillito to run a Ponzi scheme that defrauded investors of more than $50 million.
Sigillito, a lawyer and an American Anglican bishop, was sentenced to 40 years in federal prison in December 2012.
The plaintiffs say Sigillito targeted IRAs for his scheme. Millennium Trust was the IRA custodian for Sigillito's company, British Lending Program (BLP), the plaintiffs say.
"Millennium Trust held itself out as 'experts at custodying, or holding, alternative assets,'" the complaint states. "The IRA plaintiffs were lulled into a false sense of security by account statements from Millennium Trust and with information supplied by Cole Taylor Bank showing that their IRA accounts held investments, and hiding the fact that plaintiffs' money had simply been transferred to Sigillito's Interest on Lawyer Trust Account.
"Because Millennium Trust had no banking powers, Millennium Trust opened money market accounts for the plaintiffs' IRAs at Cole Taylor Bank. Cole Taylor Bank performed the banking services required for the IRA accounts."
The plaintiffs say Cole Taylor violated its own internal controls and federal banking laws by failing to properly monitor accounts, to obtain complete customer information, to execute advanced due diligence reviews and to investigate transaction alerts for fraud and money laundering.
They claim Cole Taylor also made false written account statements that gave the plaintiffs the impression that their money had been wired to a borrower in England.
"Cole Taylor Bank played a crucial and pivotal role in the Ponzi scheme because IRA account holders cannot directly lend their IRA money to a borrower," the complaint states. "The loan funds must pass through the custodian to comply with IRS requirements for self-directed IRAs. From January 2002 through October 2008, all alleged payments to the purported English borrower and all alleged income from the borrower were handled by Cole Taylor Bank for each of the plaintiff's IRA accounts."
When Cole Taylor got wind of Sigillito's scheme, it was required to file a Suspicious Activities Report (SAR), the plaintiffs say.
"Cole Taylor Bank agreed to allow Millennium Trust to file in the bank's place an SAR in 2008 that specifically identified the BLP as a Ponzi scheme," the complaint states. "Cole Taylor Bank's agreement with Millennium Trust not to file a proper SAR, as required, and instead allow Millennium Trust to file an SAR as part of the exit strategy, was intended to hide Cole Taylor Bank and Millennium Trust's role in the Ponzi scheme.
"The SAR that Cole Taylor Bank agreed Millennium Trust would file as part of the exit strategy was intended to create the false illusion that Millennium Trust and Cole Taylor Bank were acting responsibly. In reality, Millennium Trust and Cole Taylor Bank were intentionally acting to distance themselves from direct involvement in the Ponzi scheme in the hope that this would insulate them from liability.
"Moreover, the reason for filing the SAR was to give Cole Taylor Bank a justification for not disclosing the Ponzi scheme to the plaintiffs. SARs are highly confidential and federal law prohibits their disclosure. Cole Taylor Bank and Millennium Trust hoped to use this nondisclosure rule as a cloak for their decision not to disclose the Ponzi scheme to the plaintiffs outside the SAR process."
The plaintiffs seek $4.5 million in damages, and punitive damages.
They are represented by Jonathan F. Andres of Green Jacobson in St. Louis.
The plaintiffs have separate, ongoing litigation against Millennium Trust.
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