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Sunday, May 26, 2024 | Back issues
Courthouse News Service Courthouse News Service

Bank in on ATM Ponzi Scheme, Investors Say

LOS ANGELES (CN) - City National Bank helped two SoCal septuagenarians pull off a $125 million ATM investment Ponzi scheme, the men's victims claim in a class action.

The lawsuit was Courthouse News' top download on Monday.

In a 24-page complaint filed Friday, lead plaintiffs Robert Nairn, Carol Van Horst, Barbara Ortwein and Piruz Khorvash claim the bank knew about the scam from the get-go but turned a blind eye to the obvious signs of fraud.

Joel Barry Gillis, 75, and his partner, Edward Wishner, 77, both of Woodland Hills, ran a Ponzi scheme through their Calabasas-based company Nationwide Automated Systems. For almost 15 years, they "sold" supposed ATM machines for $12,000 to $19,800 apiece by telling investors they would receive 50 cents per transaction and 20 percent annual returns.

The men raked in $125 million from thousands of victims, who never received an ATM. "Instead, the investor money was used to pay other existing investors the guaranteed 20 percent return," the complaint states.

Both pleaded guilty last January to conspiracy, two counts of mail fraud and one count of wire fraud in what prosecutors called "one of the largest Ponzi schemes ever seen in Southern California." Gillis was sentenced to 10 years in federal prison in November while Wishner got nine.

Now the victims are saying that City National Bank had a hand in perpetuating the scam and must be held accountable "for the devastating harm it helped cause."

As the primary bank used by Gillis and Wishner to deposit investor money and conduct wire transfers, City National "had before it the very nuts and bolts of the Ponzi scheme and could not perform even cursory due diligence without bumping up against evidence of the fraud. Not only was defendant City National Bank instrumental in lulling investors into a false sense of security by helping to ensure that virtually none of the fictitious profit checks bounced, but it also routinely served as a reference for Nationwide Automated Systems in its recruitment of potential investors," the complaint states.

Under the Bank Secrecy Act, banks are required to establish programs to detect signs of money laundering and other forms of fraud, report any suspicious activity, and keep meticulous records for tax and possibly criminal investigations.

Furthermore, ATM leasebacks and investments scams have been recognized as one of the most popular forms of Ponzi schemes since at least 2001. In 2005, the government required banks to establish procedures to detect this type of fraud, according to the complaint.

Though City National started monitoring Nationwide Automated's account activity in 2005 and therefore knew it was issuing sham profit checks and paying older investors with new investor funds, it refused to shut down the company's account or report its suspicious activities, the plaintiffs say.

In fact, it was so "enmeshed" in the Ponzi scheme that bank representatives spoke to several potential investors on Nationwide Automated's behalf, according to the complaint.

Attorney Steve Nunez told Courthouse News that City National just learned about the complaint and has no comment at this time.

The victim seek class certification, $125 million in compensatory damages, and punitive damages for aiding and abetting fraud, aiding and abetting breach of fiduciary duty, aiding and abetting an endless chain scheme and violations of the state business and professions code.

They are represented by Peter Ward with Ward & Hagen, who did not immediately return emailed requests for comment sent Monday afternoon.

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