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Bank Sued in $17M Ponzi Scheme

(CN) - With "shocking acts of fraud," Santa Cruz County Bank and three investment advisers bilked investors of $17 million in a Ponzi scheme, dozens of investors claim in court.

Lead plaintiff Raf Strudley sued the bank and investment advisers John Geringer, Christopher A. Luck and Keith E. Rode on Feb. 17, in Santa Cruz County Court. He claims that Ponzi began in 2002.

Strudley claims the defendants committed a "series of shocking acts of fraud and deceit" by leveraging their status in California's wealthy Santa Cruz County to gain investors' trust.

He says the advisers induced their victims to "entrust their hard earned money" to them "by promising consistent financial returns through diversified, conservative, long-term investment strategies."

But Strudley says it was a classic Ponzi scheme, and that the advisers, with the bank's help, used false and misleading marketing materials to misrepresent the performance of their private GLR Growth Fund.

The advisers claimed their fund generated annual returns of 17 percent to 25 percent by investing in companies tied to the S&P 100 and 500, NASDAQ, and Dow Jones stock indices, but actually put the money into two illiquid, privately held startup tech companies and into Ponzi payments to earlier GLR investors, according to the 81-page lawsuit, which contains another 79 pages of attachments.

Strudley says the money also went to three companies -GLR Capital Management, Geringer Luck & Rose, and GLR Capital Advisors -and to Geringer, Luck and Rode.

Strudley claims says Geringer consistently lost money, despite portraying himself as an "investment guru."

He claims that Santa Cruz Bank and its then-vice president Chuck Maffia "knowingly participated in and substantially assisted the Ponzi scheme" by serving as a banking reference for the GLR Fund and soliciting investors.

He says the bank lent its "name and prestige to the GLR Fund's operations in GLR Fund marketing materials" and transferred investors' money as Geringer directed.

Maffia is not named as a defendant. But Strudley claims that Maffia told investors the GLR Fund was a safe investment, that he was an investor earning more than 25 percent in annual returns, and that the GLR Fund never lost money.

Maffia also told investors the investment funds were kept at the bank, which provided oversight, so investors would have faster and easier access to their money when they wanted to make withdrawals, Strudley claims.

"To make assurances on behalf of the GLR Fund, Maffia went so far as to personally meet with investors" at bank offices to "notarize documents and transfer funds for investment in the GLR Fund," Strudley says.

Maffia and the bank knew the fund was an "improper investment vehicle" and might have known it was a Ponzi scheme when soliciting new investors, Strudley claims.

"Because Maffia continued to extol the security and results of the GLR Fund, Santa Cruz County Bank legitimized the GLR Fund and gave plaintiffs peace of mind" that the bank was overseeing the accounts, Strudley says.

The 52 plaintiffs, which include four family trusts, seek compensatory and punitive damages for conspiracy to commit fraud, breach of fiduciary duty, aiding and abetting fraud and breach of fiduciary duty, and negligent misrepresentation.

They are represented by Philip Gregory, with Cotchett, Pitre & McCarthy, of Burlingame.

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