BOISE (CN) – In a federal class action, bondholders say the Bank of the Cascades cost them $23.5 million by handing over the money to a company that “had no assets, no investments, no independent income, and in fact was prohibited from receiving bond proceeds under the terms of the offering documents.”
Named plaintiffs Russell and Rena Firkins say the bank “utterly failed to fulfill its obligations” in bonds issued by a real estate investment company. The Firkins say the bank knowingly issued bond proceeds into a “shell corporation,” DBSI Realty, which had no assets or income, as described above.
“In return, defendant obtained ‘security’ in a number of leases to which DBSI Realty was not even a party. As difficult as this may be to believe, these are facts found
by the United States Bankruptcy Court of the District of Delaware,” according to the complaint.
The class claims the bank should have known DBSI a shell corporation that acted as “paymaster” for a group of DBSI companies. It claims that the Delaware bankruptcy judge issued an opinion in May this year, finding that DBSI Realty was not a party to any of the master leases for the bonds, that the leases did not describe security interests between any entities other than the lessor and lessee, and that property records made no reference to Bank of the Cascades nor the assignments to the bondholder trusts. “The court concluded that DBSI Realty had no security interests in anything,” the complaint states.
“By disbursing all of the bond proceeds to DBSI Realty, a company with no investments, no assets, and no income, defendant left the bondholders with nothing.”
The Firkins seek class damages of more than $23.5 million, and “punitive damages, if available,” for breach of contract and conversion.
Their lead counsel is Philip Gordon with the Gordon Law Offices, of Boise.