MANHATTAN, N.Y. (CN) – A federal class action claims Fiserv Trust and other banks were “asleep at the switch” when they lost millions of dollars in Individual Retirement Accounts to a Ponzi scheme by giving money manager Daniel Spitzer “unfettered access” to the accounts. The SEC sued Spitzer in June in a case involving $105 million.
In its June 14 complaint, the SEC claimed Spitzer “moved more than $105 million through his affiliated investment funds, sold interests to over 400 investors under the pretense of managing investments in funds engaged in primarily currency transactions, commingled the money and used it to pay off older investors and Spitzer’s expenses and lavish lifestyle.”
In the new case, three named plaintiffs claim Fiserv failed to investigate Spitzer before giving him “a position of trust over their customer’s IRA and pension funds accounts and by giving … access to all of the monies that had been deposited in such accounts by plaintiffs and the class.”
Had Fiserv investigated Spitzer, it would have found that in March 2001 the SEC entered a cease and desist order against him for selling more than $17 million of unregistered securities, the investors say.
Instead, Fiserv and other defendants, including Lincoln Trust Co and Trust Industrial Bank, “failed to obtain audited financial statements from a recognized accountant and advice from Depository Trust Company, Euroclear or others that the assets with the third party (Daniel Spitzer) existed,” according to the complaint. So Spitzer was able to use the defendant companies “as a clearinghouse to loot the IRA,” diverting cash to foreign bank accounts and to himself to cover up his gambling debts, the complaint states.
Had Fiserv performed “the minimum standards of fiduciary conduct,” it would have learned that Spitzer failed to provide “sufficient liquid funds in certain Fiserv customer accounts to pay required minimum distributions to IRA beneficiaries,” the class claims. The investors say that the defendant companies failed to keep their accounts safe, so Spitzer “immediately commingled and took them.”
Although Fiserv received repeated complaints from IRA beneficiaries about late, required minimum distribution payments, it still failed to investigate the issue across all of its IRA accounts, the class claims.
It claims that a former president of Fiserv’s own Affinity Group acknowledged that Fiserv “systemically failed to maintain red flags, customer complaints or other indicia indicating that an audit should be undertaken to insure that assets were being preserved.”
The class claims its members had no contact with Fiserv until after Spitzer’s arrest, although Fiserv “repeatedly and continuously sent inaccurate account statements to plaintiffs and the class reflecting investments in purported uncovered securities … which did not in substance exist.”
Lead plaintiffs Ralph and Debra Rosato claim they invested about $800,000 through IRA accounts in the Spitzer Ponzi scheme through defendants, while plaintiff John Hill III claims he invested $480,000.
The defendants also acted as IRA custodians for Bernard Madoff and his company, Bernard Madoff Investment Securities, allowing him to defraud thousands of investors of billions of dollars, the class claims.
Named as defendants are Fiserv Inc., Fiserv Trust Co., Retirement Accounts Inc., NTC & Co. LLP, Trust Industrial Bank, and Lincoln Trust Co.
The class seeks class certification, restitution, and compensatory and punitive damages for breach of fiduciary duty, unjust enrichment, gross negligence, and breach of contract, under state and federal laws.
Its lead counsel is Christopher Lovell with Lovell, Stewart, Halebian & Jacobson.