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Eighth Circuit Hears Ponzi Case Against Regional Bank

The Eighth Circuit heard arguments Thursday over a court-appointed receiver’s claim that Wisconsin-based Associated Bank played a role in a $79 million Ponzi scheme.

ST. PAUL, Minn. (CN) – The Eighth Circuit heard arguments Thursday over a court-appointed receiver’s claim that Wisconsin-based Associated Bank played a role in a $79 million Ponzi scheme.

R.J. Zayed, in his capacity as receiver for Oxford Global Partners LLC and Universal Brokerage FX, was appointed to locate assets from the Ponzi scheme orchestrated by Trevor Cook and Patrick Kiley.

The U.S. Securities and Exchange Commission brought civil actions against Cook, Kiley, and others in Minneapolis federal court in November 2009. Cook later pleaded guilty to criminal charges and Kiley was convicted by a jury.

Millions of dollars of investors’ funds were lost in the scheme designed and promoted by Cook, Kiley and a member of the Swiss company Crown Forex SA. The scheme reportedly used corporate entities that promised investors lucrative returns through a foreign currency-trading program with Crown Forex.

When the entities opened accounts with multiple banks, including Green Bay, Wis.-based Associated Bank, the bank’s then-Vice President Lien Sarles falsified documents, the receiver’s attorney Robert Greenspoon said before an Eighth Circuit panel Thursday.

Counsel on each side had 15 minutes make their case about whether Sarles knew about the Ponzi scheme. The courtroom was jammed pack with law students, many of whom were attending one of their last hearings as students.

The receiver, Zayed, recused himself from the SEC case in April 2013. Later that month, he filed a fraud and fiduciary lawsuit against Associated Bank, but the court ultimately dismissed the complaint for failure to adequately plead knowledge or substantial assistance on the part of the bank.

Zayed appealed to the Eighth Circuit, arguing in a brief that the district court made its decision “as if nothing unusual occurred when the Bank’s suburban branch in Eagan, Minnesota hosted multiple Cook/Kiley Ponzi scheme accounts, except that one or two instances of negligent banking hampered efforts to catch a fraud.”

His attorney, Greenspoon, argued before the Eighth Circuit panel Thursday that Sarles knew about the Ponzi scheme and allowed non-signatories to withdraw funds from the bank accounts.

Greenspoon said account documents completed by Sarles were made to appear as “bland” as possible to avoid scrutiny.

The receiver’s attorney continued to argue that inconsistencies in the record prove that Sarles didn’t just miss “red flags,” like the district court found. Zayed’s brief says “sufficient evidence of knowledge and substantial assistance existed in the record to establish at least genuine issues of material fact on the bank’s aiding and abetting liability.”

U.S. Circuit Judge Jane Kelly asked about “constructive knowledge” on the part of the bank regarding the Ponzi scheme.

Greenspoon said in response that he believed the receiver “meets both thresholds” for circumstantial evidence and constructive knowledge.

Charles Webber, attorney for Associated Bank, told the panel that there is no evidence that the bank had actual knowledge of the fraud.

According to Webber, the receiver has no direct knowledge and has instead used “circumstantial evidence in inferences that are not…based on the facts and often stacks one inference on another inference.”

Judge Kelly asked Webber why Sarles’ actions appear noncompliant in the record and whether a judgment call on the facts should be left for a jury.

“This court has said you can’t pile inference on inference to avoid summary judgment,” Webber replied.

Thursday’s appellate panel was comprised of U.S. Circuit Judges Bobby E. Shepherd, L. Steven Grasz and Kelly.

It is unclear when the Eighth Circuit will make a decision in the case.

After the hearing, the panel called for a moment of silence in memory of fellow Eighth Circuit Judge Diana Murphy, who passed away Wednesday at the age of 84.

Categories:Appeals, Financial

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