Federal Judge Tosses $17 Million Ponzi Case

     SAN JOSE (CN) – A federal judge Thursday dismissed with leave to amend a complaint accusing the Santa Cruz County Bank and three men of running a $17 million Ponzi scheme.
     U.S. District Judge Edward Davila gave the 21 plaintiffs until June 5 to amend their fraud complaint against the bank and John A. Geringer, Christopher A. Luck and Keith E. Rode. They were accused of managing an “illusory investment vehicle” called the GLR Growth Fund, in an account at the Santa Cruz County Bank.
     “It is undeniable that plaintiffs’ claims against defendants are all based on one ‘unified course of fraudulent conduct,’ namely, the Ponzi scheme that forms the basis of this action,” Davila wrote.
     However, “Allegations of fraud … must be ‘specific enough to give defendants notice of the particular misconduct which is alleged to constitute the fraud charged so that they can defend against the charge and not just deny that they have done anything wrong.’ … In other words, more detailed facts than is necessary to support other causes of action must be plead[ed] to support a fraud claim.”
     Lead plaintiff Raf Strudley claims the Ponzi scheme began in 2002, with the defendants committing 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 called it a classic Ponzi scheme, in which 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 the 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 claims the money also went to three companies – GLR Capital Management, Geringer Luck & Rode, and GLR Capital Advisors – and to Geringer, Luck and Rode. He claims that a bank vice president helped recruit new investors and gave the scheme a sense of legitimacy.
     He accused the bank of aiding and abetting fraud, aiding and abetting breach of fiduciary duty and negligent misrepresentation.
     The bank filed a motion to dismiss, claiming “it is subject to a more rigorous standard … because all of the claims are grounded in fraud,” Davila wrote.
     Davila agreed and dismissed the federal complaint and all claims of state law violations with leave to amend.
     Plaintiffs’ attorney Philip Gregory was not immediately available for comment.

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