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Thursday, April 25, 2024 | Back issues
Courthouse News Service Courthouse News Service

Plaza Bank Whacked for $1.2 Million

LOS ANGELES (CN) - Plaza Bank will pay $1.2 million to settle federal charges that it allowed "fraudsters" to withdraw millions of dollars from customers' bank accounts, and that its chief operations officer helped them do it.

Without admitting liability, Plaza Bank agreed to pay $1.2 million to settle charges it violated the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA).

"Plaza knowingly permitted fraudulent merchants, acting through an intermediary called a third-party processor, to illegally withdraw millions of dollars from consumers' bank accounts," the March 12 complaint. "When Plaza's chief compliance official raised concerns about the numerous warning signs of the fraud, such as a high number of returned transactions, as well as complaints from consumers and other banks, she was brushed aside by Plaza's chief operating officer - who, unknown to the compliance officer, also happened to be part-owner of the payment processor. Plaza thus continues to give fraudsters unfettered access to the bank accounts of tens of thousands of consumers."

The complaint does not reveal the identity of Plaza's chief operating officer or the compliance official.

When Plaza managers learned about the fraud in 2009, they "spent months debating whether the revenues these transactions were generating outweighed the possible risk to the bank. Only after hundreds of thousands of transactions were returned, more than a thousand consumer victims complaints about unauthorized withdrawals reached Plaza, and tens of millions of additional dollars had been withdrawn from consumer accounts, did Plaza finally decide to terminate the relationship," the complaint states.

The government says Plaza's chief operating officer and chairman of the board created TPPP-1, a third-party processor based in Santa Ana, before they helped found Plaza Bank in 2005. Soon afterward, Plaza hired TPPP-1 as its sole third-party payment processor.

Though the chief operating officer was obligated to reveal his ownership of TPPP-1 during the vendor selection process and in his annual disclosure statement, he did not, the government says.

TPPP-1 submitted between 1,000 and 22,000 draft demands a month from 2008 to early 2009, and the number of returned transactions and complaints of unauthorized withdrawals also mushroomed, according to the complaint.

Despite inquiries from law enforcement about possible fraud, Plaza "deliberately ignored" these red flags and let TPPP-1 continue withdrawing consumers' money for its fraudulent clients, the complaint states.

The government says the fraudulent transactions persisted even after Plaza was sold in 2009 to new management. Though the new owners immediately noticed the high return rate of TPPP-1's transactions and knew that several of its merchants were bogus, they chose to enjoy the profits generated by its business for about five months before closing TPPP-1's account with Plaza, according to the complaint.

During that time, TPPP-1 illegally withdrew $16.3 million from consumers' accounts for its fraudulent merchants, the complaint states.

But Plaza dragged out the termination process for another five months, enabling TPPP-1 to withdraw $55 million more, the government claims.

Plaza Bank CEO Gene Galloway said in a statement: "This was an issue we inherited when we took over the Bank, and as of Dec. 31, 2014 we fully reserved for this. We are pleased to finally put this matter behind us, and we will continue to focus on our core businesses - commercial and private banking for our customers."

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