SIOUX FALLS (CN) – Victims of an elaborate securities fraud scheme involving overseas investment funds and the issuance of bonds by a Native American tribe in South Dakota sued U.S. Bank on negligence claims Wednesday over its role as trustee in the $63 million scam.
The plaintiffs – whom a New York federal judge called “everyday people” damaged by Jason Galanis, a Los Angeles fraudster now serving over 14 years in prison for fraud and conspiracy – include the Birmingham, Alabama, water works board and a retirement fund for teachers in Omaha, Nebraska.
They say in a complaint filed Wednesday in Sioux Falls, South Dakota, federal court that the Minneapolis-based U.S. Bank acted negligently and missed “red flags” in overseeing the sale of $63 million in tribal bonds from a group based on the Pine Ridge Indian Reservation in southwestern South Dakota.
“Common sense, and even the most passing acquaintance with the three other main parties to the deal, made it look suspect,” the plaintiffs say in their lawsuit.
“An impoverished and financially unsophisticated tribal entity was to gain easy access to over $20 million for economic development; a small, thinly capitalized New York broker dealer, Burnham Securities, LLC, served as placement agent; and Hugh Dunkerley was a principal of both Burnham and the offshore annuity provider,” the lawsuit says.
U.S. Bank spokeswoman Cheryl Leamon declined to comment on the lawsuit.
“As a matter of practice, we don’t comment on pending litigation,” Leamon said.
The plaintiffs say U.S. Bank – as the go-between for the issuance of money between the tribe and investors – was asleep at the wheel and had a job to “protect investors.”
Bonds to fund community improvement projects stemmed from a Las Vegas conference attended by Galanis and representatives with the Wakpamni Lake Community Corporation, who eventually issued two sales of bonds. In August 2014, Wakpamni sent nearly $25 million of bonds to U.S. Bank. A day later, a firm representing Birmingham Water and sanitary workers in Washington purchased $8 million in bonds.
But the lawsuit says the details were fishy. First of all, a Lichtenstein investment manager was named in an early draft of the contract sent around to parties, but was replaced on the final draft by a manager based in British Virgin Islands firm who legally couldn’t do business anywhere outside the islands.
Moreover, U.S. Bank didn’t have a relationship with Galanis’ New York investment team and therefore “disbursed more than $22 million based solely upon the instructions of a stranger,” the plaintiffs say in the lawsuit
According to the plaintiffs, U.S. Bank was to issue the money to a JPMorgan Chase bank account in Beverly Hills, California, owned by a company incorporated in Florida only days earlier – with virtually the same name as the British Virgin Islands firm.
“As the indenture trustee responsible for releasing those funds, U.S. Bank should have found these omissions irregular and troubling,” the plaintiffs say.
The Wakpamni Lake Community Corporation no longer has a website, and there was no answer with the Ogalala Sioux Tribe’s offices.
This past January, Galanis, 47, pleaded guilty to masterminding the massive scam in which he skimmed proceeds of bonds issued by the Wakpamni Lake Community Corporation to unsuspecting investors he’d organized.
A New York federal judge sentenced Galanis to 173 months in prison. Forbes dubbed him “Porn’s New King” due to his investments in a credit-card processer for adult websites.
Galanis’ father spent time in prison in the 1980s over his role in a $400 million fraud case in Los Angeles.
The plaintiffs are represented locally by Patrick Dougherty of Dougherty & Dougherty in Sioux Falls. Dougherty did not respond to a request for comment.
Plaintiffs include the Water Works Board of the City of Birmingham, Alabama; the Washington, Maryland, Suburban Sanitary Commission Employees’ Retirement Plan; Atlantic Global Yield Opportunity Master Fund; and Atlantic Global Yield Opportunity Fund.
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