(CN) — Wells Fargo cannot evade responsibility for its role in a so-called "Mormon Ponzi scheme," a federal judge has ruled.
U.S. District Judge Gloria M. Navarro denied the banking giant’s motion to dismiss class action claims for violations of the Uniform Fiduciaries Act and aiding and abetting breach of fiduciary duty and fraud — all of which are tied to the 2022 arrests of Jeffrey Judd and lawyer Matthew Beasley who allegedly ran a $500 million Ponzi scheme that preyed upon members of the Church of Jesus Christ of Latter-day Saints.
Journalist Lizzie Johnson of The Washington Post reported the details in legacy of investigative reporter Jeff German from the Las Vegas Review-Journal.
According to Johnson, the con began with Beasley’s gambling addiction in 2016, when he approached Judd with an "investment opportunity" to bridge loans for slip-and-fall victims waiting for the settlements. The scheme called for Judd to pay in $50,000 and Beasley would pay out $60,000 within 45 days. Judd bit, bringing more investors with him over the years to amass the millions. The only problem: there were no slip-and-fall victims.
According to the class action filed against Wells Fargo in 2022, for five years, the scheme “enticed investors to pay large sums for the opportunity to buy shares of future personal injury settlements.” The men promised investors significant, annualized rates of return with little to no risk and that their funds would be held in an attorney trust fund for safety. That account was at Wells Fargo.
“The account statements for the attorney trust account at Wells Fargo show unmistakable signs of a Ponzi scheme,” lead plaintiff Barrett Henzel says in the class action. “While privy to all that activity, Wells Fargo opted not to investigate or warn investors, and instead continued to provide its services to Beasley.”
Between 2017 and 2022, over 900 people — mostly of the Mormon faith — invested an estimated $500 million into the scheme. Meanwhile, SEC forensic accounting showed Beasley sent his bookie over $6.7 million, according to Johnson. That’s in addition to his $3.8 million house in South Lake Tahoe, California, and roughly $1.3 million spent on an RV, a Bentley, a boat and two jet skis.
Judd told the FBI that he didn’t know it was a Ponzi scheme. He did, however, receive at least $315 million from the whole ordeal and, at one point, addressed the investment in a text message as an “illegal business.”
Johnson reported the government has recovered around $90 million in investor funds through seized assets.
“The law does not allow Wells Fargo to ignore such obvious signs of fraud. Nor does the law permit Wells Fargo to continue to offer its services uninterrupted while refusing to investigate or take any other action to protect the victims of the fraud. Yet that is precisely what Wells Fargo did," Hezel says in the complaint, adding that the men siphoned so much money, that by the time the FBI took action, only $4 million remained in the account.
Judge Navarro noted Wells Fargo had actual knowledge of the fraudulent scheme and executed requested banking transactions despite knowing as much, and denied the bank's motion to dismiss all but one claim.
“Indeed, Wells Fargo allegedly continued to assist in the operation of the scheme even after Wells Fargo employees raised concerns about the IOLTA,” Navarro wrote in the order issued Saturday. “The court finds that plaintiffs adequately alleged the substantial assistance prong.”
Navarro also found the class sufficiently pleaded claims against the bank for aiding and betting breach of fiduciary duty — given that class members trusted Beasley as an attorney to hold their money within an attorney bank account — as well as a claim under the Uniform Fiduciaries Act.
According to Navarro, a bank in Nevada is liable under the Uniform Fiduciaries Act when a “bank pays a check with actual knowledge that a fiduciary is committing a breach of its obligations as fiduciary in drawing the check or with knowledge of facts that its action in paying the check amounts to bad faith.”
She added: “The court has already determined that plaintiffs adequately alleged that Beasley had a fiduciary duty to plaintiffs and that Wells Fargo had actual knowledge of the scheme."
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