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Sunday, June 23, 2024 | Back issues
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Wisconsin Bank Cleared of Role in Massive Ponzi Scheme

The Eighth Circuit cleared a Wisconsin bank Thursday of claims it aided and abetted a $194 million Ponzi scheme, finding it was not aware of the fraud when it opened and serviced the scammers’ accounts.

ST. PAUL, Minn. (CN) – The Eighth Circuit cleared a Wisconsin bank Thursday of claims it aided and abetted a $194 million Ponzi scheme, finding it was not aware of the fraud when it opened and serviced the scammers’ accounts.  

Federal prosecutors charged Trevor Cook and others with orchestrating a scheme that bilked investors out of millions of dollars for a purported currency exchange program.

Of the $194 million Cook and his co-conspirators raised for the currency program, only about $109 million was actually sent to currency traders. About $52 million went back to investors as “lulling payments” and $30 million was used to pay Cook and others’ business and personal expenses, according to prosecutors.

Cook was sentenced in August 2010 to 25 years in prison for orchestrating the Minneapolis-based Ponzi scheme. Patrick Kiley, a Burnsville, Minnesota, Christian radio host, used his talk show to encourage listeners to hand over their life savings. In July 2013, he was sentenced to 20 years in prison. Other scammers received lengthy prison sentences and were ordered to pay restitution to the victims. 

In November 2009, the U.S. Securities and Exchange Commission filed civil actions against the fraudsters and their businesses. A court-appointed receiver sued Green Bay, Wisconsin-based Associated Bank four years later.

The complaint alleged that former bank executive Lien Sarles had aided and abetted the scammers by helping them open accounts and then servicing those accounts even though he knew about the scheme.

The Eighth Circuit rejected the claims in a 25-page opinion Thursday, affirming a federal judge in Minnesota who found that the bank had neither actual nor constructive knowledge of the fraud. 

“The record shows nothing beyond the provision of routine banking services or, at worst, sloppy banking. The bank provided nothing beyond its standard professional services to assist the scammers in perpetrating their Ponzi scheme. No reasonable factfinder could conclude that Associated Bank provided substantial assistance to the scammers’ tortious conduct,” U.S. Circuit Judge Steven Grasz wrote for the court. 

There was scant evidence that Sarles had aided and abetted the scammers, Grasz added.

The receiver was clutching at straws when he noted that the banker had socialized with the perpetrators of the scheme and they had quoted lines "about greed" from the movies "Wall Street" and "Boiler Room,” the judge said.

“This argument borders on absurdity and illustrates the lack of meaningful evidence that Sarles had knowledge of the Ponzi scheme. Quoting lines from movies about greed and scheming does not reveal one to be running a Ponzi scheme any more than quoting lines from 'The Godfather' reveals one to be a mobster,” Grasz wrote. 

U.S. Circuit Judge Bobby Shepherd joined Grasz in the 2-1 majority.

U.S. Circuit Judge Jane Kelly dissented, saying the plaintiffs should have been given the opportunity to test their claims before a jury.

The plaintiffs had presented evidence that Sarles was on notice of the scam when he attended the fraudsters’ investment seminars. The receiver had also alleged that the banker had “personally assisted” Cook in transferring millions from investor accounts to Cook’s personal account, Kelly wrote.   

The plaintiffs’ attorney William Flachsbart of Chicago firm Flachsbart & Greenspoon declined to comment Thursday. 

Neither Associated Bank nor its attorney immediately responded to requests for comment. 

Categories / Appeals, Criminal, Financial

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