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Wachovia Lawsuit Alleges Bank Knew of Fraud

Feb 8, 2008 | Parker Waichman LLP

Wachovia Bank—the nation’s fourth largest—was accused of allowing fraudulent telemarketers to use the bank’s accounts to steal millions of dollars from unsuspecting victims in a 2007 lawsuit.  Bank executives maintained that they were unaware of the thefts, but in newly-released documents from that lawsuit, Wachovia had both long known about allegations of fraud and had actually solicited business from companies it knew had been accused of telemarketing crimes.

Internal Wachovia email revealed high-ranking employees warned colleagues about telemarketing frauds routed through its accounts.  Documents also indicate Wachovia was alerted by other banks and federal agencies about ongoing deceptions, but that it continued to provide banking services to companies that helped steal as much as $400 million from unsuspecting victims.  Despite this, Wachovia continued processing fraudulent transactions, earning large fees every time a victim spotted a bogus transaction and demanded their money back.  One company alone paid Wachovia about $1.5 million over 11 months.  “We are making a ton of money from them,” wrote Linda Pera, a Wachovia executive, about a company later accused by federal prosecutors of helping steal up to $142 million.

The lawsuit alleges Wachovia accepted fraudulent, unsigned checks that withdrew funds from victims’ accounts, forwarding them to other banks unaware of the frauds, which then sent money to swindlers.  A Wachovia spokeswoman said the bank was not currently working with telemarketers, would review future clients who work with telemarketers, and would reject any client solely focused on telemarketing.

In the last three years, government agencies have sued several companies accused of routing telemarketing thefts through at least nine banks, including Wachovia, the largest company named in those lawsuits.  Wachovia and most other banks accused have never been publicly fined or prosecuted by federal regulators, so some victims have turned to private lawsuits.

The suit alleges Wachovia’s involvement with telemarketing thefts dates to 2003 when Wachovia was warned by another bank that AmeriNet tried to process over $100,000 in improper withdrawals.   In 2005, a Wachovia fraud investigator wrote to colleagues that 79 percent of the checks submitted by Suntasia had been returned because of unauthorized withdrawals and other problems.  Regulators say return rates over 2.5 percent indicate potential fraud.  Wachovia continued doing business with Suntasia until last year when the company was shut down by court order.  Executives at other banks, including Bank of America, Wells Fargo, Citizens Bank, the Social Security Administration, and the Justice Department Federal Credit Union warned Wachovia multiple times that its accounts were being used for fraud.  In 2006, an executive at Citizens wrote that thieves were routing unauthorized checks through Wachovia that stole from Citizen, but Wachovia kept that account open until it was frozen by federal court.

A Wachovia spokeswoman said in every case where a bank complained, an investigation was opened and some accounts were closed.  Court records show many of those accounts remained open for years after complaints were received.  “These types of crimes only are possible because banks tolerate them,” said U.S. attorney Patrick L. Meehan, who prosecuted a payment processor accused of using Wachovia accounts to steal over $100 million.


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