The Expert Podcast

The end of 2022 has seen a lot of developments with large-scale Ponzi schemes and scams and frauds, FTX allegedly being one of them, but there have been others too. As you've seen many times on this channel, we've talked about how victims can get back money from scams even if the principal in the scam took all the money and spent it and it comes from third parties. This is a great example of how that happened. Investors get okay for recovering money from a bank over a customer's Ponzi scheme and it's exactly what it sounds like.

A customer of this bank ran a Ponzi scheme. The bank didn't know anything about it, right? But because they didn't do a few little details about managing that customer's account properly, they're now maybe on the hook for paying back the victims even if the scammer spent all the money or squandered it. The victims can get back money from a third party and that's a lot of times what we do in investigations—find out who are the third parties that might have some liability: banks, accountants, attorneys, sales companies, advertising companies. And that's how victims get back money when the scammer is either out of money or sometimes can't even be found.

So let's take a closer look at this one. In this case, investors lost 300 million in a Ponzi scheme perpetrated by a customer of this bank, a depositor of this bank. The U.S. District Judge denied the bank's motion to be excluded from the case. He also certified the case as a class action, so everybody now can join together. The investors claim that Umpqua Bank aided and abetted the scammers. Well, they didn't join in and actually do the scam, but because they allowed this scammer to open an account and didn't do proper due diligence, the scam was enabled or expanded and the bank now has liability.

How did they come to that conclusion? Well, the investigation found that Umpqua Bank, its own fraud detection software, issued 146 alerts of specific suspicious activity of PFI, which is the scam company. Records at the Nevada branch clearly laid out the flow of funds and it showed that it was fraudulent. So the bank even saw this in advance. Now, somebody at the bank didn't see it and say, "I'm going to let this scammer do it." They probably didn't even notice it. They probably didn't even have it on their radar screen.

So if you're a victim of a fraud or a Ponzi scheme and you're worried that maybe the scammer can't be found because they're overseas or out of the country or if they are not going to have any assets, keep in mind that third party liability may be the saving grace sometimes. It's an insurance company that is insuring somebody and that insurance may have liability limits that pays off claims of investors.

You want to get good legal advice—we're not attorneys and not giving you official legal suggestions—but as an investigative agency, we have seen many times where third party liabilities allow for investors to get back funds when the original scammer or fraudster doesn't have enough funds to go around to pay everybody off. Third parties, like in this case the bank, may be the way to get all the investors made whole.