Bay Area Bank Branch Accused of Profiting From Ponzi Scheme

Portland-based

Umpqua Bank’s branch in Novato is accused of having its workers assist in a Ponzi scheme that resulted in a $4.2 million loss for investors, according to a new lawsuit.

The first lawsuit was filed in 2020 by more than 1,000 investors claiming more $300 million in damages. The newest legal action, making similar claims, is filed by 11 investors who purchased tenancy-in-common investments.

The 11 investors, who lost more than $4 million to Professional Financial Investors, or PFI, sued Umpqua Bank on June 2, alleging that the bank aided, abetted and profited off of the scheme. The prior lawsuit states that more than 1,200 investors succumbed to the scam that apparently produced regular returns on real estate investments, but allegedly used new investors’ funds to pay off previous investors, and to finance the lifestyles of PFI’s now deceased founder Ken Casey and his CEO Lewis Wallach.

Casey and Wallach offered investors safe and steady returns for decades, according to the lawsuit. However, after Casey’s death in 2020, the defendants realized PFI was a scheme “likely to cost investors hundreds of millions of dollars.”

The most recent suit claims PFI raised money from investors by holding itself out as a real estate investment company. It offered individuals the opportunity to fund the purchase of commercial or multi-unit residential properties and earn returns from the rental income, the lawsuit alleges.

A month after Casey’s death, the Securities & Exchange Commission opened an investigation into PFI and suspended monthly payments to investors. The lawsuit alleges that Umpqua was the financial institution where Casey and Wallach maintained every account.

Umpqua employees in the Marin County branch allegedly set up accounts for PFI’s new investor money, and rather than transferring it to an account set up for that investor’s particular real estate project, channeled it into other accounts to cover overdrawn accounts or shortfalls in paying off investors. These new influxes of cash were also transferred to the personal accounts of Casey and Wallach, the suit alleges.

The lawsuit claims that the bank should have easily spotted the “obvious” red flags. The plaintiffs allege that the bank’s culture, which tied bonuses, commissions and incentives to total deposits, led Umpqua employees to develop a cozy relationship with PFI.

Oregon-based Umpqua did not respond to comment; however, the bank acknowledged the lawsuit to the SF Chronicle. “Similar to the other PFI-related lawsuit, we will continue to defend our company against these allegations and look forward to responding in court,” the bank said.

Soon after the SEC investigation, Wallach was indicted and pleaded guilty to wire fraud, admitting to moving more than $26 million in investor funds into his own accounts. He acknowledged using the money to help fund a land development project in Texas, an office space deal in California, oil and gas exploration and payment of his personal credit cards. He received a 12-year sentence, which the 67-year-old is serving in a Missouri federal prison.