[GJM] An incredible fraud

[Rodney Shakespeare]

Dear All,

The article below was posted on the gang8 list.

The developing global financial crisis is certain to reveal fraud after fraud but this one is incredible -- the Wachovia Bank bank (USA's fourth largest bank)  knew, and knew on a large scale, what was going on for years but chose to let the fraud continue because the Bank was making a lot of money out of it!

Articles often try to get the big news up at the top of an article --but  the detail of this one one seems to get worse and worse as you read on down.

Rodney Shakespeare
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Papers Show Wachovia Knew of Thefts
By CHARLES DUHIGG
New York Times: February 6, 2008
Last spring, Wachovia bank was accused in a lawsuit of allowing fraudulent
telemarketers to use the bank¹s accounts to steal millions of dollars from
unsuspecting victims. When asked about the suit, bank executives said they
had been unaware of the thefts.

Enlarge This Image

But newly released documents from that lawsuit now show that Wachovia had
long known about allegations of fraud and that the bank, in fact, solicited
business from companies it knew had been accused of telemarketing crimes.

Internal Wachovia e-mail, for example, show that high-ranking employees at
the nation¹s fourth-largest bank frequently warned colleagues about
telemarketing frauds routed through its accounts.

Documents also show that Wachovia was alerted by other banks and federal
agencies about ongoing deceptions, but that it continued to provide banking
services to multiple companies that helped steal as much as $400 million
from unsuspecting victims.

³YIKES!!!!² wrote one Wachovia executive in 2005, warning colleagues that an
account used by telemarketers had drawn 4,500 complaints in just two months.
³DOUBLE YIKES!!!!² she added. ³There is more, but nothing more that I want
to put into a note.²

However, Wachovia continued processing fraudulent transactions for that
account and others, partly because the bank charged fraud artists a large
fee 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,
according to investigators.

³We are making a ton of money from them,² wrote Linda Pera, a Wachovia
executive, in 2005 about a company that was later accused by federal
prosecutors of helping steal up to $142 million.

Ms. Pera left Wachovia in 2006, and could not be located.

Lawyers pursuing the lawsuit against Wachovia, which was filed in a
Pennsylvania federal court on behalf of a woman named Mary Faloney and other
apparent victims, have asked a judge to declare the case a class action,
which could expand it to as many as 500,000 plaintiffs.

The lawsuit alleges that Wachovia accepted fraudulent, unsigned checks that
withdrew funds from the accounts of victims, often elderly. Wachovia
forwarded those checks to other banks that were unaware of the frauds, which
in turn sent money to the swindlers.

A judge is expected to rule on the class action request by this summer.
Wachovia, in court filings, has denied the suit¹s allegations. The company
declined to comment on the pending litigation.

However, Wachovia¹s senior vice president for risk management, Alan Chudoba,
said that the bank introduced reforms aimed at telemarketing frauds last
summer. Those changes, which came about after an article in The New York
Times last May reported that thieves had used Wachovia accounts, include
greater scrutiny of accounts used by telemarketers and stronger fraud
protections.

In a statement, Wachovia said: ³Earning the trust of our customers is at the
heart of what we do every day and we regret this situation occurred. We took
this issue very seriously, and senior management, led by C.E.O. Ken
Thompson, was actively involved in directing aggressive steps to correct the
processes related to this situation. We are confident that the changes we¹ve
implemented will help protect our customers.²

Some advocates cautiously applaud the bank¹s efforts.

³This could be very good news for millions of consumers,² said Kathleen
Keest with the Center for Responsible Lending, a group working to eliminate
abusive financial practices.

³But reforms tend to happen quickly in the light of publicity, followed by
backsliding when the spotlight fades,² Ms. Keest added.

One of the lawyers handing the Pennsylvania suit said Wachovia should do
more. ³I don¹t understand why, like other banks, Wachovia simply doesn¹t
have a policy to avoid any business related to telemarketers,² said Howard
Langer, of the firm Langer, Grogan and Diver.

A Wachovia spokeswoman said the bank was not currently working with any
telemarketers, would review any future clients who do 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.

However, Wachovia and most other banks accused of involvement in similar
frauds have never been publicly fined or prosecuted by federal regulators
for aiding telemarketing criminals.

So some victims have turned to private lawsuits.

The Pennsylvania suit against Wachovia alleges that the bank¹s involvement
with telemarketing thefts dates to October 2003, when Wachovia was warned by
another bank that a Wachovia client named AmeriNet had tried to process more
than $100,000 in improper withdrawals.

AmeriNet was a ³payment processor,² a company that creates unsigned checks
on behalf of telemarketers to withdraw funds automatically from customer
accounts. Such checks, once widely used by businesses collecting monthly
fees, are legal if customers approve the transactions.

However, a Wachovia executive wrote to colleagues, evidence suggested
AmeriNet was creating unapproved checks.

³Keep in mind historically, telemarketing is an easy way to money launder
and commit fraud. To knowingly bank a customer who is perpetrating fraud
places the bank at great exposure,² wrote that executive, Tim Brady,
according to documents that are part of the lawsuit.

Mr. Brady, who did not return phone calls, recommended closing the AmeriNet
account in 2003, according to that e-mail message. But Wachovia continued
working with the company until 2005, when AmeriNet paid $50,000 to settle
complaints filed by the attorneys general of five states. Wachovia was not
named in those complaints.

In late 2003, a Wachovia executive announced to colleagues via e-mail that
her unit, because of AmeriNet, had seen ³an increase in our annual revenue
projection.²

Wachovia declined to comment on those e-mail messages, citing pending
litigation.

Wachovia also worked with other payment processors, according to court
documents. In 2004, Wachovia held a lunch for the owner of a payment
processor that the bank knew had drawn thousands of previous complaints.

³It is important that our relationship is firm and in good standing² with
the owner of that company, Your Money Access, wrote the Wachovia executive,
Ms. Pera, to colleagues. Your Money Access was sued last year by the Federal
Trade Commission and seven states on suspicion of helping to steal up to $69
million.

There were other internal warnings, as well.

In 2005, a Wachovia fraud investigator wrote to colleagues that 79 percent
of the checks submitted by one Wachovia client, Suntasia, had been returned
in August because of unauthorized withdrawals and other problems. Regulators
say return rates in excess of 2.5 percent is evidence of potential fraud.

³I have good reason to believe that all of the deposited items are
unauthorized drafts,² wrote the fraud investigator, Bill McCann in a 2005
e-mail message.

But Wachovia continued doing business with Suntasia until last year, when
the company was shut down by a court order, according to the lawsuit.

Wachovia declined to comment on Mr. McCann¹s e-mail. Mr. McCann declined to
return calls.

Moreover, executives at other banks, including Bank of America, Wells Fargo,
Citizens Bank, the Social Security Administration and the Justice Department
Federal Credit Union also warned Wachovia multiple times that its accounts
were being used for fraud, according to the lawsuit against the bank.

In 2006, an executive at Citizens Bank wrote via e-mail that thieves were
routing unauthorized checks through Wachovia that stole from Citizens
account holders.

³We have spoken to many of our customers who have been victimized by this
scam,² wrote the Citizens executive, according to court documents. ³We would
appreciate it if you would shut down accounts of any customers of yours that
may be engaging in improper activity.²

But Wachovia kept that account open until it was frozen by a federal court a
few weeks later, as part of a government lawsuit against the client.

A Wachovia spokeswoman said that in every case where a bank complained, an
investigation was opened and that some accounts were closed.

But court records show that many of those accounts stayed open for years
after the complaints were received.

Last June, after Wachovia¹s involvement with telemarketing thefts was
reported by The Times, Congressional lawmakers, including Representative
Edward J. Markey, Democrat of Massachusetts and senior member of the House
Energy and Commerce Committee, asked five regulatory agencies to answer
questions regarding the unsigned checking system that fraud artists used.
Senator Tom Harkin, Democrat of Iowa, also asked the Senate Banking
Committee to investigate the issue.

Many of those agencies responded by saying they lacked jurisdiction.
³Clearly, more needs to be done to prevent fraud in this area,² Mr. Markey
said in a statement. A spokeswoman for Mr. Harkin said lawmakers were
considering hearings.

Other regulators say the banks are to blame.

³These types of crimes only are possible because banks tolerate them,² said
the United States attorney in Philadelphia, Patrick L. Meehan, who
prosecuted a payment processor accused of using Wachovia accounts to steal
more than $100 million.

³Who knows how many other crimes like this are occurring every day without
anyone realizing it?² Mr. Meehan said.




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