Bank of America: “Bank of Opportunity for Convicted Fellons” Part 2

We’ve discovered that it’s no accident that Bank of America is the “Bank of Opportunity” for convicted felons. The bank’s modus operandi  is to “See No Evil, Hear No Evil, Speak No Evil.”

As outlined in the class action suit we filed last month, Bank of America (NYSE:BAC), the nation’s largest bank, substantially assisted Nicholas Cosmo’s $400 Ponzi scheme and played a major role in the loss of investor funds. The evidence is substantial that Bank of America knew, or should have known, that Cosmo was committing fraud. Cosmo was indicted earlier this week for mail and wire fraud. 

Our investigation has progressed and in the amended complaint we filed yesterday, we allege that Bank of America not only opened the proverbial barn door to Cosmo’s victims, the bank personally guided them through the barn.

Cosmo is a convicted felon who after completing a nearly two year stint in federal prison founded Agape World, Inc., a Long Island company specializing in making short-term “bridge” construction loans carrying high interest rates. Through a network of about a dozen brokers, Cosmo gathered some $400 million from investors who wanted to realize the attractive rates of returns. Unbenounced to the investors, Cosmo re-sold the same interests hundreds, if not thousands, of times. 

Although Bank of America ostensibly has “know your customer” rules and procedures, our complaint alleges that employees were routinely pressured to ignore obvious red flags such as a customer whose rap sheet includes securities fraud. 

Once upon a time BoA had a special unit based in Boston dubbed the “High Risk Group” whose mandate was to ferret out fraudsters like Nick Cosmo.  But we’ve learned that in 2006 Bank of America summarily shut the unit down because conscientious employees were resisting pressure to circumvent the bank’s purported “know your customer” rules.

Bank of America’s shuttering of its “High Risk Group” might also explain how in 2008 Florida fraudster Andy Bowdoin managed to use Bank of America as a conduit for his Ponzi scheme.   At Bank of America revenues apparently supersede all other obligations and considerations.

Our amended lawsuit also alleges that Bank of America apparently provided Cosmo access to information about the cash balances of Agape investors who had accounts with Bank of America.  Agape investors routinely received aggressive solicitations from Cosmo when their balances swelled.  So much for client confidentiality. 

Bank of America’s privacy problems are particularly alarming because back in July of 2007, the bank settled a lawsuit with the Utility Consumers Action Network, who alleged Bank of America disclosed consumers’ personal, private, confidential information to third parties without consumers’ consent. As part of the multi-million dollar settlement Bank of America made changes to its various privacy policies, it’s Web site and its procedures

Generating revenues to the detriment of customers is quite common on Wall Street. One of the best documented examples is the Commonwealth of Massachusetts’ complaint against Merrill Lynch regarding that firm’s peddling of auction rate securities.   ”Time after time, when confronted with conflicts of interest, Merrill Lynch was consistent in that it placed its own interests ahead of its investor clients,” the administrative complaint charged.

Bank of America acquired Merrill Lynch earlier this year.  When it comes to customer exploitation, it’s a marriage made in heaven.

How Bank of America and MF Global Figure Prominently into the Agape Ponzi Scheme

My office is actively investigating the Bernard Madoff and Nicholas Cosmo Ponzi schemes. Although our investigations are not yet complete, we’ve already established substantial evidence that Madoff and Cosmo didn’t act alone – some major publicly-traded companies figure prominently in their schemes. I’ll post my Madoff findings shortly, but here is what we’ve uncovered so far about Cosmo’s Ponzi scheme.

As outlined in the class action lawsuit we filed today, we allege that Bank of America (NYSE:BAC), the nation’s largest bank, and MF Global (NYSE:MF), a major commodities futures trading firm, substantially assisted Cosmo’s fraud and played a major role in the loss of investor funds. The evidence is substantial that Bank of America and MF Global knew, or should have known, that Cosmo was committing fraud.

Cosmo is a convicted felon who after completing a nearly two year stint in federal prison founded Agape World, Inc., a Long Island company specializing in making short-term “bridge” construction loans carrying high interest rates. Through a network of about a dozen brokers, Cosmo gathered some $400 million from investors who wanted to realize the hefty rates of returns. Unknown to the investors, Cosmo re-sold the same interests hundreds, if not thousands, of times. Most of Cosmo’s investors were blue-collar workers with limited investment understanding or experience.  One of the plaintiffs we represent is seriously ill with stomach cancer and his wife just gave birth to a child.

As I’ve noted earlier, Agape’s marketing materials listed Bank of America as the company’s “banking agent,” but the “Bank of Opportunity” provided more than routine banking services on behalf of Agape.  We’ve learned that a Bank of America employee maintained an office at Agape’s headquarters which was some thirty miles from the West Hempstead branch where she was based.  The employee regularly cut checks at Cosmo’s behest and performed other functions normally associated with those of a personal assistant. The Bank of America employee had a bird’s eye view of Cosmo’s financial transactions and knew first hand that the substantial inflow of funds was coming from investors and that most of the outflows were used to subsidize Cosmo’s lavish lifestyle or pay off his brokers.

Cosmo also speculated heavily in commodities futures trading that resulted in more than $80 million in losses. Despite being a convicted felon and having been permanently banned by FINRA from the securities industry, Cosmo managed to open accounts at MF Global, where he did most of his trading, and other commodities firms.

MF Global isn’t known for its risk management and compliance. The firm last year suffered more than $140 million in losses because a trader made some ill-timed wheat-price bets that “substantially exceeded his authorized trading limits.” The company this week admitted at a UK trial to defrauding a former client after previously issuing repeated denials. It’s been reported that at least one MF Global rival refused to do business with Cosmo because he didn’t pass muster with the compliance department.

It will be interesting to see how Bank of America and MF Global publicly respond to our lawsuit.  On its website Bank of America proudly declares that “It is the policy of Bank of America to take all reasonable and appropriate steps to prevent persons engaged in money laundering, fraud or other financial crimes…” Given that Bank of America also figures prominently into another Ponzi scheme run by convicted felon Andy Bowdoin, I look forward to learning more about Bank of America’s supposed preventive measures.

As for MF Global, the company was quoted this week in connection with another fraud as saying that “MF Global’s corporate values require that all employees maintain the highest standards of ethics and integrity.  We have zero tolerance for anything but.” Apparently, opening an account for a felon convicted of securities fraud who was permanently banned from the securities industry doesn’t violate MF Global’s esteemed values.

Sadly, the SEC again has been found to be sleeping. The Agape wrongdoing was exposed by the U.S. Postal Inspection Service.  Underscoring the SEC’s chronic somnambulism, Agape’s website remains live where an application form is still prominently displayed.

Pleasant dreams, SEC.

Bank of America: “Bank of Opportunity” for Convicted Felons?

The New York Times last week published an investigative story questioning JPMorgan Chase’s connection to the Bernie Madoff scandal.  Similarly, I’m looking for answers about Bank of America’s connection to two other Ponzi schemes that were concocted by known felons. While these schemes pale in comparison to Madoff’s $50 billion fraud, the possibility that America’s biggest banks were potentially involved in allowing sizeable Ponzi schemes is most disturbing.

My office, on behalf of clients, is still in the early stages of investigating Agape World, Inc., a $380 million Ponzi scheme allegedly carried out by Nicholas Cosmo.   We have learned that Agape World on its contracts listed Bank of America as its “banking agent” and that all monies to the fund were wired to a BofA branch on Long Island.

We haven’t yet determined exactly what functions BofA provided Agape World. “Banking agent” functions often include performing back-office operations, which presumably would have given the branch a bird’s eye view of transfers to and from Agape World’s account.  Agape World required a minimum investment of $20,000, and given the reported size of Cosmo’s Ponzi scheme, the account likely generated considerable activity (and, no doubt, lucrative fees).

Under the Patriot Act, banks are required to be on the outlook for suspicious or fraudulent activity and report wire transactions of $10,000 or more.  Most banks typically are very diligent about complying with the law: The Fed’s uncovered Eliot Spitzer’s proclivity for prostitutes when the former New York governor’s bank reported the transfer of funds to the company that arranged his illicit liaisons.  Given that Cosmo had previously been convicted of securities fraud and ordered to undergo gambling therapy, BofA had plenty of reason to closely monitor his account.

Earlier this month, BoA was sued by a group of investors for being complicit in an Internet “ad package” Ponzi scheme.   According to the lawsuit, a small Bank of America branch in Florida was the conduit for the scheme operated by Andy Bowdoin, who also was previously convicted for securities fraud.    The lawsuit claims that at least one other financial institution closed accounts related to Bowdoin’s fraud, VISA would not process charges relating to his scheme and PayPal allegedly rejected efforts by Bowdoin and his perpetrators to use its popular payment system.

As evidenced by its hasty and misguided acquisition of Merrill Lynch, it’s already known that due diligence isn’t one of BofA’s core competencies.  And perhaps it’s merely a coincidence that two securities fraudsters chose to orchestrate their Ponzi schemes through BofA branches.   But this matter is worthy of close and aggressive examination. Given that JP Morgan Chase and BofA are now wards of the government, Congress and regulators should be fast demanding some answers.

Clearly at the top of the Obama administration’s agenda is securities industry reform.  Given the rash of Ponzi Schemes of late, they would be wise to consider the role of banks in monitoring such activity.