Wells Fargo didn't block fraud loss, lawsuit says

  • Article by: DAN BROWNING
  • Star Tribune
  • April 9, 2012 - 8:56 PM

Sometimes, even smart guys get taken.

That's what the Edina law firm of Milavetz, Gallop & Milavetz (MGM) says happened after it received an e-mail from someone claiming to be a 40-year-old Korean woman who'd been hurt in Minnesota, and who needed help securing a $400,000 legal settlement.

Unbeknownst to Milavetz, the government had begun a secret investigation a year earlier of Nigerian collection scams that target U.S. lawyers in a strikingly similar pattern.

That investigation led to a federal indictment in Harrisburg, Pa., of a Nigerian man and a Canadian resident. Much of the case is under seal, but the government alleges that they were part of a far-flung international conspiracy that has cost 80 victims -- lawyers and law firms -- at least $32 million, and that failed in attempts to extract more than $100 million from about 300 other targets.

Robert Milavetz says his firm was a victim of that scheme three years ago. Now, in a 50-page lawsuit filed Friday in U.S. District Court in St. Paul, Milavetz argues that Wells Fargo Bank should cover the law firm's losses.

According to Milavetz, the bank had ample warning that a Nigerian fraud ring was targeting U.S. lawyers. And yet despite special precautions requested by the law firm on its escrow account, the bank allegedly ignored red flags and allowed the money to be wired to a Hong Kong bank, where it disappeared. The bank then charged the law firm for the missing funds.

"The most obvious red flag may have been that the branch address written on the purported official check ... was misspelled," the suit says.

Wells Fargo issued a brief statement on the lawsuit Monday. "We believe the allegations have no merit. We will vigorously defend, and expect to prevail," it said.

Milavetz alleges that Wells Fargo had a potential conflict of interest because of a federal program that offered rewards of up to $150,000 to individuals, including bank employees, who provide actionable information to the government about money laundering or terrorism financing.

Scamming law firms

Here's how the scheme works, according to the federal indictment in Pennsylvania: A co-conspirator contacts a law firm, usually by e-mail, seeking help to collect a legal settlement or payments from a divorce or real estate transaction. Another co-conspirator poses as a representative of the party who owes the money and then delivers a counterfeit check. After the check supposedly clears, the money is wired to a bank, usually in Asia, from which it disappears.

That's precisely what Milavetz says happened to his firm. The suit says the check his firm received was allegedly drawn on Citibank and had the same account number and telephone number as at least three other law firms victimized in the alleged scam.

Wells Fargo flagged the $400,000 check as possibly fraudulent "at least three days prior to the wire transfer," the Milavetz suit says, yet bank employees told the law firm that the check had "cleared" and then failed to inform the firm to the contrary until about a week after it had wired away the money.

Milavetz alleges that the bank relied on a computer program to determine whether to "clear" the check, but the suit alleges that the concept is meaningless because the bank has a policy allowing it to reverse its decision after the funds go missing.

"Wells Fargo's policy is, that there is no defined 'end point' at which the bank considers a check to be finally settled," the suit says.

Milavetz alleges that Wells Fargo, its officers and employees knowingly engaged in the transaction knowing that it involved criminal activity, or were willfully blind to the facts and the law.

The suit seeks to have a judge reverse the $396,500 charge to the law firm's trust account.

Dan Browning • 612-673-4493

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