The receiver rounding up assets in what federal prosecutors describe as the worst investment fraud scheme in the history of Minnesota filed a heavily redacted lawsuit Tuesday in Minneapolis accusing Associated Bank of helping convicted fraudster Trevor Cook carry out a $194 million Ponzi scheme.
Receiver R.J. Zayed said in the complaint that Cook and his associates needed "a cooperative bank" that would allow sham deposits to be posted in the names of fictitious business entities and create bogus account documentation with false information to get around federal money-laundering and anti-terrorism funding laws. He alleges they found that in Associated Bank of Green Bay, Wis., which took in more than $79 million in investor funds.
The bank's lawyers did not respond to a message seeking comment Tuesday night. When the bank was sued in 2009 by a group of Cook's investors alleging negligence, a bank spokeswoman declined to comment on the specific allegations of a pending lawsuit.
In that case, a group of investors sued the bank, alleging the bank was negligent in the handling of funds they had given Cook. But the bank prevailed when a Wisconsin judge found the bank had no duty to non-customers to investigate allegedly fraudulent activity taking place in the bank's accounts.
Zayed is suing on behalf of the entities Cook used to defraud the investors, and he's alleging complicity rather than negligence.
His lawsuit says Cook, his convicted associate Patrick Kiley, and Shadi Swais, a Jordanian who ran a Swiss currency trading firm called Crown Forex SA, were counseled by former Associated Bank vice president Lien Sarles, 30, of St. Paul, on how to conduct money transfers to avoid "regulatory difficulties."
The suit says the bank official counseled Cook and his associates not to open an account in the name of Crown Forex SA, but to create a domestic limited liability company called Crown Forex LLC to receive investor funds that would be transferred offshore.
Cook created the entity but never registered it and used it to run a sham account, the suit says. "Associated Bank knew this and still opened the account," it says.
The bank warned that the account would be closed or frozen for lack of proper documentation but never followed through, the suit says. The bank also let Cook transfer money from the account to his own accounts, the suit says. At one point, it says, the bank let him withdraw $600,000 in cash from investor funds "and stuff it into a box and walk out the door under the pretext of buying a yacht."
Zayed alleges that the bank either knowingly helped facilitate one of the largest Ponzi schemes in Minnesota history or was willfully indifferent to it. He says it ignored red flags of fraud and insolvency and violated the Bank Secrecy Act and anti-money laundering guidelines.
Swais, a former Chicago grocery clerk, has disappeared along with others associated with Crown Forex, the suit says. "Not a single penny in investor funds was ever directly transferred from the Crown Forex LLC account ... to Crown Forex SA [in Switzerland]." Instead, the bank helped transfer millions from the LLC account to Cook's own personal bank accounts, it says.
Zayed traces the connection between the bank and Cook to Sarles. He joined the bank in November 2007 when his brother, Michael Behm, was working for Kiley. Sarles met Kiley at the home where he prepared a radio program to solicit investors, and he had an insider's view of the scheme through his brother, the suit says.
Months before the scheme collapsed in July 2009, Associated Bank's internal monitors flagged the Crown Forex LLC account for suspicious activity such as money laundering, terrorist financing or other financial crimes, the suit says. But the bank ignored the red flags and allowed the Ponzi scheme to continue, it says.
The bank entered into a consent order with the Comptroller of the Currency on Feb. 23, 2012, as a result of failures to comply with the Bank Secrecy Act and anti-money laundering regulations, the suit says.
The lawsuit accuses Associated Bank of aiding and abetting fraud in its pursuit of profit, breaching its fiduciary duties, and aiding and abetting the conversion of investor assets. It seeks unspecified monetary and punitive damages to be proven at trial.
Dan Browning • 612-673-4493