A federal judge in Minneapolis refused to dismiss a lawsuit against Associated Bank that accuses it of helping convicted fraudster Trevor Cook and his associates carry out Minnesota’s second-largest Ponzi scheme.
U.S. District Judge David S. Doty issued a 13-page order Tuesday saying that a receiver appointed to round up assets from the $194 million fraud scheme could continue its lawsuit against the bank on grounds that a former associate vice president of the bank had facilitated the scheme.
A spokesperson for the Wisconsin-based bank could not be reached immediately for comment.
Cook, a former Burnsville money manager, orchestrated a scheme that bilked more than 700 investors nationwide, mostly retirees. He is serving a 25-year prison term at the federal prison in Sandstone.
The public voice for the scheme, Patrick Kiley, lured 70 percent of the investors through his former radio program, “Follow the Money,” which was broadcast on a Christian shortwave network and bought time on about 200 stations at its peak. He is serving a 20-year sentence at the federal prison in Rochester.
Several other participants in the scheme were sentenced to terms ranging from 7 ½ years to 30 years in prison.
The receiver’s lawsuit alleges that Lien Sarles, a former bank employee who was never charged criminally, had advised Cook and Kiley on how to open an account in the name of a dummy entity to avoid regulatory issues. The fraudsters ran $79 million in investor funds through the account at Associated Bank, the sixth-largest bank in Minnesota.
Sarles also approved more than $3 million in transfers from the dummy company’s account to Cook’s personal accounts, even though Sarles allegedly knew that it contained investor funds and that Cook had no signatory authority over the account, Doty wrote in his order.
The bank also approved Cook’s request to withdraw $600,000 from the account for the purported purpose of buying a yacht even as the scheme was cratering in 2009 in the wake of an investor lawsuit. The receiver also alleges that Associated Bank prepared $3.2 million in cashier’s checks that included inaccurate remitter information.
The receiver sued the bank in 2013 with allegations of aiding and abetting fraud, breach of fiduciary duty, conversion, false representation and omissions. The court dismissed the suit five months later for failing to plead that the bank had provided substantial assistance or knowledge of the Ponzi scheme.
The Eighth U.S. Circuit Court of Appeals reversed that decision this year and sent the case back for further action.
Associated Bank again sought a dismissal, arguing that the receivership, which represents the Ponzi schemers’ failed businesses, shouldn’t benefit in court from a scheme run through those business entities. The bank also argued that the suit was barred because a Wisconsin state court had rejected a similar lawsuit by six defrauded investors.
Doty ruled that although Cook’s and Kiley’s former business entities participated in the crimes, there was a paramount public interest at stake that warranted court oversight. In any case, under Minnesota law, a receiver replaces the wrongdoer behind the scheme, he wrote.
Doty also found that the lawsuit was not constrained by the Wisconsin case.