Investors bilked by convicted fraudster Trevor Cook and his associates in Minnesota's second-largest Ponzi scheme will have another chance to prove allegations that Associated Bank helped facilitate the fraud.
The Eighth U.S. Circuit Court of Appeals ruled Monday that a federal judge in Minneapolis erred by dismissing a 2013 lawsuit against the Wisconsin bank by victims of the $190 million Ponzi scheme that bilked more than 700 investors nationwide.
Chief Judge Jay Riley of Omaha wrote the unanimous opinion for a three-judge panel of the court, which found that the court-appointed receiver in the case stated a "plausible claim" that the bank had "actual knowledge" that it was facilitating part of the fraud.
"We're pleased with the opinion of the Eighth Circuit Court of Appeals and we look forward to litigating the matter in District Court," said Tara Norgard, a lead attorney for the receivership.
Associated Bank, Minnesota's sixth-largest, declined to comment, citing the pending litigation.
The lawsuit will return to the Minneapolis courtroom of U.S. District Judge David Doty for further proceedings. Among them will be the question of whether an earlier decision by a Wisconsin appellate court against one group of defrauded investors bars the receiver from pursuing claims in Minnesota on behalf of all victims.
Another unresolved legal point is whether the receiver, who represents various business entities that were set up as part of the fraud scheme rather than the investors, can pursue claims against the bank because the receivership entities have "dirty hands."
Cook and several of his associates are serving lengthy sentences in federal prison for orchestrating the scheme, which pitched a safe, fully liquid arbitrage investment in foreign currencies. Cook claimed falsely that he dealt with banks compliant with Islamic law, or sharia, which bars interest charges.
Most of the investors were drawn into the scheme by Patrick Kiley, who pitched it on radio networks nationwide.
The scheme lasted about three years. It blew up in 2009 after the recession caused some Ohio investors to demand their money back.
Family link to bank
Associated Bank had become the Cook conspirators' primary financial institution after an employee of Kiley's introduced him to a relative who was an assistant vice president of the bank, Lien Sarles.
Sarles allowed Cook's group to set up a bank account for a bogus business entity called Crown Forex LLC, along with other accounts,through which some $79 million ultimately was routed.
Sarles, who was never charged with criminal wrongdoing, personally approved $3 million in transfers for Cook to his personal accounts. As the scheme collapsed, Associated Bank prepared $3.2 million in cashier's checks from the Crown Forex account, listing false remitters. Even after the scheme's demise made headlines in the Star Tribune, Judge Riley noted, the bank approved a $101,000 transfer of investor funds to an account held by a new bogus entity called Basel Group. Sarles helped Cook set up that account before the bank fired him.
Money not recovered
Associated Bank had argued that a bank "has an obligation to permit a customer to transfer or withdraw his or her funds from an account," Riley wrote in the 16-page opinion.
But the money wasn't Cook's, the court said. "Associated Bank cannot claim it is obligated to permit one customer, like Cook, to withdraw another customer's funds," the judges said.
To date, just $19.8 million of the $194 million invested in the scheme has been recovered or frozen, and just $10 million has been returned to investors.