Inconvenient News,
       by smintheus

Monday, May 21, 2007

  The RICO suit against Wachovia

Yesterday this post discussed a notorious telemarketing scandal in which a crooked Pennsylvania company, Payment Processing Center, wrote fraudulent (unsigned) checks drawn upon the accounts of many elderly victims of con artists. P.P.C. cleaned out the victims' bank accounts by running the fraudulent checks through its accounts in a Philadelphia branch of Wachovia Bank. Wachovia had many clues that P.P.C. was engaged in a racket--including warnings from other banks--but failed to close down P.P.C.'s accounts. Though federal authorities have not charged Wachovia in the scam, the bank is now facing a civil suit.

I've discovered further information about that suit, and about the relationship between Wachovia and P.P.C., which suggests that the matter is even more scandalous than I'd indicated in the original post.

Here is a press release about the Langer & Grogan civil suit leveled against Wachovia. It gives more information about the nature of the allegations than the news story I quoted in yesterday's post.

Specifically, Langer & Grogan is bringing a class action RICO lawsuit that accuses Wachovia of more than simply "failing to clamp down" on P.P.C. (as the news report had it).

Langer & Grogan, P.C. announced today that it had filed a RICO class action alleging that Wachovia Bank, N.A. had conspired with a payment processor, Payment Processing Center ("PPC"), in a scheme that facilitated fraudulent telemarketing directed primarily at the elderly involving tens of millions of dollars.

Thus, an alleged conspiracy between P.P.C. and Wachovia is at the center of the lawsuit.

The press release also draws attention to some further details about the relationship between Wachovia and P.P.C., which would seem to demonstrate that Wachovia was indeed actively conspiring with activities it knew to be fraudulent (rather than merely behaving with indifference or sloppiness regarding its duties to forestall fraudulent activities it stumbled across).

The complaint alleges that Wachovia had a special agreement with PPC which granted Wachovia expanded refund and charge back rights. The complaint alleges that Wachovia knew that the banking services it provided were an essential element in PPC's scheme.

In fact, Wachovia itself exposed these special arrangements to scrutiny in federal court in 2006 as part of its filings related to the US Attorney's seizure of P.P.C.'s assets. Now, that was a tactical mistake, wasn't it? The mere fact that Wachovia had to make special arrangements to cope with P.P.C.'s particular problems is pretty good evidence that Wachovia actively conspired with P.P.C.


Here are the details of this special arrangement. As I said in yesterday's post, the US Attorney in Philadelphia had frozen P.P.C.'s accounts at Wachovia, and Wachovia wanted federal judge Timothy Rice to hand the money back to Wachovia. The Bank claimed that it had deposited the money in P.P.C.'s accounts only on a provisional basis, until the checks in question could clear with the other banks they were drawn upon. Thus the money that was frozen in the P.P.C. accounts would have reverted to Wachovia, the Bank argued, once it became clear that the checks had been refused by the other banks.

All of this is spelled out in gruesome detail in a second judgment rendered in 2006 by Judge Rice (PDF), who rejected most of Wachovia's claims for the restoration of those frozen monies.

In court pleadings, Wachovia had argued that it should be given back all the frozen money, including those funds that Wachovia had failed to reclaim from the P.P.C. accounts even several weeks after the unsigned checks were deposited. Normally, as Judge Rice noted, a bank will rescind provisional payments for bad checks within a week.

To support its rather tenuous claim for recovering all of P.P.C.'s frozen assets, Wachovia told the court that it had a special arrangement with P.P.C. that permitted it to retrieve a provisional deposit for up to a month (if I read Rice's judgment correctly) after P.P.C. initially deposited a bad check. In other words, Wachovia got from P.P.C. permission to nullify provisional payments for a considerably longer period than the norm.

On the face of it, then, that special arrangement appears to show that Wachovia recognized that P.P.C. had a special problem--a high proportion of P.P.C.'s unsigned checks got refused, or got challenged a short time later. And, indeed, as I commented yesterday, in 2005 fully 59% of P.P.C.'s unsigned checks were refused and returned to Wachovia.

Thus, on the face of it, Wachovia appeared to be aware that far too many of P.P.C.'s checks were no damned good. (Wachovia certainly knew that P.P.C. was a clearinghouse for telemarketers requesting funds.)

Oh, and incidentally, Judge Rice wasn't much impressed with Wachovia's claim that this special arrangement ought to permit it to reclaim millions of dollars from P.P.C.'s frozen accounts. Rice granted reimbursement to Wachovia only for checks deposited in the 7 days before the Feds froze P.P.C.'s accounts.


On the general subject of the greed of Wachovia, it's worth noting that Frontline produced a documentary in Feb. 2003, "Tax me if you can", which detailed how certain corporations avoid paying taxes entirely. Wachovia was a star exhibit; although it earned $3.6 billion in profits in 2002, it paid no taxes because of the foreign tax shelters it uses. The most notorious of these was a sewer system it financed in the German city of Bochum.

It will be interesting to see whether this RICO suit can dent Wachovia's colossal bottom line.

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