Banking

Suit says CommunityOne Bank failed to report $40M Ponzi scheme

Investors have filed a lawsuit against CommunityOne Bank, after the lender was accused by the government in 2011 of failing to report a Ponzi scheme that was operated through accounts at the bank.
Investors have filed a lawsuit against CommunityOne Bank, after the lender was accused by the government in 2011 of failing to report a Ponzi scheme that was operated through accounts at the bank.

More than 30 investors are suing CommunityOne Bank four years after the lender was accused by the U.S. government of failing to report a $40 million Ponzi scheme that was operated through accounts at the bank.

The civil suit filed last week comes after CommunityOne, whose parent is Charlotte-based CommunityOne Bancorp, acknowledged responsibility in 2011 for failing to maintain an effective anti-money laundering program. CommunityOne made the acknowledgment in an agreement with the government, which had filed a criminal bill of information against the bank.

The government had that charge dismissed two years later in exchange for the bank implementing required anti-money laundering measures. CommunityOne also agreed to pay $400,000 as restitution to more than 400 victims who suffered losses in the Black Diamond Ponzi scheme.

Jonathan Andres, attorney for the roughly 30 investors, told the Observer that all 30 have received a portion of the $400,000, “but that amount obviously does not cover their losses.” According to their lawsuit, the investors lost more than $10 million.

CommunityOne had not filed a response to the suit as of Friday, and declined to comment.

About a dozen people involved in the Black Diamond operation have been sentenced to prison for their roles.

In December, the scheme’s chief operator, Keith Franklin Simmons, was sentenced to 40 years after a jury trial in Charlotte. In January, federal authorities announced the sentencing of the last defendant in the case, a certified public accountant from Ohio.

According to prosecutors, Simmons and others recruited people who thought they were investing in a foreign currency exchange program.

Prosecutors said Simmons did not invest any of the money in a foreign currency program or any other such investments. Instead, Simmons, who operated in the North Carolina town of West Jefferson, spent the money elsewhere, including to support a luxurious lifestyle.

From 2007 to 2009, Simmons ran the scheme primarily out of a single CommunityOne account, according to prosecutors. During that period, Simmons deposited about $35 million of investor funds into CommunityOne and withdrew roughly the same amount, prosecutors said.

CommunityOne did not file any reports on Simmons or his accounts, even though the bank’s computer software repeatedly flagged Simmons’ account activity as potentially suspicious, according to prosecutors. During the same period, other banks shut down the accounts for hedge fund managers who were sending money to Simmons, prosecutors said.

Under the federal Bank Secrecy Act, banks are required to have programs that detect and report suspicious activity indicating money laundering and other illegal actions. Banks must file reports on suspicious activity with the federal government.

In the new lawsuit brought by the 30 investors, CommunityOne is accused of violating state law in part by not informing investors of Simmons’ fraudulent activity. The suit also accuses the bank of conspiring to violate federal racketeering law.

Headquartered in Asheboro, CommunityOne is the 14th-largest bank by deposits in the Charlotte metropolitan area.

Maria David contributed.

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