A local bank branch knowingly aided and abetted the Ponzi scheme that amounted to the largest financial crime in Marin County’s history, a new class-action lawsuit alleges. After real estate mogul Ken Casey died in 2020, it became clear that his companies had defrauded more than 1,200 investors, including some West Marin residents, of hundreds of millions, and lined his own pocket with over $10 million. As the scheme’s victims seek a means to recover their money and collect damages, their lawyers are trying to show that Mr. Casey’s bank knew about the misconduct.
“In these aiding and abetting cases against banks, the only question is whether the bank knew,” said attorney Linda Lam, whose firm Gibbs Law Group filed a brief in California’s Northern District last week. “If it did, then it’s on the hook.”
The firm is seeking more than $300 million in damages, a calculation based on the interest that investors would have accrued from Mr. Casey’s Novato-based companies, Professional Financial Investors and Professional Investors Security Fund.
Many of Mr. Casey’s victims were seniors who invested their savings after he promised them reliable returns from his residential and commercial properties, a sure thing in Marin’s expensive real estate market. Instead, he began to pay their interest with funds from newer investments in a classic Ponzi scheme that only came to light after he died of a heart attack during the pandemic.
Over the course of a decade, Tina Benson, a Sausalito-based psychotherapist and former San Geronimo resident, gradually transferred all of her retirement savings into an L.L.C. through which she was investing in one of Mr. Casey’s P.F.I. properties, an apartment building in San Rafael. She had heard about the company from friends, including the parents of someone who had invested in P.F.I. for almost 30 years.
“I was told this was a solid investment in brick-and-mortar real estate, that you could get your money out any time with no questions asked,” Ms. Benson said. “Over the years, everything I had was invested there.”
Ms. Benson had no reason to be skeptical. When she had a medical emergency and needed to withdraw some funds, she quickly got checks in the mail. Mr. Casey was friendly and accessible, and he sent a Christmas card to investors every year. The bad news only arrived when, after he died, Ms. Benson called the office to see how the staff was doing and offer her condolences. Mr. Casey’s associate, Lewis Wallach, told her the company’s funds were frozen and refused to elaborate.
Mr. Wallach was later convicted of wire fraud after a federal investigation, but has yet to report to prison to serve a 12-year sentence. Last June, the United States Securities and Exchange Commission asked a judge to order Mr. Casey’s estate to pay $10 million back to investors, but the estate disputed the order in court, and the victims haven’t seen any of the money yet.
Mr. Casey’s two companies declared bankruptcy last year, ending a separate class-action lawsuit against them, but the sale of the 30 properties is only expected to provide about 36 cents on the dollar back to the investors, not including interest. Ms. Benson said out of the nearly $600,000 she thought she had accrued in her account, she’ll be lucky to see $100,000 from the sale.
“What this means is I have to work full throttle for another 12 years to get to retire,” she said. “And I’m still able to work. There are many elderly investors who were living on the interest, and they’ve lost everything.”
The class action against Umpqua Bank, which is headquartered in Portland, may offer their best chance to recover the rest of the money, and the investors see it as a measure of justice.
“After this scheme was unraveled, the investors all banded together and became this unified group,” Ms. Lam said. “Even though they invested different amounts, they very much feel like they’re all in the same boat. None of them were told the truth.”
Mr. Casey kept all of his accounts with Umpqua, and once attorneys began examining his companies after they filed for bankruptcy, it didn’t take long to find problems. “Rather than involving multiple banks to obscure his activities, Casey ran his scheme entirely though Umpqua Bank’s Novato branch,” they wrote in last week’s brief.
Umpqua moved to dismiss the case last year, but a judge rejected the attempt, and the plaintiffs got the chance to review nearly 100,000 documents and depose bank employees, including a now-retired Novato branch employee named June Weaver. They allege that Ms. Weaver, who always handled Mr. Casey’s transactions, knew that his investors’ accounts were underfunded and that he was improperly moving money from new investors’ accounts to cover them.
Ms. Weaver and Umpqua ignored notifications from the bank’s automated fraud monitoring system related to the company, and removed Mr. Casey’s name from his account records to help cover up his previous criminal history, the suit alleges. In 1997, Mr. Casey pleaded guilty to falsifying tax records and was convicted on 21 counts of bank fraud, among other charges. He served 18 months in prison and lost his public accountant certification. Most of his P.F.I. and P.I.S.F. investors never knew about his past.
In recent years, Umpqua has agreed to pay restitution to victims of Ponzi schemes the bank was accused of aiding, including a $30 million settlement in 2010 to the victims of a Bend, Ore. real estate investment scheme and $11 million to Eugene businesses affected by a 2018 insurance financing scheme. Through a class-action lawsuit, Mr. Casey’s 1,200 investors hope to benefit from a similar settlement.
“If Umpqua hadn’t been willing to do this, we wouldn’t be here,” Ms. Benson said. “If there was a sizable settlement, it might make us whole.”