Posted on Wednesday, 12.29.10

http://www.miamiherald.com/2010/12/29/1992882/receiver-in-haitian-ponzi-scheme.html

As George Theodule lured hundreds of people to invest with him, using his heritage, a network of churches and his radio show as bait, the bank through which he operated his massive Ponzi scheme looked the other way, according to a lawsuit filed in federal court this month.

The suit, filed by Jonathan Perlman of Genovese Joblove & Battista in Miami, says that when Theodule opened an account at a Wachovia branch in 2008, the bank didn't take basic precautions to learn more about their new customer.

Theodule moved his accounts to Wachovia from a nearby Washington Mutual branch, both in Lake Worth. He told Wachovia that Washington Mutual wasn't "business friendly," according to the suit.

"Had Wachovia simply called WAMU, it would have, of course, learned that WAMU had determined that the transactions Theodule was conducting were inconsistent with any legitimate business," says the suit, which was filed against Wells Fargo. Wells Fargo purchased Wachovia in 2008.

Wachovia declined to comment on the Theodule case.

Federal regulations require banks to know the true identities of their customers and their customers' businesses, and banks must have systems in place to counter money laundering, said Kevin Mukri, spokesman for the Office of the Comptroller of the Currency. The regulations are extensive.

"The bottom line is banks should know who their customers are," Mukri said.

Banks must verify the source of money coming into accounts, monitor transactions and determine if they are suspicious -- and report them and if necessary close down the accounts.

Had Wachovia done any of that, it would also have found that Theodule wasn't registered as a broker with the Financial Industry Regulatory Authority and wasn't licensed in any way at all, said Perlman, who was appointed by the court to manage Theodule's companies and try to collect funds to repay victims.

"And, Wachovia would never have become Theodule's partner in the Ponzi scheme," the suit says.

Perlman is seeking $68 million -- the amount the forensic accountants have figured so far is the minimum Theodule snared through his Ponzi scheme. Perlman has filed 26 other lawsuits in the case and 23 have either been settled or gone to final judgment. He has recovered more than $1 million that could ultimately be returned to victims. As for the rest, he must find a way to collect on those judgments: Many of those sued claim the money they received was spent long ago.

From the summer of 2007 through the end of 2008, Theodule reeled in thousands of investors from Florida, Georgia and New Jersey, according to the Securities and Exchange Commission. Theodule formed investment clubs and eventually, a company called Creative Capital to oversee the clubs. Many of those who invested were working-class Haitian Americans who lost everything on the promise they would be guaranteed returns, the Securities and Exchange Commission found.

Theodule hasn't been charged with any crimes to date, but he agreed to a final judgment of more than $5.5 million in March. Collecting that judgment has proven fruitless so far, with Theodule pleading the Fifth Amendment when asked about financial records. In addition, the receiver has a final judgment of more than $3 million against Theodule's wife, Dorothy Delisfort Theodule.

The same month, after being charged criminally with violating the U.S. Bank Secrecy Act from 2003 to 2008 in an unrelated case, Wachovia agreed to forfeit $110 million and pay a $50 million fine for its weak enforcement. The suit says Wachovia is the only large U.S. bank ever prosecuted for these for such violations.

Within a month of Theodule opening several accounts at Wachovia, 36 investment clubs opened accounts at Wachovia, too, Perlman said, injecting some $2.2 million into those accounts.

"How much came in just from those investment accounts -- that should have set off every bell and whistle," he said.

Transactions between those accounts and Theodule's should have been another red flag for Wachovia, he said.

"The transactions show no investing at all. The money just circulates around," Perlman said. In addition, Theodule took out large cash withdrawals, spending the money on jewelry and travel, he said. Wachovia even made special arrangements for one of Theodule's employees to collect bags of cash through a bank drive-thru, Perlman said. All together, Theodule withdrew more than $1 million in cash and more than $700,000 for personal expenses, the suit says.

"Why would a bank allow an investment advisor to take it out in cash? Anybody sitting there would instantaneously say ‘This is suspicious. We need answers. Not only answers, but documentation. This could be money laundering'," Perlman said. "Whatever it is, it's not a business that's consistent with any business I'm familiar with, or the business he purported to be."