Wells Fargo faces a proposed class-action lawsuit alleging the lender aided and abetted a $300 million Ponzi scheme that left more than 1,000 investors, mostly seniors, without substantial life savings.
The lawsuit filed Tuesday claims Wells Fargo was aware of the scheme from 2011 until 2021 and assisted the alleged perpetrators, Marshal Seeman, Eric Holtz, and Brian Schwartz, who used multiple entities to dupe the investors. The scheme operators used the San Francisco-based lender as their primary bank, plaintiff Fanny Millstein alleged.
“By recklessly pursuing its objectives to maximize assets held, and to generate account- and transfer-related revenue and compensation, Wells Fargo and its employees substantially assisted the Scheme’s fraud, as well as the misuse and misappropriation of assets by allowing the Scheme to continue operating and enabling the Ponzi Scheme to reach catastrophic levels,” the lawsuit said.
If Wells Fargo had not provided substantial assistance, the scheme would have stalled, leaving the private-lending companies and other receivership entities with significant funds that could have been used for legitimate, profit-generating investments or held to return to capital investors eventually, the lawsuit claimed.
Wells Fargo declined to comment.
National Senior Insurance, doing business as Seeman Holtz, sold to the plaintiffs promissory notes that were offered by the Para Longevity Companies and secured by collateral in the form of certain life insurance policies issued to third parties known as “Stranger-Originated Life Insurance” and “life settlements,” the lawsuit said.
The investors were promised in the notes that proceeds from the death benefits of STOLIs would be used to fund the interest payments due to those investors and eventually return their principal, according to the lawsuit.
“However, as Wells Fargo knew, instead of properly using new investor money to fund premiums for new STOLI policies, the Scheme Operators took a substantial portion of those newly invested funds to pay existing investors and further looted significant sums through improper, exorbitant or fictitious fees and expenses,” according to the complaint.
Additionally, Millstein alleged that Wells Fargo was aware that numerous STOLIs were intended to act as collateral for the notes and were "fraudulently pledged as security or transferred to other lenders" through Centurion Insurance Group and associated entities.
The plaintiff claimed the lender did not take any action to stop the fraud but “chose to substantially assist and profit from it.”
Further, Wells Fargo employees failed to comply with the due diligence obligations and follow know-your-customer regulations, the complaint alleged.
“Wells Fargo’s failure to follow basic due diligence practices and comply with the applicable KYC regulations created incorrect and incomplete client profiles which aided Seeman and Holtz in obfuscating the Scheme,” the lawsuit claimed.
The Florida Office of Financial Regulations revealed the scheme in 2021 and initiated legal action.
Following an investigation, Daniel Stermer, who had been appointed receiver of NSI, found that Wells Fargo “provided substantial assistance and services in furtherance of the Scheme.”
Tuesday’s lawsuit seeks compensation and incidental damages, civil penalties, pre-and post-judgment interest, and the return of income and fees retained by Wells Fargo.
