Northern California Ponzi Scheme Trial Begins Tomorrow: Umpqua Bank Faces Fraud Allegations

The long-awaited trial by jury of hundreds of Northern California investors claiming that Umpqua Bank closed its eyes to a Ponzi scheme begins in a San Jose federal courtroom tomorrow (Monday).

Investors Allege Bank Chose to Profit from the Scheme

The investors allege that Umpqua Bank backed a $450 million scheme knowing that one of its clients was operating a Ponzi scheme. They claim the bank ‘chose to profit’ from the scheme.

The lawsuit follows the collapse of two Bay real estate investment companies, Professional Financial Investors (PFI) and Professional Investors Security Fund. The companies raised hundreds of millions of dollars from 1,200 investors, many retirees who had invested their life savings.

Attorney for the plaintiffs, Linda Lam, says the investors are claiming upwards of $360 million in damages. Lam says the retirees invested most of their life savings with PFI, planning to pay for their living expenses from monthly distribution payments.

According to filings by Umpqua Bank, the plaintiffs have already recovered $110 million from bankruptcy proceedings.

Companies Collapsed After Founder Died

The collapse of the two investment companies took place after their founder, Kenneth Casey, died in 2020. One year later, his business partner, Lewis Wallach, was sentenced to 12 years in prison after pleading guilty to fraud and embezzlement. At the time, Wallach acknowledged that money was used from new investors to pay existing investors when the companies began falling behind on payments.

PFI investors banked with Northern California’s Circle Bank, but it was taken over by Umpqua Bank in 2012. Then, in 2023, Columbia Bank acquired Umpqua but chose to retain the Umpqua name.

Umpqua Bank maintains that it should not be held responsible for the criminal acts of the real estate companies’ directors, Lewis Wallach and Ken Casey.

Umpqua submitted a motion to dismiss the lawsuit that was denied in January 2021, and in December 2022, the lawsuit was certified as a class action by U.S. District Judge Richard Seeborg.

Seeborg based his decision on the fact that fraud-detection software owned by Umpqua Bank had issued 146 alerts of suspicious and possible fraudulent activity at PFI between June 2018 and April 2020.

An adjunct professor of financial crime at Utica University, Suzanne Lynch, said the number of suspicious alerts should have drawn the attention of bank fraud investigators.

Umpqua Bank retaliated, saying that 146 was a ‘fraction’ of PFI’s banking transactions. Umpqua noted that PFI was a substantial business with a portfolio of more than 70 buildings. The company rented thousands of units and had hundreds of thousands of transactions through its deposit accounts.