New York: The fourth largest bank in the US, Wachovia Corp, has been sued by customers for allowing fraudulent telemarketers to use its accounts to rip off millions of dollars from consumers, according to court papers.
"Yikes!!!!" was what a Wachovia executive wrote in 2005, warning colleagues that an account used by telemarketers had drawn 4,500 complaints in just two months. "Double yikes!!!!" she added. "There is more, but nothing more that I want to put into a note."
Wachovia executives, when quizzed about the lawsuits, pleaded ignorance about the thefts. However, newly released documents from the lawsuit have now established that Wachovia was quite aware about allegations of fraud, but had in effect, chosen to solicit business from companies it knew had been accused of telemarketing crimes.
Wachovia, however, continued processing fraudulent transactions for that account, along with others, as the bank charged fraud artists a fee each time a victim spotted a bogus transaction, and demanded their money back via chargebacks. Investigators indicate that one company alone paid Wachovia about $1.5 million over an 11 month period.
Linda Pera, an executive who left Wachovia in 2006, wrote, "We are making a ton of money from them," while referring to a company that was later accused by federal prosecutors of abetting in stealing up to $142 million.
The plaintiffs now accuse Wachovia and its lawyers of knowing for a substantial amount of time that the bank could be legally liable for dealing with fraudulent telemarketers.
The documents show beyond doubt that other banks and federal agencies had alerted Wachovia about the ongoing deceptions, despite which the bank continued to provide banking services to multiple companies which helped steal as much as $400 million from unsuspecting victims.
The original complaint was filed in April 2007, and plaintiffs are seeking class-action status on behalf of at least half a million victims that they say lost millions of dollars, according to the documents. They accused Wachovia of allowing some "payment processors" to create authorised, unsigned checks on behalf of telemarketers that allowed them to withdraw funds from customer accounts from 2003 right through 2006, according to court papers.
In a second situation, loss management official Benita Sheffield e-mailed colleagues on 23 August, 2005 about some 4,579 complaints that an account had drawn over a two month period.
In a 13 January, 2006 e-mail to a Wachovia lawyer, a lawyer at Royal Bank of Scotland Group Plc's Citizens Bank asked for assistance in halting the processing of unauthorised checks that took money from accounts of Citizens customers, according to the court papers. However, the account in question remained open till a court froze it during the subsequent month, the papers shows.
Wachovia was warned by another bank in 2003 that one of its clients named AmeriNet had tried to process over $100,000 in improper withdrawals. AmeriNet was a "payment processor," that is a company that creates unsigned checks on behalf of telemarketers to automatically withdraw funds from customer accounts. These checks, once widely used by businesses collecting monthly fee, are accorded legal status if customers approve the transaction.
A Wachovia executive had recommended closure of the AmeriNet account in 2003, but Wachovia continued to work with the company until 2005, when AmeriNet paid $50,000 to settle complaints filed by the attorneys general of five states. Wachovia was not named in those complaints. In late 2003, a Wachovia executive had announced to colleagues in an email that her unit, thanks to AmeriNet, had seen "an increase in our annual revenue projection."
In 2004, Wachovia held a lunch for the owner of another payment processor, Your Money Access, whom the bank knew had drawn thousands of previous complaints. Your Money Access was sued last year by the Federal Trade Commission (FTC) and seven states on suspicion of helping to steal up to $69 million.
A Wachovia fraud investigator wrote to colleagues in 2005 that 79 per cent of checks submitted by a Wachovia client, Suntasia, had been returned in August because of unauthorized withdrawals and other problems. As per regulators, return rates in excess of 2.5 per cent are indications of a potential fraud. Wachovia, however, continued doing business with Suntasia until last year, which is when the company was shut down by a court order, according to the lawsuit.
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