Mumbai: Wachovia Corp. has agreed to shell out around $144 million to settle allegations that it did  not take adequate measures to stop a telemarketing fraud that scammed thousands of consumers, including those of other banks.

In February this year, the fourth largest bank in the US had been sued by customers for allowing fraudulent telemarketers to use its accounts to rip off millions of dollars from consumers (See: Wachovia accused of being party to telemarketing fraud)

The federal Office of the Comptroller of the Currency said Wachovia did not act quickly enough to block telemarketers and payment processors who had their accounts at the bank, and obtained customers' bank account numbers while selling products including vouchers for discount travel and groceries and medical discount plans.

Wachovia is yet to admit any wrongdoing, but has agreed to $125 million in claims, and $8.9 million toward consumer education programs. It will also pay a  $10 million fine.

Wachovia spokeswoman Christy Phillips-Brown was quoted as saying that the situation was unacceptable, and the bank regretted what had happened, assuring that it will now work towards providing restitution to consumers affected by the situation, and would also educate consumers. She said that the bank was not directly involved in the telemarketing activity, or in soliciting account information from consumers, adding that the settlement is not expected to affect the company's financial position.

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.

In 2006, federal prosecutors filed a civil case against Pennsylvania-based Payment Processing Center LLC, and in February 2007 a federal jiudge appointed a receiver to return customers' money. The appointed receiver, Wayne Geisser, pegged the count of affected consumers at 345,000.

Documents from the case made available in February established 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.

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. In 2007, the Federal Trade Commission  froze the assets of FTN Promotions, also known as Suntasia Inc. or Strategia Marketing LLC, after complaints from over 5,000 people about the telemarketing firm using deceptive sales tactics in order to get consumers to reveal bank account information. The FTC said the company, which operated  under at least 15 different company names, would call consumers and offer trial memberships to travel clubs or discount programs, and then make it difficult for customers to cancel.

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. In December 2007, the FTC and officials in seven states filed similar civil charges against the Florida-based company, which also used several business names such as Netchex Corp., Universal Payment Solutions, Check Recovery Systems, Nterglobal Payment Solutions Subscription Services, Ltd. and YMA Company, LLC.

The settlement terms stipulate that Wachovia return payments to consumers who filed claims against Your Money Access, and additionally take steps designed to ensure the situation does not arise again. The settlement is amongst the largest penalties ever demanded by the federal Office of the Comptroller of the Currency.