North Carolina Bank Agrees to Pay $400,000 in Restitution to Victims of Investment Fraud Scheme It Failed to Detect and Report
WASHINGTON – CommunityONE Bank N.A., based in Asheboro, N.C., with 45 offices throughout the state, has entered into a deferred prosecution agreement with the Department of Justice related to its failure to file a suspicious activity report (SAR) and maintain an effective anti-money laundering program, announced Assistant Attorney General Lanny Breuer of the Criminal Division and U.S. Attorney Anne Tompkins of the Western District of North Carolina. The bank has agreed to pay $400,000 toward restitution to victims of a third-party ponzi scheme that operated through accounts maintained at the bank.
The criminal information filed today in U.S. District Court for the Western District of North Carolina charges CommunityONE Bank with failing to maintain an effective anti-money laundering program. CommunityONE Bank waived indictment and accepted and acknowledged responsibility for its conduct. The deferred prosecution agreement, also filed today, recognizes that the bank has committed to, and already taken significant steps toward, overhauling its anti-money laundering program. This resolution allows the bank, which had been critically undercapitalized according to information contained in court documents, to undergo a merger and recapitalization to survive, and to avoid losses from a bank failure to innocent account holders and to the FDIC fund estimated at $500 million. The agreement recognizes that the bank’s total value under the recapitalization and merger is $2.5 million, and requires the bank to pay 16 percent of its value, or $400,000, to the victims of the ponzi scheme that the bank failed to detect and report. Provided that the bank fully implements the significant anti-money laundering measures required by the agreement, the government will recommend dismissal of the criminal charge in two years.
“Banks asleep at the switch need to wake up,” said U.S. Attorney Tompkins. “Federal law requires banks to implement a robust and proactive anti-money laundering program to detect fraud and protect the public from harm. This bank’s failure to detect and report a ponzi scheme cost it 16 percent of its value. Other financial institutions should heed this warning: the Bank Secrecy Act applies to more than just drug and terrorist financing.”
“CommunityONE Bank turned a blind eye to criminal conduct occurring under its nose,” said Assistant Attorney General Breuer. “By agreeing to pay restitution to the victims of a customer’s investment fraud scheme, and to overhaul its anti-money laundering program, the bank has begun the process of righting its wrongs. We will take every necessary step to hold banks committing similar offenses to account.”
“The Bank Secrecy Act was enacted to protect the public from harm by identifying and detecting money laundering from criminal enterprises, terrorism, tax evasion or other unlawful activities. IRS-Criminal Investigation and our fellow law enforcement agencies stand ready to make sure the laws are followed,” said Jeannine A. Hammett, Special Agent in Charge, Internal Revenue Service (IRS)-Criminal Investigation.
“CommunityOne should serve as an example to other banks – you won’t be allowed to ignore inconvenient or unpopular laws against fraud, especially when it has such a negative impact on people’s lives. When customers deposit their hard-earned income into a bank, they trust those banks to take care of their livelihood,” said Chris Briese, Special Agent in Charge of the FBI’s Charlotte, N.C., Division.
According to information contained in court documents, the actions taken today were the result of an investigation related to a $40 million ponzi scheme operated by bank customer Keith Franklin Simmons for two and a half years almost entirely through an account at the bank. Simmons was convicted of securities fraud, wire fraud and money laundering following a jury trial in Charlotte in December 2010 and is being detained pending sentencing. At sentencing, he faces a maximum prison sentence of 80 years.
From April 2007 until September 2009, Simmons deposited more than $35 million in investor funds into one account with the bank and withdrew over the same time span more than $35 million from the same account. According to court documents, the bank failed to detect and report the suspicious transactions, as required by the Bank Secrecy Act, due to deficiencies in its anti-money laundering program. The bank did not file any SAR on Simmons during this time period, despite the hundreds of suspicious transactions that took place over those two and a half years.
In addition, according to the court documents, the bank’s records also showed that Simmons diverted more than $2 million to other accounts with the bank that he controlled to operate his other businesses; diverted nearly $800,000 in cash withdrawals, gift cards and transfers to his personal account with the bank; and diverted numerous payments to support his luxurious lifestyle including payments for private jets, vehicles and gifts.
Under the Bank Secrecy Act, banks are required to establish, implement and maintain programs designed to detect and report suspicious activity indicative of money laundering and other financial crimes, such as investment fraud schemes. A bank is required to file a SAR when it detects known or suspected money laundering activity or a federal crime.
The case was prosecuted by Assistant U.S. Attorneys Kurt Meyers and Mark Odulio of the U.S. Attorney’s Office for the Western District of North Carolina and Trial Attorney Michael Mosier with the Asset Forfeiture and Money Laundering Section in the Justice Department’s Criminal Division. This case was jointly investigated by the FBI’s Charlotte Division and IRS-Criminal Investigation.
These actions are part of efforts underway by President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency task force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes. For more information about the task force visit: www.stopfraud.gov.