Thursday, April 22, 2021

Bank of Montreal faces $3.5B in claims over negligence in Ponzi scheme

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Bank of Montreal must face billions of dollars in claims that a subsidiary ignored warning signs that client Tom Petters was engaged in a Ponzi scheme.

A federal judge in St. Paul, Minnesota, Friday rejected BMO Harris Bank’s request to throw out the case. A BMO spokesman had no immediate comment on the ruling.

The decision is the latest fallout from a fraud in which Minnesota businessman Petters convinced investors he and his associates were financing the purchase of consumer electronics for resale to big-box retailers. Petters never bought any electronics and used money from new investors to pay returns to older ones.

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Petters was convicted in 2009 and sentenced to 50 years in prison. Prosecutors pegged losses from his scam at US$3.5 billion.

An account used by Petters in his scam was originally at National City Bank, which was acquired by M&I Marshall and Ilsley Bank in 2001. M&I was in turn bought by BMO in 2011.

The court overseeing the bankruptcy of Petters Company Inc. appointed a trustee to recover money for a group of hedge funds that were victimized in the fraud. Friday’s ruling by U.S. District Court Judge Wilhelmina Wright upholds an earlier one by U.S. Bankruptcy Judge Kathleen Sanberg in favor of the trustee.

The trustee is seeking US$3.5 billion, which is what the funds say they lost in the fraud plus interest.

Sanberg separately ruled in July that BMO “intentionally destroyed and failed to preserve” evidence of emails and other communications between the Petters company and its bank. She sanctioned BMO by saying the trustee could tell the jury about the destroyed evidence and also introduce documents over the bank’s objection. Wright has yet to rule on BMO’s appeal of that ruling.

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Original article on BNNBloomberg

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