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Wells Fargo Sued for Role in $330 Million Ponzi Scheme

by | Feb 9, 2012 | Firm News

A lawsuit has been filed against Wells Fargo Bank for its role in a$330 million Ponzi scheme operated by Sarasota hedge fund manager Arthur Nadel.  The suit accuses Wachovia Bank, which was purchased by Wells Fargo, of aiding and abetting Nadel in his fraud by allowing improper “shadow” bank accounts to be created, letting obviously suspicious activities occur, and even participating in investments that made huge profits in the hedge funds, while other investors lost everything.

Investors were bilked out of more than $168 million from six hedge funds between 1999 and 2009.  The 78-year old Nadel, who’s been dubbed a “mini-Madoff,” plead guilty in 2010 and is now serving a 14-year sentence at Butner Federal Prison near Raleigh, NC.  In 2009, just as his massive Ponzi scheme collapsed, Nadel left behind a suicide note and vanished.  He went on the run cross country for two weeks and followed media reports of his disappearance, before finally turning himself in to the FBI.

Wachovia had a very cozy relationship with Nadel, and its role in this Ponzi scheme is incredibly egregious,” said James Hoyer Law Firm Partner Terry Smiljanich.  The firm filed suit on behalf of the Nadel Receivership, which is trying to recover funds for the investment victims.  “The bank turned its back on its responsibility under the law and allowed Nadel free rein to steal this money.  He robbed these innocent victims blind, in some cases taking their entire life savings,” Smiljanich said.

The lawsuit alleges that Wachovia Bank had intimate knowledge of Nadel’s fraudulent activities and did nothing to stop them.  Wachovia ignored banking regulations and internal safety procedures and allowed Nadel to commingle funds and transfer money to his own accounts resulting in the theft.

The suit lays out Wachovia’s own participation in two of the hedge funds.  The bank took part in total investments of $550-thousand dollars that nearly doubled in just a year and a half.  And then, raising yet another red flag, Wachovia suspiciously cashed out the investment and profit, just two months before the Ponzi scheme collapsed.

When the Securities and Exchange Commission closed down the hedge funds in 2009, the false books created by Nadel showed the funds had a trumped up value of $330-million, when, in fact, the total assets of all six hedge funds combined was just $400-thousand, including only $15,000 in actual securities.  As a result, hundreds of investors lost their entire investment.

The suit was filed in the 12th Judicial Circuit Court, in Sarasota County on behalf of Tampa Attorney Burton Wiand, the court-appointed receiver for Nadel’s six hedge funds:  Scoop Real Estate, L.P., Valhalla Investment Partners, L.P., Victory IRA Fund, Ltd., Victory Fund, Ltd., Viking IRA Fund, LLC, and Viking Fund, LLC.

Wiand is working to recover funds for the investors damaged by the Ponzi scheme.  He has filed numerous lawsuits seeking a return of funds and property obtained through Nadel’s illegal activities.

If you have any information regarding Wachovia’s relationship with Arthur Nadel and his hedge funds, including former employees or witnesses, please contact the James Hoyer law firm. Click here to contact us

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