This Bay Area bank ignored $350 million Ponzi scheme despite ‘obvious’ fraud, lawsuit

Investors of Professional Financial Investors (PFI) have filed a lawsuit against Umpqua Bank, accusing its Novato branch of willfully disregarding suspicious transactions and actively aiding the orchestrators of a $350 million Ponzi scheme. The lawsuit, filed recently, claims that despite receiving 146 fraud or unusual activity alerts from the bank’s computer system in the two years preceding the scheme’s unraveling in Marin County, bank employees ignored the warnings and, in some instances, even assisted in safeguarding the scam.
Eleven investors, collectively losing $4.2 million to PFI, have brought the lawsuit against Umpqua Bank on June 2, alleging the bank’s complicity, facilitation, and profiteering from the fraudulent scheme. The legal action portrays a culture within Umpqua where employees, driven by incentives to attract deposits, flouted regulations to support PFI, which was the largest client at the Novato branch and one of the top 20 clients for the Portland-based bank.
Linda Lam, the attorney representing the 11 plaintiffs and other PFI victims in a separate class-action lawsuit, stated, “Umpqua allowed the Ponzi scheme to continue for years despite being aware of the fraud and taking no action to close the accounts. If they had not provided banking services, it would have been challenging for the fraud to persist.”
This is not the first time Umpqua Bank, Oregon’s largest bank, has been implicated in a Ponzi scheme. In 2017, the bank paid $11 million to settle claims related to its involvement in a similar scheme in the Pacific Northwest, and in 2010, it paid $30 million to creditors alleging its complicity in a Ponzi scheme in Bend, Oregon.
In response to inquiries from The Chronicle, Umpqua issued a statement acknowledging the new lawsuit. The bank stated, “Similar to the other PFI-related lawsuit, we will continue to defend our company against these allegations and look forward to responding in court.”
The scheme, which defrauded over 1,200 investors, purported to generate regular returns from real estate investments. However, it relied on funds from new investors to pay off older investors and finance the lavish lifestyles of its founder, Ken Casey, and CEO, Lewis Wallach.
The Ponzi scheme came to light following the death of Casey in May 2020, prompting a formal investigation by the U.S. Securities and Exchange Commission (SEC). Wallach, the CEO of PFI, was indicted and pleaded guilty to wire fraud. He confessed to diverting over $26 million from investor funds into his personal accounts, which he used for various purposes such as financing a land development project in Texas, a California office space deal, oil and gas exploration, and paying off personal credit cards. Wallach, who is 67 years old, received a 12-year prison sentence and is currently serving it in a federal prison in Missouri.

After the public exposure of the scam, PFI filed for bankruptcy, and a trustee sold its 71 properties in an effort to recover funds for the investors. However, according to Lam, the attorney representing the plaintiffs, investors are expected to recover only around 40% of their initial investments at best.

The recent lawsuit, along with the existing class-action suit, has shifted attention to the small bank branch that handled the funds for the extensive Ponzi scheme. Umpqua Bank in Novato set up accounts to receive new investor money for PFI. These funds were meant to be promptly transferred from a general account to a separate account designated for the specific real estate projects of each investor.

However, the lawsuit alleges that between 2007 and 2020, these funds were frequently mixed and diverted to cover overdrawn accounts or to compensate for shortfalls in paying off investors. The suit also claims that these newly injected funds were transferred to the personal accounts of Casey and Wallach. The lawsuit asserts that the bank should have easily detected the “obvious” warning signs.

Instead of exposing the fraudulent business, the suit alleges that Umpqua chose to profit from it. The lawsuit provides details about how the bank was aware of the founder’s criminal history. Casey, a former accountant, had previously been convicted of bank fraud, tax evasion, and other federal charges, resulting in a prison sentence in 1997. Despite this knowledge, Umpqua assigned a private banker to handle PFI’s affairs, even going so far as to remove Casey’s name from the bank statements, which lenders would rely on when considering loan extensions.

Federal banking regulations required Umpqua to have a clear understanding of PFI’s operations, account structure, and transaction monitoring. The assigned private banker, who is not named as a defendant in the lawsuit, monitored PFI’s accounts and observed repeated instances of overdrafts and fund shortages. During a deposition, the banker stated that it was not uncommon for PFI to have a shortfall of $400,000.

In June 2018, five new investor deposits totaling $760,000 were made into an Umpqua account. Just days later, these funds were directly transferred to the personal account of PFI’s CEO, Lewis Wallach, as part of a $1.1 million transaction.
During June 2018, an Umpqua account received five new investor deposits totaling $760,000 (highlighted in green). However, a few days later, these funds were directly transferred to the personal account of PFI CEO Lewis Wallach as part of a $1.1 million transaction (last row). According to the lawsuit, this fund shuffling to cover losses raises significant concerns typical of Ponzi schemes. The suit further claims that on multiple occasions, the banker took it upon herself to conduct transactions on behalf of PFI to address the company’s overdrafts or fund shortages. Additionally, the lawsuit alleges that she, along with others at the bank, transferred a total of $5.2 million from investor funds to the personal accounts of Casey and Wallach on 179 occasions.
Between June 2018 and April 2020, Umpqua’s computer system issued 146 alerts for unusual activity in PFI’s accounts, with 61 of them related to the new investor accounts. The lawsuit alleges that Umpqua investigated these warnings but took no action. The suit claims that Umpqua has failed to provide a satisfactory explanation as to why these alerts were dismissed, despite it being standard practice in the industry to document the results of such investigations. It is evident that Umpqua’s automated monitoring system repeatedly flagged fraudulent activity in PFI’s clearing accounts, yet the alerts were consistently ignored by the bank.
When an attorney representing an investor contacted the banker to voice concerns about the bank’s operations—an unusual step—the private Umpqua banker allegedly sent a warning email to PFI. The suit also claims that the banker later reassured PFI via email that the bank had not provided any information to the attorney. In 2015, an Umpqua Bank employee emailed a PFI employee, notifying them that an attorney representing an investor had called expressing concerns about both the bank and the company. However, the employee did not cooperate, as stated in the email.
The plaintiffs argue that the bank’s culture, which linked bonuses, commissions, and incentives to total deposits, fostered a close relationship between Umpqua employees and PFI. According to the lawsuit, branches competed for new accounts, and team names like “Gold Diggers” and “Money Maker Bankers” were used. The suit also mentions a 2014 email in which Wallach joked with the Umpqua private banker about their close relationship and the active new investor account, suggesting they would remember the account details for years to come.
In 2020, when the Ponzi scheme became public, Umpqua’s operations solutions manager initiated an internal review of PFI’s accounts. In an email, she highlighted two transfers from new investor accounts to Casey’s personal accounts and messaged the Novato branch manager with the words “Holy moly.” The lawsuit alleges that no further written communications took place after that.

After the PFI Ponzi scheme went public, an Umpqua Bank operations solutions manager began to look into the company’s accounts at the Novato branch and sent this email to an employee.
Following the public exposure of the PFI Ponzi scheme, an operations solutions manager at Umpqua Bank initiated an investigation into the company’s accounts at the Novato branch. Subsequently, the manager sent an email to an employee regarding the matter.
Marian O’Dowd was among the investors whose funds passed through the PFI account. In 2019, she sold her San Francisco house and entrusted the resulting $642,000 to Casey and Wallach for investment in a San Anselmo apartment building. The lawsuit claims that she was promised a 6% annual interest rate and a share of any appreciation in the building’s value.
“It turned my world upside down,” expressed O’Dowd, a nurse who currently rents a place in Vallejo. She estimated that she has only managed to recover approximately one-third of her savings. O’Dowd further lamented, “At 60 years old, I find myself without a home, and with the remaining amount, I doubt I can afford one, especially not in the Bay Area.”