Umpqua Bank Hit with a Second, Multi-Million Dollar Lawsuit Over Alleged Role in Ponzi Scheme

Umpqua Bank, headquartered in Portland, Oregon, is facing accusations of assisting and participating in a large-scale Ponzi scheme. These allegations have led to a second lawsuit filed on June 6, 2023, by 11 investors who claim significant financial losses totaling $4.2 million. These investors were part of a group that invested in Professional Financial Investors (PFI), an operation established by the now deceased Ken Casey and his partner, Lewis Wallach. Wallach has already pleaded guilty to defrauding investors and has been sentenced to 12 years in prison.
In 2020, a class-action lawsuit was initiated against Umpqua Bank on behalf of over a thousand investors seeking damages exceeding $300 million. This legal action alleges that the bank played a substantial role in facilitating the Ponzi scheme. Since then, PFI has declared bankruptcy, and a trustee has been attempting to reimburse investors by liquidating the 71 properties held by PFI. However, attorney Linda Lam, who represents the 11 plaintiffs, has stated that investors can anticipate recovering only 40% of their initial investments at best, as reported by the San Francisco Chronicle.
Lam’s new lawsuit alleges that Umpqua Bank not only enabled the illicit activities of PFI but also profited from them. The lawsuit specifically accuses Umpqua Bank’s branch in Novato, California, of deliberately disregarding obvious warning signs and assisting Ken Casey and Lewis Wallach, the main figures behind PFI, in perpetrating their fraudulent activities. In response to these allegations, Umpqua Bank has issued a statement expressing disappointment with the ruling and a determination to vigorously defend the company against these claims.
The Marin Independent Journal has published extensive details about PFI’s operations, which exclusively utilized Umpqua Bank’s Novato branch. Casey and Wallach managed to raise millions of dollars by promising consistent returns on investments in real estate located in Marin County. However, instead of acting in the best interests of their clients, they allegedly used funds from new investors to pay off older investors and support their lavish lifestyles. This elaborate scheme eventually unraveled after Casey’s death in May 2020, leading to an investigation by the U.S. Securities and Exchange Commission (SEC).

The recent lawsuit against Umpqua Bank additionally asserts that the bank was aware of Casey’s previous criminal convictions. Casey had been previously found guilty of bank fraud in the late 90s, and any reasonable lender would have avoided engaging with him and his company. The lawsuit argues that Umpqua Bank should have exercised vigilance, particularly considering its prior experience with a similar Ponzi scheme. In 2017, the bank paid $11 million to settle accusations of aiding and abetting a scam in the Pacific Northwest, and in 2010, it paid $30 million for alleged involvement in a scheme in Bend, Oregon.
The lawsuit reveals a series of concerning incidents, with the plaintiffs alleging that employees at the Novato branch engaged in fraudulent transactions to help cover Professional Financial Investors’ (PFI) overdrafts and funding shortfalls. It is documented that the bank’s computer system generated 146 alerts regarding unusual activity in PFI’s accounts from June 2018 to April 2020, yet no further investigation took place. Umpqua Bank has not provided an explanation for disregarding these alerts.
According to the SFist, the lawsuit filed by the Marin investors centers around a significant claim: Umpqua Bank knowingly and repeatedly exposed its clients to risk and allowed an apparent Ponzi scheme to thrive in Novato, California. U.S. District Chief Judge Richard Seeborg acknowledged the presence of evidence indicating that the bank’s employees were involved in “some of the mechanics of the scheme.”