A federal jury has deadlocked in a trial to determine if Umpqua Bank abetted a Novato-based financial scheme that bilked some 1,200 investors out of more than $250 million.
The three-week trial stemmed from a class-action lawsuit that aggrieved investors filed against the bank. The jury began deliberations on Feb. 26 and announced the impasse on Tuesday.
“We were all shocked that they couldn’t reach a verdict,” said Philip Lastreto, who was living in San Rafael when he invested his money. “I’m embarrassed to admit, I had $706,000 invested. There is a group of us, friends and family, about five of us that had about $2.9 million invested.”
Another trial in the same court in San Jose has been tentatively scheduled for April 28.
Amy Zemanj, a partner with the Gibbs Law Group in Oakland, said, “While we believe we presented ample evidence to support a verdict for the plaintiffs, we appreciate it is no simple task for a jury to reach unanimity. We are confident we will get the job done.”
Kurt Heath, a spokesperson for Umpqua Bank, said, “We thank the jury for its service and will seek dismissal of this matter from the court on our pending post-trial motions.”
The fraud was engineered by Ken Casey, a Novato businessman, and his accomplice, Lewis Wallach. They ran the scheme between 2007 and 2020 through real estate investment companies called Professional Financial Investors Inc. (PFI) and the Professional Investors Security Fund. PFI operated through bank accounts maintained at the Umpqua branch in Novato.
“When investors’ checks or wires were deposited into one of the PFI enterprise’s clearing accounts, their money should have been promptly cleared into a segregated investment account, where it could be used to purchase real estate,” the suit alleged. “But unbeknownst to investors, their money often remained in the clearing account until it was used to fund transfers to Casey’s and Wallach’s personal bank accounts, cover recurring overdrafts in other accounts and fund monthly payments to other investors.”
A key witness during the trial was June Weaver, a banker at the Novato branch who worked closely with PFI for nearly 15 years.
“At her deposition, Weaver admitted that she spent a lot of time monitoring PFI’s accounts and helping them shuffle money around to address overdrafts and funds shortages,” the lawsuit said.
The suit states that Weaver initially denied knowing that PFI was using investor money for an improper purpose, but later admitted that she was aware when confronted with several of 1,600 emails she exchanged with PFI.
The suit asserts that on 179 occasions, Weaver or others at the branch personally transferred a total of $5.2 million to one of Casey’s or Wallach’s personal accounts.
The scam was uncovered after Casey died in 2020. Wallach was convicted of wire fraud and conspiracy to commit wire fraud and sentenced to 12 years in prison.
In addition to Weaver’s testimony, the plaintiffs presented circumstantial evidence that Umpqua must have known PFI was using investor money improperly.
The suit states that between June 2018 and April 2020, Umpqua’s automated system for monitoring indications of fraud issued 146 alerts for PFI’s accounts — at least 61 of which specifically flagged the companies’ clearing accounts for further investigation.
The suit states that after the fraud was exposed, Umpqua launched an internal review of PFI’s accounts, but quickly abandoned it after realizing the Novato branch was regularly helping Casey transfer investor funds to his personal bank accounts.
The complaint quotes an email from a Novato branch manager: “Holy moly I see transfers were allowed ($40,000.00 transfer from the PFI [Transfer account] to [Casey’s personal account] on 5/12 and $21,000.00 on 4/12 and 25,000.00 on 3/31).”
The suit says that it should have been impossible for Casey to continue his life of financial crime after pleading guilty in the late 1990s to 21 counts of bank fraud, five counts of tax evasion, five counts of aiding and assisting in the preparation and filing of false tax returns and one count of conspiracy to defraud the United States.
A local bank owned by a friend of Casey’s was willing to provide PFI’s banking services despite Casey’s record, the suit alleges. That company, Circle Bank, was acquired by Umpqua in 2012.
The jury reviewed the trial testimony of a former Circle Bank chief executive during its deliberations, said Linda Lam, a plaintiff’s attorney.
The suit states that while Umpqua “apparently did not retain most of that bank’s records, it did internally circulate a memorandum that discussed Casey’s criminal history.”
The suit alleges that employees at the Novato branch were incentivized not to do anything to stop PFI’s fraudulent activity.
“Umpqua assigns branch employees a goal for customer accounts and total deposits and ties bonuses, commissions and incentives to those metrics,” the lawsuit says. “Reporting PFI’s fraudulent activity would have caused the Novato branch to lose dozens of accounts and over 10% of its total deposits, leading to reduced compensation, worse performance reviews, and potentially even loss of employment.”
“Our argument is certainly that the Umpqua stood to benefit from the deposits that PFI had with the bank,” Lamb said. “PFI was one of the, if not the, largest customer for the Novato branch and among the top 20 small business clients of Umpqua.”
Heath said the bank had no knowledge of the scheme.
“Wallach, who is currently serving time in federal prison for his role, testified under oath that he and Casey actively hid it from the bank,” Heath said. “This case is an overreaching attempt by trial lawyers to seek further recovery of investor losses by targeting PFI’s depository bank.”
“In our defense, we will continue to emphasize a commitment to transparency, ensuring all facts come to light for the jury so that this matter may be brought to a fair resolution,” Heath said. “Umpqua Bank should not be held responsible for the criminal acts of Lewis Wallach and Ken Casey, and we look forward to presenting our case to the jury.”