GRAND RAPIDS, Mich., March 19, 2011 /PRNewswire/ -- In the last several years, several high profile financial scams have surfaced. West Michigan is home to the multi-million dollar financial fraud in 2004 involving Cyberco and Barton Watson. Following the FBI raid of Cyberco's offices in November, 2004, Cyberco ceased operating and filed bankruptcy, as did a sister company, Teleservices Group who, with Cyberco, had conducted the Ponzi scheme responsible for fleecing tens of millions of dollars from finance companies over several years.
In a ruling handed down late yesterday, US Bankruptcy Court Western District of Michigan Judge Jeff Hughes found that Huntington National Bank must pay $73,035,000 to a Trustee representing a large group of lenders who were defrauded as a result of Huntington Bank's failure to investigate potential improprieties in accepting payments from Teleservices and applying to Cyberco's loans.
In the Court's words, "Huntington had turned a blind eye to the mounting evidence that the transfers from Teleservices were not the collected Cyberco receivables as it had been led to believe."
"This ruling rights an incredible injustice and sends a clear message that financial institutions and corporations, in general, have a legal and ethical responsibility to protect the public interest. We need to take a strong stand in order to preserve the integrity of our financial system," said Doug Donnell, attorney with the Grand Rapids law firm Mika Meyers Beckett and Jones.
In late 2006 and early 2007, bankruptcy trustees for both Cyberco and Teleservices filed separate suits against Huntington National Bank, alleging that Huntington continued to extend credit to Barton Watson and Cyberco despite its awareness of repeated "red flags," of fraud such as Cyberco refusing to submit audited financials, acknowledged inconsistencies in Cyberco's explanations regarding where its large, round figure deposits came from, and the bank covering million dollar overdrafts and honoring numerous NSF checks.
The lawsuits contend that:
- Huntington successfully pressured Cyberco to completely pay off the entire debt to the bank by October 2004, less than one month before the FBI raided Cyberco's offices.
- During the time the credit was being paid off, Cyberco used Huntington's continued funding to shift the Ponzi scheme into high gear, bringing in more and more victims and tens of millions of dollars to keep the Cyberco boat afloat.
- The bank knew or should have known that Cyberco was perpetrating a fraud and tried to get out of it sown loan liability by buying time and pressuring for pay downs.
- The bank chose to ignore obvious signs of continuing and growing fraud and money laundering.
- Huntington Bank's improper actions propped up the fraudulent scheme of Cyberco which, without Huntington Bank's help, would have collapsed by 2003 or early 2004, saving many finance companies from being victimized for millions.
In the Teleservices case, a three-week trial was conducted. At the trial, James Horton, the former Cyberco President, now serving time in federal prison, testified before Judge Hughes, as did many Huntington Bank employees and officers. Over 20 witnesses testified and over two hundred exhibits were introduced into evidence, most documents were from Huntington's own files.
The 127 page Opinion by Judge Hughes points to the bank's own internal investigation of the Cyberco fraud, which included the discovery that Barton Watson had previously been convicted of felony fraud and had served three years in federal prison. This information was withheld from the bank's chief credit officer by the bank's investigator. Judge Hughes ruled that this decision to not disseminate such valuable information constituted "willful blindness" on the part of the bank in avoiding a greater discovery of Cyberco/Teleservices fraud. Hughes held that the bank's conduct was not consistent with the honesty and integrity required for good faith conduct by the bank.
SOURCE Mika Meyers Beckett & Jones PLC