Wells Fargo Bank participated in “massive looting” at failed hard-money lender USA Capital, according to allegations in a civil trial that began Wednesday in bankruptcy court.
Bankruptcy Judge Linda Riegle is presiding in the adversary case and will decide whether investors and creditors of USA Capital are entitled to a judgment from Wells Fargo for damages.
The plaintiffs’ attorneys alleged that Wells Fargo assisted in “a massive looting, self-dealing, and related Ponzi scheme” at USA Capital. In a Ponzi scheme, existing investors are paid with money from new investors.
The allegations stem from the handling of 30 bank accounts that USA Capital maintained at Wells Fargo, according to court papers.
“We categorically deny these allegations, and we will continue to vigorously defend the suit,” Wells Fargo spokeswoman Natalie Brown said in an e-mail.
Defense attorneys said bank account agreements with USA Capital prevent the plaintiffs from collecting damages in the lawsuit.
USA Capital, the biggest hard-money lender to collapse in Nevada history, solicited money from individual investors and used the money to make loans secured by real estate. The firm was managing
$962 million in money and assets for several thousand investors when it sought bankruptcy court protection in April 2006.
In earlier years, USA Capital owners Thomas Hantges and Joseph Milanowski diverted investor money from the Diversified Trust Deed Fund to cover operating losses at a time-share hotel, real estate ventures and a technology company that Hantges and Milanowski owned, the lawsuit claimed.
In 2003, for example, Wells Fargo accepted the transfer of $11 million from the fund’s account at Nevada State Bank in violation of state law, the lawsuit said.
A banker at Wells Fargo told a USA Capital employee that the Las Vegas bank was “being watched” for failing to follow procedures in the transaction, according to the lawsuit.
Wells Fargo opened accounts for two shell corporations “for the sole purpose of laundering money” from the investment fund, the lawsuit said.
Over less than a year, Wells Fargo processed $23 million in unusual wire transfers “that were structured like textbook money-laundering transactions,” the lawsuit argued.
Plaintiffs’ attorney Allan Diamond of Houston said the lawsuit seeks more than $60 million in damages against the bank.
Attorneys for investors and creditors of USA Capital called Victoria “Vickie” Loob Hessling, a former employee at the hard-money lending firm, as their first witness Wednesday. The trial is expected to continue until July 19.
Milanowski was sentenced to eight to 12 years in prison for wire fraud in April, but no other executives or employees at the firm have been accused of a crime.
Contact reporter John G. Edwards at
email@example.com or 702-383-0420.