In South Dakota federal court, a number of public employee retirement funds are suing US Bank NA (USB) for not identifying certain “red flags” as the signs of a tribal bond fraud. The plaintiffs say they lost $25M in the offering scam and they believe that the bank decided to ignore the warnings that something was amiss.
The plaintiffs in the tribal bond fraud lawsuit include the Washington Suburban Sanitary Commission Employees’ Retirement Plan, which invested $4.1M, the Water Works Board of the City of Birmingham, which invested $4.3M, and the Omaha School Employees’ Retirement System affiliates, which invested $16.2M. According to the pension funds, their investment advisers were bought by fraudsters who put their money in bonds that a Native American tribe had issued.
US Bank served as the tribal bond offerings’ indenture trustee. This meant that it was the bondholder and handled the funds. The plaintiffs want damages for a number of violations, including negligence and breach of contract.
In their pension fund fraud lawsuit, the pension funds are accusing US bank of disregarding inconsistencies in investment documents and payment instructions when they decided to issue checks to the entities involved in the scam. The plaintiffs are considering these oversights a breach of the bank’s common law duties, as well as its contract to them.
It was just this month that Gerova Financial CEO Jason Galanis was convicted to 173 months in prison over this scam, which involved the issuance of over $60M of municipal bonds by the Wakpamni Lake Community Corp.—an affiliate of the Oglala Sioux Tribe. He also must forfeit more than $43M and pay close to $44M of restitution. Prosecutors said that Galanis (along with his dad John Galanis and others) bilked bond clients and the public while defrauding the Sioux tribe and taking the money for themselves. Except for sixty months of this sentence, the prison term that Galanis received over the tribal bond fraud will run concurrently with the 78-month sentence he was given for a $20M pump-and-dump scam involving Gerova.
Pension Funds Sue US Bank For $25M Tribal Bond Fraud Loss, Law360, August 23, 2017