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Wells Fargo Facing Lawsuit for Supporting a $135 Million Ponzi Scheme

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It seems as if Wells Fargo can’t keep from getting mired in scandal after scandal. As if opening up millions of fake accounts to meet sales goals (and getting caught for its fraudulent actions) wasn’t enough, Wells Fargo is now facing a class action lawsuit for knowingly aiding and abetting a $136 million Ponzi scheme.

This latest violation of fiduciary regulation and public trust involves a Florida-based investment firm called EquityBuild.  The firm invested in real estate, promising investors income for a total return of 12% to 20% on their investment. Their operation raised $136 million from approximately 900 investors.

The firm’s owners, Jerome Cohen (63) and his son Shaun Cohen (39) each pocketed $1.5 million through the scheme. What their investors didn’t know is that the majority of their invested residences were located in various underdeveloped regions in the South Side of Chicago. The Cohens also concealed the fact that they “skimmed 15 percent to 30 percent off each investment by taking undisclosed fees,” according to the SEC.

So not only were investors overcharged for the properties, the value of the real estate itself happened to be of much lesser value than what the Cohens had initially sold to their clients, a double whammy.

As if this scam wasn’t enough, once it became clear that the investors were not earning anything near the returns they had been promised, the Cohens shifted to a whole new phase of deplorable dealing: they kept the investment program going by way of a Ponzi scheme, onboarding new investor funds to pay for their earlier investors’ returns.

And this is where Wells Fargo entered the picture. You see, EquityBuild would not have been able to pull off this Ponzi scheme without the willing assistance of their friendly neighborhood Wells Fargo bank.

According to the lawsuit claim, Wells Fargo helped execute this fraudulent plan by “financing the interest payments owed to other investors with new investors’ money, rather than with the income from real estate properties that were supposed to support those returns.”

This indicates that “Wells Fargo had actual knowledge that it held fiduciary funds in its accounts … and knew that those funds were actively being misused.”

So while this latest scandal doesn’t surprise us, nor should it surprise you, it makes us wonder why Wells Fargo (as in the case of many other banks who secretly engage in activities unethical or illicit) still insists on presenting the standard virtue signaling rhetoric prevalent in all their public materials, comments, and media.

As Wells Fargo’s Vision, Values, and Goals web page states:

Ethics. We’re committed to the highest standards of integrity, transparency, and principled performance. We do the right thing, in the right way, and hold ourselves accountable.”

Blatant untruth becomes standard practice when the general public is willing to normalize and accept the contradiction, and profitable when the general public is willing to pay for it.

Given this practice of saying one thing and doing the exact opposite, given the fact that some of the most established and reputable banks happen to be the most covertly corrupt (though Wells Fargo seems to be getting used to the negative limelight...we’ll give them that), and given the lack of accountability among these banks’ top brass (sadly, the most vocal protest coming from the democratic socialist, Elizabeth Warren), it seems as if the most ethically self-serving thing we can do is to place less trust and funds in these banks. And holding gold and silver in private storage, far away from the banks, might be a good start.

No risk of confiscation during a banking collapse. No risk of unnecessary fees for services rendered (or not rendered, see our Fidelity Investments article). No fake accounts or secretive account manipulations in which you are ultimately held accountable (a Wells Fargo special). And finally, no risk of monetary manipulation or purchasing power erosion (a Federal Reserve operation).

Bank Failure Scenario Kit - sm2



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All articles are provided as a third party analysis and do not necessarily reflect the explicit views of GSI Exchange and should not be construed as financial advice.

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