Wachovia Accused of Aiding Telemarketing Fraud
By Jonathan Stempel
NEW YORK (Reuters) - Wachovia Corp WB.N, the fourth-largest U.S. bank, is fighting a lawsuit accusing it of letting fraudulent telemarketers use its accounts to bilk millions of dollars from consumers, court papers show.
Documents filed last month in the U.S. District Court in Philadelphia detail accusations the bank and its lawyers knew about the fraud allegations for years. These were also reported in the Wednesday edition of The New York Times.
The plaintiffs accused Wachovia of allowing some "payment processors" to create unsigned checks on behalf of telemarketers to withdraw funds from victims between 2003 and 2006, court papers show.
They also accused Wachovia of trying to win or retain business from companies that it knew were accused of telemarketing fraud, despite being alerted by other banks about the deceptive activity, the papers show.
The original complaint was filed last April. Plaintiffs are seeking class-action status on behalf of at least 346,000 victims they say lost millions of dollars, the documents show.
Wachovia has sought to dismiss the complaint.
Bank spokeswoman Christy Phillips-Brown declined to comment on the lawsuit, but said: "We took this issue very seriously, and senior management, led by CEO Ken Thompson, was actively involved in directing aggressive steps to correct the processes related to the situation."
She also said the Charlotte, North Carolina-based bank has taken steps to implement new risk management for third-party payment processors and telemarketers. She said Wachovia "does not have customers who are strictly telemarketers, or who are third-party payment processors to telemarketers."
In court papers filed Jan. 17, the plaintiffs accused Wachovia and its in-house lawyers of knowing "for several years" that the bank could be legally liable for dealing with fraudulent telemarketers.
"To knowingly bank a customer who is perpetrating fraud places the bank at great exposure," Wachovia risk management official Tim Brady wrote a colleague in an April 8, 2003 e-mail concerning payment processor Amerinet, court papers show. Wachovia took on the account, according to court papers.
In another situation, loss management official Benita Sheffield e-mailed colleagues on Aug. 23, 2005 regarding some 4,579 complaints that an account had drawn over two months, the papers show.
"YIKES!!!! Now, the crux of the problem (in case you haven't already guessed) is that ALL their deposits are THIRD PARTY DRAFTS!!! DOUBLE YIKES!!!!" according to the e-mail cited in court papers. "There is more, but nothing more that I want to put into a note."
Bart Narter, a senior banking analyst at Celent in San Francisco, said banks are constantly on the lookout for possible fraud involving telemarketers.
"Chargebacks occur when someone sees bills on their accounts that they dispute," he said, referring to the 4,579 complaints. "A large number of chargebacks doesn't show fraud, but it is an absolute red flag for deceptive business practices or outright fraud."
Meanwhile, in a Jan. 13, 2006 e-mail to a Wachovia lawyer, a lawyer at Royal Bank of Scotland Group PLC's (RBS.L) Citizens Bank asked for help in halting the processing of unauthorized checks that took money from accounts of Citizens customers, court papers show. The account in question stayed open until a court froze it the next month, the papers show.
The named plaintiffs include Mary Faloney, a disabled Pittsburgh resident living on Social Security, and Anitra and James Whitt of Virginia Beach, Virginia, who are married with four young children, court papers show.
(Editing by Dave Zimmerman)
