Wells Fargo Class Action: Did Bank Aid $300 Million Ponzi Scheme?

In the latest scandal involving banking giant Wells Fargo, consumers are accusing the company of supporting a ponzi scheme that defrauded 1,000 mostly senior investors out of $300 million of their life savings.

Banking Dive reports that the ponzi scheme was run by Marshal Seeman, Eric Holtz, and Brian Schwartz between 2011 and 2021. The trio allegedly tricked the investors into pumping their savings into multiple entities they set up, and then they used Wells Fargo to store the money. 

Wells Fargo Accused of Enabling Ponzi Scheme for Profit

The proposed class action lawsuit, filed by Fanny Millstein, accuses the bank of “recklessly pursuing its objectives to maximize assets held, and to generate account- and transfer-related revenue and compensation.” 

In doing so, Wells Fargo and its employees “substantially assisted the Scheme’s fraud, as well as the misuse and misappropriation of assets by allowing the Scheme to continue operating and enabling the Ponzi Scheme to reach catastrophic levels.”

Millstein alleges in the lawsuit that if Wells Fargo hadn’t backed up the scheme, it would have stalled and the money could have been used for legitimate investments that could have resulted in returns for investors. On top of supporting the allegedly illegal scheme, Wells Fargo failed its due diligence obligations to consumers and it didn’t follow know-your-customer regulations, the lawsuit states.

How the Seeman Holtz Ponzi Scheme Targeted Seniors

The ponzi scheme, revealed by the Florida Office of Financial Regulations in 2021, involved National Senior Insurance, doing business as Seeman Holtz, selling promissory notes to investors. These notes were backed by life insurance policies known as Stranger-Originated Life Insurance (STOLI) and life settlements. Investors were promised that proceeds from the death benefits of these policies would be used to pay interest and eventually return their principal.

However, instead of using new investors' money to fund premiums for new STOLI policies, the scheme operators used these funds to pay off existing investors and diverted significant sums through improper and excessive fees. Wells Fargo is accused of providing substantial assistance to the scheme by failing to perform basic due diligence and comply with regulations, thus enabling the fraud and choosing “to substantially assist and profit from it.”

“Wells Fargo’s failure to follow basic due diligence practices and comply with the applicable KYC regulations created incorrect and incomplete client profiles which aided Seeman and Holtz in obfuscating the Scheme,” the lawsuit alleges.

What Are Ponzi Schemes?

Ponzi schemes are fraudulent investment scams that promise high returns with little or no risk to investors. The scheme generates returns for earlier investors through the capital provided by new investors, rather than from profit earned by the operation of a legitimate business. 

Some key characteristics and mechanics of a ponzi scheme to be aware of:

1. High returns with low risk are a hallmark of Ponzi schemes
2. Nonexistent or minimal legitimate earning
3. Reliance on new investors to provide returns to earlier investors
4. Unsustainable model with the number of new investors inevitably declining, the scheme collapses because there isn't enough money to pay returns to earlier investors

Some famous examples of ponzi schemes include that of Bernard Madoff, who defrauded investors of billions of dollars over several decades, and, of course, Charles Ponzi. The scheme is named after Charles Ponzi, who ran a fraudulent investment operation in the early 20th century based on arbitrage of international reply coupons.

In May, Wells Fargo was hit with another consumer class action lawsuit in California over its alleged practice of taking funds from customers' deposit accounts to offset balances owed on credit accounts without authorization to do so.

In the Wells Fargo ponzi scheme class action lawsuit, Millstein is seeking compensation and incidental damages, civil penalties, interest, and the return of income and fees retained by Wells Fargo to those who were impacted by the bank’s alleged role in the scheme.

Case Details

• Lawsuit: Millstein v. Wells Fargo Bank, N.A.
• Case No.: 1:24-cv-22142-DPG
• Court: U.S. District Court for the Southern District of Florida, Miami Division

Plaintiffs' Attorneys

• Seth Miles, David M. Buckner, and Brett E. von Borke (Buckner + Miles)
• Scott L. Silver, Ryan A. Schwamm, and Peter M. Spett (Silver Law Group)
• James D. Sallah and Joshua A. Katz (Sallah Astarita & Cox, LLC)