Westport, CT – Lawyers in Florida say they are investigating the role that a Connecticut bank may have played in steering money to Bernard L. Madoff, the Wall Street trader accused of operating a $50 billion Ponzi scheme.
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According to the lawyers, their clients believed for more than a decade that they had an account at the Westport National Bank, a division of Connecticut Community Bank in Westport, from which they had received statements for many years. Early last week, they learned their money had actually been entrusted to Mr. Madoff, the lawyers said.
A number of wealthy investors and institutions have already filed lawsuits complaining that money they put into prominent hedge funds or private partnerships had actually been passed along to Mr. Madoff without their knowledge.
But this time, that complaint is being made against a federally regulated bank, which is subject to much more rigorous oversight than the other investment vehicles through which money has flowed to Mr. Madoff.
The bank disputes the allegation. It said on Wednesday night that its only role had been to maintain “a custodial account for a number of individuals and entities” who invested with Mr. Madoff. It did not say how many customers were affected, or how much money was involved.
“As custodian, Westport National Bank served in a ministerial capacity only,” said its president, Richard T. Cummings Jr., in a statement. The bank gave no investment advice to its custodial customers and did not invest any of its own money with Mr. Madoff, the statement concluded.
But other investors caught up in the scandal have said they actually thought they were investing with someone else — in this case, Westport National Bank.
The lawyers handling the Florida investigation said their clients are a middle-aged professional couple in South Florida who had dealt with Westport National since at least 1996. They had been solicited to open an account at the bank by a promoter, whom the lawyers also declined to name.
The couple told their lawyers that they had always believed their money was being held and invested by the bank. They received regular statements from the bank showing deductions for “custodial fees” and “record-keeping fees” that totaled 4 percent a year, according to Adam T. Rabin, a partner at McCabe Rabin in West Palm Beach.
Craig Stein, his co-counsel and a partner in Stein, Stein & Pinsky in Boca Raton, said that a bank statement from January 2005 showed that the custodial fee had been paid through the sale of “5.3 shares of BLM,” while the record-keeping fee, paid to the promoter, had required the sale of “31.26 shares of BLM.”
Mr. Madoff’s firm does not have any publicly traded shares, and the couple thought these transactions involved investments the bank had made on their behalf, Mr. Stein said.
“The couple told us that they had seen the terrible news about the Madoff victims and said ‘Oh, those poor people,’ ” he added. “They had no idea that they were among those victims.”
Then, a few days after Mr. Madoff’s arrest, the couple came home to find a Federal Express envelope at their door. It contained a letter from Westport National Bank, a copy of which was provided to The New York Times.
The letter, dated Dec. 12, opened: “Dear Custodial Services Customer.” It stated that the couple had given “full discretionary authority” over their custodial account at the bank to the Madoff firm.
“You may have learned of the recent allegations involving Bernard Madoff and his firm,” the letter continued.
It then asked the couple to notify the bank if they wanted it to request that Mr. Madoff’s firm “return assets of yours to the bank.”
The bank is one of five divisions of Connecticut Community Bank, formed in 2004 by the merger of Greenwich Bank & Trust Company and Westport National.
It is supervised by the Office of the Controller of the Currency. A spokesman for the agency said it did not disclose details of bank examinations. In 2005, other public records showed that the bank’s parent, Connecticut Community Bank, had assets of $252 million. State records show that it had about $370 million in assets earlier this year.
Something is weird here… But the bank has a lot of explaining to do, although it looks like the bank’s trust department had someone on the take for Bernie the Ganef. Westport is a ritzy part of CT – not too far from Greenwich and Stamford. Greenwich is the hedge fund capital.
The banks have different regulators, they may actually investigate this one.
Who issued the Bank Statements? The Bank? Then they or the Feds should be liable. Or were the stmts. forged by Madoff??
…………and the plot thickens
If this couple signed a Power Of Attorney authorizing Madoff to make investments within their Westport National Bank accounts they will have a very difficult time making a viable case.
I’m not an attorney, but I think the SEC should be sued. Normally I don’t believe in lawsuits where people should have excercised caution, done their own due dillegence, etc. However, the job of regulators (at least what they tell us) is to protect consumers and the marketplace. The SEC had complaints made to them about Bernie the ganef for 10 years, and they did nothing.
In this case, I think the state of CT and which ever banking regulator regulates this type of bank, can go after them -with or without the useless SEC.
I have always joked, who regualtes the regulators? It’s a rhetorical question because I know many of these regulatory bodies spend more time busting the chops of the little guys in business why the thieves are insulated. A lot of the regualtions are designed to control the salesforce. But the real masterminds are the ones who operate (and steal) at the top. This goes on for years before they are caught. Many times excessive regulation is embraced by larger and well established business because they can use regulation to twart competition. It’s a big joke.
You what is really insulting to me as a businessman? There are millions of people in all types of businesses who are kosher in their dealings. They hold themselves up to high ethical standards, and they follow the law. The natural response by government will be more regualtion, which punishes both the consumer (high prices) and the legitimate business people. Fair competition, not government engineered competition, is one of the best regualtions you can have. The consumer can smell the cheats and those who sell inferior products or services.
To clarify – They will have a very difficult time making a viable case against Westport National Bank.
Clarification needs to be done as to what financial institution is permitted to be “custodian” for any funds, and needs notice and affirmative consent for funds to be transferred by account holder, or beneficiary of such account – or there can be no certainty of where funds are located. It’s surprising that the industry is run so poorly as to ignore these basic rules of commercial practice in the security industry.
Further, no fractional share holder should ever be considered an accredited investor in a “pool” of funds without meeting the individual standards the SEC has laid out for what constitutes an individual accredited investor – including spouses. This is a part of the SEC negligence that permits low risk individuals in high risk places that operates to their disadvantage, and to the abuse people suffer from financial institutions where persons can ill afford the losses.