JPMorgan may have created AML and KYC programs that facially met the requirements of the Patriot Act and related regulations, but did not effectively execute those programs, 246 investors defrauded in a Ponzi scheme say.
JPMorgan Chase & Co. (NYSE:JPM) and JPMorgan Chase Bank, N.A. stand accused of numerous law breaches, including aiding and abetting fraud, aiding and abetting conversion, unjust enrichment and negligence. In their amended complaint filed on February 7, 2018, a group of more than 240 investors in a Ponzi scheme operated by famous Bitcoin fraudster Renwick Haddow, allege that the bank was well aware that investors’ funds were going to a fraudster.
Each of the Plaintiffs in the instant case invested in various “Bar Works” entities, operated by Renwick Robert Haddow, a national of the United Kingdom, and the mastermind of this scheme. Each of the investors was specifically advised to send their investment proceeds to one of two Bar Works Inc.’s bank accounts at JPMorgan Chase, believing that to be a sign that the “Bar Works” organization consisted of a reputable business.
The plaintiffs allege that JPMorgan knew that the Bar Works Entities was an elaborate Ponzi Scheme. According to the defrauded investors, the bank “had before it the very nuts and bolts of the Ponzi scheme”, as the vast majority of the money that the plaintiffs (and other investors) deposited into Bar Works Inc.’s main account was not used to build out shared co-working workspace retail locations, but instead was merely transferred to other customers in patterns that could serve no legitimate business purpose.
JPMorgan is said to have had actual notice that Bar Works was operating with a managing director named “Jonathan Black” who was completely fictitious. That is because on or about February 4, 2016, Haddow opened accounts at JPMorgan and disclosed his identity to the bank’s staff, including Chase AVP Kanel Madhu.
According to the plaintiffs, the bank had actual notice that Haddow was laundering investors’ funds, including the Plaintiffs’ money, as a result of Bar Works Inc.’s deposits being immediately transferred to known overseas money laundering havens such as Mauritius, the Seychelles and Morocco.
Haddow accepted investments via wire transfer, which were directed to Account # XXXX622 (the “622 Account”), and Account # XXXX379 (the “379 Account”) at JPMorgan in Manhattan. The 622 Account belonged to Bar Works Inc. and the 379 Account belonged to Bark Works 7th Avenue Inc. JPMorgan permitted all funds from putative investors to be commingled in two accounts and permitted Haddow to withdraw the funds as he saw fit, without limitation.
The plaintiffs allege that the bank allowed Haddow to funnel millions of dollars through the 622 Account and the 379 Account by ignoring clearly illicit transaction activity within that account – including millions of dollars in suspicious transactions from all over the world – and disregarding its own anti-money laundering policies.
The 27 countries where funds were transferred to are divided into the categories as follows:
- (i) funds transferred to 17 countries of Primary Concern,
- (ii) funds transferred to 8 countries of Concern, and
- (iii) funds transferred to 2 monitored countries;
International wire transfers totaling $3,846,320.63 went to four major money laundering countries (Portugal, Cyprus, Spain, and Poland) even though there were no incoming deposits from those four countries. Also, a disproportionate dollar amount of international wire transfers going to three major money laundering countries (Morocco, Isle of Man, and Mauritius).
The 622 Account repeatedly exhibited textbook “red flags” and high-risk activity including wire activity with offshore entities. Through the 622 Account, Haddow frequently engaged in transactions with high risk, offshore entities, such as so-called “binary trading” operations.
The investors say that while JPMorgan may have created AML and KYC programs that facially met the requirements of the Patriot Act and related regulations, the bank did not effectively execute those programs and never submitted to the appropriate banking regulators as mandated by statute and regulation any reports of Haddow and Bar Works Inc.’s suspicious activities.
This was not the first time JPMorgan ignored evidence of fraud in order to garner revenue, the plaintiffs argue. In 2003, the bank had been accused of the same sort of conduct in connection with the Enron fraud. Also, within the last few years, after the collapse of Bernie Madoff’s Ponzi Scheme, several class action lawsuits were filed by investors against JPMorgan Chase for their involvement.
The plaintiffs estimate that JPMorgan’s illicit partnership with Bar Works Inc. and Renick Haddow was more profitable than either the Enron or the Madoff schemes.
The plaintiffs claim combined $16,907,626.00 in damages.
The case is captioned ZHAO et al v. JPMorgan Chase & Co., et al (1:17-cv-08570).