- Key insight: The case against Berkshire Bank, which includes unusually detailed allegations, represents the latest test of the law in cases where bank customers commit fraud.
- Supporting data: The Ponzi scheme’s operator allegedly solicited $90 million from roughly 1,000 investors, promising them an 8% return on their money.
- What’s at stake: Banks can be sued over whether they responded appropriately to what their customer due diligence efforts have revealed.
Less than two weeks after completing a merger, Berkshire Bank faces a lawsuit accusing the Massachusetts lender of aiding and abetting a Ponzi scheme that defrauded victims of tens of millions of dollars.
The suit, which is seeking class action status, alleges that Berkshire had knowledge that a customer was running a Ponzi scheme centered in a small town in New York state, but failed to take action because it was profiting from the customer relationship.
“Make no mistake — these were not mere ‘red flags’ that Berkshire could or should have detected. Specific reports disclosed this information to Berkshire on a nearly real-time basis,” wrote lawyers for the plaintiffs, who include the administrator of a bankruptcy case that arose after the Ponzi scheme unraveled.
A Berkshire spokesperson declined to comment, saying in an email that the bank is unable to comment on any pending litigation.
The complaint, filed Wednesday in federal court, contains unusually detailed allegations about a bank’s handling of suspicious customer activity. The attorney who brought the suit, Bob Elgidely of the law firm Fox Rothschild, said that he relied on materials he obtained from the bank under a subpoena.
The epicenter of the long-running Ponzi scheme was the town of Hamilton, New York, a community of less than 7,000 people that is home to Colgate University. The scheme was allegedly orchestrated by Miles Burton Marshall, a local landlord who also ran a tax-preparation business.
Marshall allegedly solicited $90 million from roughly 1,000 investors, promising them an 8% return on their money. The scheme unraveled more than two years ago, according to Elgidely, after Marshall was hospitalized, and he missed certain payments to investors while he was away from his office.
In June, New York State authorities
Marshall had been a Berkshire customer since 2015, according to Elgidely, and was previously a customer of Norwich, New York-based NBT Bancorp.
The complaint quotes from a 2021 email that a senior investigator at NBT sent to a Berkshire employee who worked on security and fraud investigations. In the email, the NBT employee wrote that “we have seen some activity” from Marshall, “who we believe may be running a Ponzi scheme.”
“He appears to have an account with Berkshire Bank as well as a number of other financial institutions. We see a lot of money coming from him to individuals for ‘interest payments’ etc. He bills himself as some sort of financial advisor for individuals around the North Country,” the email stated.
NBT Bancorp declined to comment.
In another example of Berkshire allegedly abetting the Ponzi scheme, the complaint states that the bank — worried about losing Marshall as a customer after deciding to close the Oriskany Falls, New York, branch where he made deposits — provided a scanner that allowed him to remotely deposit up to $300,000 of checks per day.
While Berkshire fulfilled its know-your-customer obligations, determined Marshall to be a high-risk customer and performed ongoing monitoring, the bank failed to act on what it knew, Elgidely said.
“Although Berkshire Bank had knowledge of Marshall’s unlawful activities before and after the prior bank’s warning, it chose to retain him as a customer so that it could continue to profit from their substantial depository account relationship,” the complaint states.
Berkshire prevailed in an earlier lawsuit that was brought in connection with the same Ponzi scheme.
In that suit, a federal judge determined last year that the plaintiff had not “alleged facts that support a plausible inference that Berkshire possessed ‘actual knowledge’ of Marshall’s Ponzi scheme or that Berkshire ‘substantially assisted’ in Marshall’s orchestration or operation of the Ponzi scheme.
Months later, Berkshire disclosed to investors that it had received a subpoena from the bankruptcy trustee.
While the Ponzi scheme was operating, Berkshire Bank was a division of Boston-based Berkshire Hills Bancorp. Berkshire Hills’
Berkshire is not the first bank to face allegations that it aided and abetted a Ponzi scheme.
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And in 2022, a Minnesota jury