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A new lawsuit alleges that Zions Bank's negligence in creating bank accounts for a convicted scam artist and failing to monitor and report suspicious activity helped perpetuate a multimillion-dollar fraud against investors around the country.
The lawsuit in 3rd District Court in Salt Lake City accuses Zions of some of the same types of failures that recently led federal regulators to impose an $8 million fine against the Salt Lake City-based bank.
The suit claims that Zions' failure to comply with regulations and banking standards allowed the Madison Real Estate Group to "divert ill-gained proceeds obtained by fraud and wash the money clean in other enterprises."
"It's pretty clear to us these fraudsters sought out and obtained the willing participation of the executive and private banking services that Zions was only too happy to provide in exchange for all the fees they collected from the accounts and the benefits that came to them from having the amount of deposits that these accounts have," said Marcus Mumford, the attorney for the eight people and nine companies and trusts that sued.
Zions did not respond by Wednesday evening to two requests for comment.
The suit alleges that Richard Ames Higgins formed Madison in 2005 after getting out of prison where he was serving sentences of up to five years for fraud convictions in 1988 and 2000 from Utah and Washington counties.
Higgins also was convicted of the sale of unregistered securities in Salt Lake County in 2000 and was disbarred from practicing law.
But when Higgins, his son Brandon and brothers Allan and Brett Christensen sought bank accounts from which to run Madison Real Estate, Zions failed to conduct investigations into their backgrounds before setting up the accounts that aided the fraud, according to the lawsuit.
"Zions formulated initiative to incentivize its employees to be more aggressive in recruiting and servicing what the bank considered high-value clients who could bring to the bank greater deposits, fees and profits," the suit says, alleging that Zions ignored various "red flags" in its dealings with the group.
Those included Richard Higgins' criminal record, the "high-risk fraud alert" on Brandon Higgins' and Allan Christensen's credit reports, and that the address for the Madison Group was a P.O. box at a UPS store in Midvale. They also failed to report to federal authorities the suspicious activities of millions of dollars flowing through various accounts, said Mumford.
Allan Christensen said in an email Wednesday that "no fraud was committed by me. "
"The SEC completed their investigation and required no repayment. The FBI and the U.S. Attorney's Office investigated and said I committed no fraud."
Attorneys or others named in the lawsuit did not return messages seeking comment or could not be reached.
A number of other banks, including Lehman Brothers and Bank of America, as well as real estate and title companies, also are named in the lawsuit.
According to a Securities and Exchange Commission (SEC) lawsuit filed in 2008, Madison raised $15 million from more than 40 investors by marketing itself as a 30-year-old company that bought apartment buildings at below market value, upgraded them and then sold them for a profit.
Investors in the six properties that are the subject of the state court lawsuit says they were defrauded of $27.5 million, a figure that includes loans they took out to purchase properties.
Investors were promised returns of 1 percent a month and total returns of 30 percent.
But Higgins and the others engaged in "double closings" in which they bought a property at a low price from the owner who also sold it at the same time to Madison investors at a higher price.
The Madison owners pocketed the difference between the sales prices and also took rents from the buildings that were supposed to go to improvements, the lawsuits say.
Lenders ended up foreclosing on the properties.
The lawsuit asks for unspecified damages.
Higgins was returned to prison and finished his sentence in September 2008. He was discharged from parole supervision in March 2010, said a prison spokesman.