Bank of America, HSBC must Defend in Fraud Lawsuit

by Mike Bevel,
CollectionIndustry.com

You start with three banks, add an allegedly unscrupulous attorney, and, with a little luck and 45 minutes in a 350-degree oven you might just bake yourself up a delicious Ponzi scheme. Let cool for an hour.

Back in the early ?90s, thirtysomething New York real estate lawyer David Schick convinced investors that he had devised a “no-risk” scheme to generate high returns by bidding on and subsequently selling pools of mortgages. If you were approached by Schick, a lawsuit currently engaging the U.S. Second Circuit Court of Appeals alleges, he would ask you to advance funds that Schick would deposit in escrow accounts at Fleet Bank (now part of Bank of America), Republic National Bank (now part of HSBC), and Sterling National Bank (not bought out by anybody).

Only then he sort of kind of stole the money. $82 million before his fraud was discovered.

The three-judge panel of the U.S. Second Circuit Court of Appeals on Tuesday reinstated state law claims brought by dozens of investors alleging that the banks were negligent, and aided and abetted a breach of fiduciary duty, according to a story covered by Reuters.

Investors claim that the banks are liable in this mess because they failed to report overdraft on Schick?s accounts. ?The fact that Schick was overdrawing his fiduciary accounts constituted strong evidence that he was, at the very least, mishandling his clients’ funds,” Chief Judge John Walker wrote for the appeals panel.

Bank of America told Reuters it will defend itself to the death ? or, rather, ?vigorously.? Reuters also said that HSBC has declined to comment and Sterling isn?t answering its phones.