in Newswire Published on October 4, 2017

Lawsuit: 15-Year, $45M ‘ATM Ponzi Scheme’ Success Due to City National Bank’s Assistance

Last Updated on May 8, 2018

Wilinsky et al. v. City National Bank, N.A.

Filed: September 29, 2017 ◆§ 1:17-cv-07463

City National Bank is the defendant in a lawsuit centered around its alleged compliance with an 'ATM Ponzi Scheme' through which millions were supposedly lost.

Defendant(s)

City National Bank, N.A.

Law(s)

State(s)

New York

Categories

Business/Finance Fraud

A sprawling proposed class action lawsuit filed in New York last week alleges between 500 and 600 consumers across 36 states (outside of California) collectively lost around $45 million between 2009 and 2014 after investing in an alleged “ATM Ponzi Scheme” that the plaintiffs claim only succeeded because defendant City National Bank, N.A. (CNB), through certain senior employees, “knowingly provided substantial assistance.” The 58-page complaint alleges that individuals in California alone lost around $90 million through the scheme, which allegedly spanned 15 years at a sole location, City National Bank’s Woodland Hills, California branch, and ostensibly succeeded within the last five years.

After identifying two specific individuals, reportedly the owners of Nationwide Automated Systems, Inc., as the alleged main operators of the scheme, the complaint singles out one of the defendant’s senior vice presidents, a non-defendant in this lawsuit, whose alleged participation in and active promotion of the decade-plus grift supposedly earned him a substantial profit. The complaint alleges this individual, among other acts:

Exercised control over the proceeds and disbursements of the money in “the NASI’s accounts at CNB”;

Moved stolen investor funds to and from said accounts;

Used CNB funds to cover negative bank balances and prevent checks from bouncing from said accounts;

Used CNB’s creditability and status to promote the alleged ATM Ponzi Scheme by attesting to the plaintiffs and other prospective investors the integrity of the scheme’s individual operators; and

Actively misrepresented the status of funds flowing through NASI’s accounts to investors and potential investors.

The case notes the above-mentioned individual is now reportedly on administrative leave from CNB.

According to the lawsuit, NASI was the subject of a September 2014 Securities and Exchange Commission (SEC) complaint filed in California. Shortly thereafter, the complaint continues, NASI’s two individual owners reportedly pleaded guilty to federal conspiracy, mail fraud, and wire fraud charges and were sentenced to prison.

Below are passages reproduced from the complaint that summarize the alleged timeline and inner-workings of the alleged Ponzi scheme:

“For each ATM NASI sold to [the plaintiffs], NASI agreed to collect the rent due, hold it, and then pay it to [the plaintiffs]. NASI agreed to account for the rent collected and remit to each plaintiff a monthly report of ATM transactions (the ‘Investor Summary Report’) along with the rent check. NASI represented and guaranteed that the fifty cent rent, consisting of a portion of each transaction fee, would generate, at a minimum, 20% annualized return to [the plaintiffs], and, if it did not, NASI would make up the difference. These representations were false, fraudulent, and misleading.

A critical part of the ATM Ponzi Scheme was to make lulling payments to [the plaintiffs] in the form of the rent payments for their ATM machines so they would be assured that their investment was sound and secure. The ATM Ponzi Scheme also included laundering the stolen month through other businesses, thereby attempting to generate additional funds for the co-schemers and to hide the proceeds.

Beginning in 1996, NASI became a long-term and financial significant customer of [City National Bank] at its branch in Woodland Hills, California. [The non-defendant senior vice president] knew that NASI’s only bank was CNB. From 2006 through 2014, approximately $400 million of investors’ money flowed into and out of NASI’s accounts, generating substantial service fees and profits for CNB and compensation for [the non-defendant senior vice president].”

The full complaint can be read below.

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