A group of pension funds that was scammed out of millions of dollars has filed suit against U.S. Bank, alleging the bank neglected its duties as a trustee in a South Dakota bond issue.
The pensions hold retirement funds for public employees in Maryland, Alabama and Omaha, Neb. school workers. They were victims in what Joon H. Kim, the Acting U.S. Attorney for the Southern District of New York, called a “brazen scheme” that included defrauding the Oglala Sioux Tribe in South Dakota into issuing $63 million in bonds.
One of the ringleaders in the scam, Jason Galanis, was sentenced this month to more than 14 years in prison.
Authorities say Galanis and a group of co-conspirators convinced the Wakpamni Lake Community Corp., a tribally chartered corporation to the Oglala Sioux, to issue three rounds of bonds. The money from the bonds was supposed to be invested in annuities that would generate enough income to pay the bondholders and supply the tribe with money for economic development projects.
But behind the scenes, Galanis and his associates gained control of two investment firms. They used that control to purchase the bonds on behalf of unsuspecting clients, including the three pension funds. Rather than invest the funds in annuities, authorities say Galanis and his associates diverted much of the money to themselves.
U.S. Bank acted as the indenture trustee for the three bond issues, which were issued between October 2014 and April 2015. In that role, the bank had a duty to protect the bondholders.
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But in their lawsuit, the pension funds argue that U.S. Bank missed several red flags that should have alerted the bank that something was wrong.
“Rather than fulfilling even the most basic ministerial role in connection with the August 2014 offering, U.S. Bank chose to bury its head in the sand and ignore obvious red flags pointing to something peculiar about where it was being told to send millions of the plaintiffs’ dollars,” the lawsuit says.
The lawsuit says U.S. Bank was supposed to release the funds to an overseas investment firm that would then invest the proceeds on behalf of the tribe and bondholders. But instead of transferring the money to the correct firm, the bank sent the money to an entity with a similar name. That entity had been created in Florida by a Galanis associate just a few days before.
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