WASHINGTON — The District of Columbia on Friday filed suit against Bank of America NA in D.C. Superior Court seeking $105 million of damages after the bank cashed fraudulent tax checks in a scam that cost the district $48 million over 20 years.
The eight-count suit charges the bank with fraud, breach of fiduciary duty, negligence, and violations of the Uniform Commercial Code and District of Columbia False Claims Act, among other things.
Bank of America was the primary bank used by Harriette Walters, a former manager in the district’s Office of Tax and Revenue who earlier this year pled guilty to stealing $48 million over 20 years from the office. The suit alleges that Walter Jones, who worked as an assistant branch manager at Bank of America, helped facilitate the cashing of about 116 fraudulent tax refund checks worth about $34 million in the bank’s accounts controlled by Walters and others in the scam.
Bank of America fired Jones in February 2007 for violating its employee standards of conduct, but failed to alert the district of the action, according to the suit. Jones pled guilty to conspiracy to defraud and money-laundering charges earlier this year and is awaiting sentencing.
“Considering the size of the loss to the district, the integral role Bank of America supervisor Jones played in the scheme, and the failure of the bank to properly train and supervise its employees to mitigate against such a massive fraudulent scheme perpetuated by one of its own managers, acting Attorney General [Peter] Nickles is committed to holding the bank fully accountable for its share of the loss,” district officials said in a release about the lawsuit. “At no time did Bank of America alert the district to any wrongdoing despite obvious irregularities apparent on the face of checks being deposited or the large amount of the checks.”
The suit argues that Bank of America failed to adequately supervise Jones and failed to notify the district of the unusually high deposit amounts, even when the deposits “contained many irregularities, such as having the payee inconsistent from the depositor, or having a different payee and account holder.”
One example cited by the suit is the $852,300 that was deposited into Waters’ personal account in 2003.
“Despite the high amount of the deposit — substantially all of which came from district-issue checks — [Bank of America] did not alert the district, or any authority,” district officials said in the suit.
Like Jones, Walters and her niece Jayrece Turnbull have entered guilty pleas to conspiracy to defraud and money laundering in the U.S. District Court and are awaiting sentencing. As a part of the pleas, the three co-defendants have agreed to pay all of their assets in restitution to the district, Nickles said.
In addition, the U.S. attorneys prosecuting those cases expect to recover about $10 million, which will be paid to the District of Columbia and deducted from any judgment in this civil case, according to the suit.
The suit seeks at least damages of at least $35 million of funds lost as a result of the scheme, which would be trebled to $105 million under the district’s False Claims Act. The act applies to anyone who conspires to defraud the city by getting a false claim approved or paid or anyone who knowingly makes, uses, or causes to be used a false record or statement.