Victims of a massive $300 million Ponzi scheme masterminded by a Cincinnati businessman have filed a lawsuit against three prominent financial institutions, accusing the banks of improperly assisting in the diversion of their investments to third-party accounts presumably controlled by the schemer. The lawsuit names U.S. Bank, PNC Bank, and Fifth Third Bank (collectively, the "Banks") as defendants, alleging multiple violations of Ohio's Uniform Commercial Code and negligence related to their association with Cincinnati businessman Glen Galemmo, who recently pleaded guilty to wire fraud and money laundering charges.
Galemmo operated Queen City Investment Fund ("Queen City"), along with a dozen other investment entities. Touting himself as an experienced trader, Galemmo promised lucrative returns to potential investors through investments in stocks, bonds, futures, and commodities. Investors were provided with promotional materials indicating Queen City had enjoyed a streak of consistently above-average returns, including a return of nearly 20% in 2008 when the S&P 500 experienced a -38.49% loss. Potential investors were assured that Galemmo obtained annual audits of Queen City, and were provided with monthly statements showing steady returns. In total, Galemmo raised at least $100 million from individuals, trusts, and even charitable organizations.
According to the lawsuit, the plaintiffs are various individuals and entities that invested with various Galemmo entities, including Queen City Investments ("QCI") and QFC LLC ("QFC"). Each of the plaintiffs attempted to make an investment in QCI or QCF, making a check out to the respective entity drawn on one of the three banks. However, the complaint contends that each check was not deposited in the intended account for the indicated entity, but rather to a third-party account not disclosed to plaintiffs. In total, more than $450,000 of checks were "improperly" deposited according to Plaintiffs.
Plaintiffs contend that they were not informed of the banks' decision to tender payment to the third-party entities, and would not have invested in the entities had they been informed of the situation. Plaintiffs bring several claims based on violations of Ohio's Uniform Commercial Code, including the failure to act with ordinary care and the breach of duty to act in good faith. Additionally, the Banks are accused of negligence for their failure to comply with "Know Your Customer" obligations and to further inquire into and report suspicious banking activities that should have been triggered by the activities.
A copy of the complaint is below: