A class action lawsuit has been filed against Bank of America, alleging that the bank effectively set up a branch in a Long Island office that helped Nicholas Cosmo carry out a $380 million Ponzi scheme. The lawsuit, filed in Federal District Court in Brooklyn, contends that Bank of America “established, equipped and staffed” a branch office in the headquarters of Cosmo’s firm, Agape Merchant Advance. The lawsuit contends that the bank knowingly “assisted, facilitated and furthered” Cosmo’s fraudulent scheme. It’s alleged in the lawsuit:

Bank of America was at the epicenter of this scheme. Without Bank of America’s participation, the scheme would not have succeeded and grown to such an enormous size.

The lawsuit seeks $400 million in damages from Bank of America and other Defendants. Cosmo surrendered to authorities in January in connection with a suspected Ponzi scheme involving what he called “private bridge loans” that promised investors returns of 48% to 80% a year. Many of his 1,500 investors were blue-collar workers and civil servants. According to the suit, representatives of Bank of America worked directly out of Cosmo’s West Hempstead office, which was about 30 miles from the branch where Agape and Cosmo maintained their bank accounts.

In addition, it’s alleged that Bank of America provided on-site representatives at Agape with bank equipment and computer systems that allowed direct access to the bank’s accounts and systems. If the allegations prove to be true, this argument would appear to be contrary to normal banking practices. It’s alleged that the bank’s representatives had “actual knowledge” that Cosmo was “diverting money to his own account” and “engaging in virtually no legitimate business whatsoever.” In a complaint filed in January by the Commodities Futures Trading Commission, the government contended that from 2004 to 2008, Cosmo operated a fraudulent trading scheme in which investors were solicited to provide short-term bridge loans but that the money instead went into commodities trading contracts that lost money.

This is not Cosmo’s first rodeo. In fact, this is the second time that he has been accused of fraud. Cosmo had previously served 21 months in federal prison in Allenwood, Pennsylvania, for mail fraud. Upon his release in 2000, Cosmo’s broker’s license was revoked. He founded Agape after leaving prison. The lawsuit also names a number of futures and commodities trading firms that, according to the lawsuit, “assisted Cosmo in running an illegal unregistered commodities pool.” The suit says that the trading firms should “never have accepted this business,” which violated “know your customer” duties that are required of these firms.

One of the firms named in the suit was MF Global. But a spokesperson for MF Global says that when the firm became aware of Cosmo’s background last October, it closed his account and notified regulators. The account that Cosmo had, according to the spokesperson, was an individual account and was not an account set up on behalf of his investors.

Source: The New York Times