Wells Fargo Bank has agreed to pay $3.75 million to end a class action lawsuit that accused it of helping facilitate a Ponzi scheme executed by a real estate investment company, Equitybuild Finance. Settlement funds will be paid out to individuals who invested in Equitybuild but lost money in their investment.
Equitybuild Finance was a real estate investment company that touted high-yield returns of 15% to 20% on real estate throughout the Chicago area. In reality, the company was deemed a Ponzi scheme that racked up over $135 million in investment funding. Over 900 investors bought into this game, with many putting up their life savings. Instead of having their funds used to purchase property, the company skimmed an estimated 15% to 30% off of each investment, allocating them as undisclosed fees.
During an investigation launched by the SEC, officials explained that the real estate firm told investors that the properties they were purchasing were priced significantly higher than the properties actually were. In addition to lying to investors about the cost of properties, the company never generated the high-yield returns it promised.
The SEC explained that as a result of being unable to keep their boastful promises, “the defendants could only pay earlier investors by raising funds from unwitting new investors.”
The complaint details that “investors were not only overcharged, but the real estate supposedly securing their investments was worth much less than what Defendants told investors.”
The company, which was operated by father and son duo Jerome and Shaun Cohen, would later be hit with a temporary restraining order by the SEC which prohibited them from collecting any additional funding from investors.
Wells Fargo Bank was pulled into the legal battle after investors accused it of aiding and abetting the Ponzi scheme. Wells Fargo is accused of having played a role in the scheme by allowing investors to wire, commingle, and disburse client funds to Equitybuild.
After the SEC’s investigation into Equitybuild, Judge Haywood Gilliam allowed investors to move forward with some of their claims against Wells Fargo citing that the SEC’s complaint detailed plausible allegations that the bank should have known investor funds were being misappropriated.
The SEC describes Wells Fargo as having provided substantial assistance in helping Equitybuild obtain investor funding. Despite settling for millions of dollars, Wells Fargo has not admitted to any wrongdoing.
As part of the settlement, victims will receive a proportional payment based on the amount they invested in Equitybuild. The final approval hearing for the settlement is slated for July 13, 2023. Qualifying victims have until May 9, 2023, to file a claim.
