Novato firm’s fraud prompts 2nd lawsuit against Umpqua Bank

A second lawsuit has been filed against Umpqua Bank in connection with a multimillion-dollar fraud scheme engineered by a now-defunct Novato company.

The lawsuit is the latest fallout surrounding the company, Professional Financial Investors, and its principals, Ken Casey and Lewis Wallach. Working exclusively through Umpqua Bank’s branch in Novato, Casey and Wallach raised millions of dollars, mostly from mom-and-pop investors, by promising them steady returns from investments in Marin County real estate.

Casey and Wallach used money from new investors to make the promised returns to earlier investors and to fund their lavish lifestyles. The scheme unraveled after Casey’s death in May 2020.

Wallach pleaded guilty to defrauding investors and embezzling more than $26 million of their money. He is serving a 12-year prison sentence.

A class action lawsuit filed on behalf of more than a thousand investors claiming over $300 million in damages was filed against Umpqua Bank in 2020. The suit, which is proceeding toward a jury trial in the U.S. District Court for the Northern District of California, alleges that the bank aided and abetted the scheme.

The new suit, filed on June 6 in federal court, makes the same allegation. The lawsuit was filed on behalf of 11 investors who purchased tenancy-in-common investments from Professional Financial Investors between 2018 and 2020. Several of the plaintiffs are Marin County residents.

“We are aware of additional pending litigation involving a former customer, PFI,” said Kurt Heath, an Umpqua spokesperson. “Similar to the other PFI-related lawsuit, we will continue to defend our company against these allegations and look forward to responding in court.”

PFI ultimately filed for bankruptcy. Linda Lam, one of the attorneys representing the plaintiffs, said investors got back about 40% of what they invested as a result. The new lawsuit states that despite the proceeds from the bankruptcy, the tenancy-in-common plaintiffs jointly lost $4.2 million.

In April 2018, Daniel Forest Levy of Tiburon paid PFI $400,000 to purchase part ownership in an apartment building at 19 Merrydale Road in San Rafael. Levy was 27 at the time and was introduced to Casey and Wallach by his father and stepmother, who also ended up losing money from investments with PFI.

Levy said the money he used to invest in the tenancy-in-common came from the sale of a house he inherited from his mother.

“My mom passed away when I was 21,” Levy said. “I’ve been pretty much on my own since then. A lot of people have a family safety net, and I didn’t really.”

According to the suit, PFI promised Levy and other investors 6% interest per year on their investments. Levy said he was counting on the income to pay his living and education expenses. At the time he was finishing the last semester of his undergraduate studies.

“When this all came out, I thought I wouldn’t be able to go to graduate school,” Levy said. “I didn’t know if I’d even be able to finish college.”

By moving in with his brother and getting a job at a lumber yard, Levy was able to cover his expenses until he received some money from the PFI bankruptcy.

Levy said that being angry with PFI “is kind of like being mad at a leopard for having spots.” He is more disappointed with Umpqua Bank.

“The idea that they didn’t know what was going on seems pretty far-fetched to me,” Levy said.

The new suit alleges that “Umpqua closely monitored PFI’s accounts and knew PFI was using its clearing accounts to misappropriate recently deposited investor money.”

According to the suit, bank employees at the Novato branch personally made transfers totaling $5.2 million on 179 occasions to one of Casey’s or Wallach’s personal accounts from a PFI account where new investor money was regularly deposited.

The suit states that between June 2018 and April 2020, Umpqua’s automated system for monitoring indications of fraud issued 146 alerts for PFI’s accounts — at least 61 of which specifically flagged the companies’ clearing accounts for further investigation.

The suit states that after the fraud was exposed, Umpqua launched an internal review of PFI’s accounts, but quickly abandoned it after realizing the Novato branch was regularly helping Casey transfer investor funds to his personal bank accounts.

It quotes an email from a Novato branch manager: “Holy moly I see transfers were allowed ($40,000.00 transfer from the PFI [Transfer account] to [Casey’s personal account] on 5/12 and $21,000.00 on 4/12 and 25,000.00 on 3/31).”

The suit also says that it should have been impossible for Casey to continue his life of financial crime after pleading guilty in the late 1990s to 21 counts of bank fraud, five counts of tax evasion, five counts of aiding and assisting in the preparation and filing of false tax returns and one count of conspiracy to defraud the United States.

A local bank owned by a friend of Casey was willing to provide PFI’s banking services despite Casey’s record, the suit alleges. That company, Circle Bank, headed at the time by chief executive officer Kim Kaselionis, was acquired by Umpqua in 2012.

Kaselionis could not be reached for comment.