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Following Wextrust Ponzi Execs Guilty Pleas, Malpractice Suits Readied Against Lawyers in New York and Other States Who Aided the $250 Million Fraud Scam - February 13, 2011

Evidence Also Shows Lawyers Failed to Stop Conspiracy By Wextrust Scam and Chicago’s Broadway Bank to Hide Bad Loans And Defraud State and Federal Regulators

Late last week, PREET BHARARA, the United States Attorney for the Southern District of New York, announced that JOSEPH SHERESHEVSKY, a principal and chief operating officer of WexTrust Capital, LLC, a Chicago based money lender, had pleaded guilty to three felony counts for masterminding the international Ponzi scheme that took hundreds of millions from unsuspecting investors. SHERESHEVSKY pled guilty before U.S. District Judge DENNY CHIN in New York City, who earlier took a plea on similar charges by the former Wextrust president, Steven Byers. The plea agreements come some 18 months after the Securities and Exchange Commission had Judge Chin seize Wextrust and put it in the hands of a receiver. An ensuing search by court appointed lawyers and forensic accountants has revealed that nearly all the $250 million raised from investors has disappeared as the company pursued mortgage fraud and other illegal operations. Also, a New Jersey court case involving two Chicago banks filed as an outgrowth of the Ponzi scheme has turned up evidence linking Wextrust to bank fraud. It’s been discovered that the Wextrust chief execs conspired with officers of Broadway Bank also of Chicago to hide millions in bad loans from state and federal bank regulators. In the end, both Wextrust and Broadway failed, and the bank was sold to MB Financial Bank, that’s now being sued. Other reports are circulating that additional law suits are being readied in New York and several other states, including New Jersey, Virginia and Illinois, as victims of the combined Ponzi scheme and bank fraud prepare to sue for damages they incurred. The liability estimated in the hundreds of millions extends beyond Wextrust and Broadway to the teams of lawyers, accountants and executives, who either knew about the fraud and looked the other way, or should have known and didn’t look, as they closed on bogus deals valued in excess of $400 million.

The legal claims of the victims should be a bonanza for lawyers specializing in attorney and accounting malpractice. The Madoff case- the grand daddy of all Ponzis - has recently headed down a similar path, going after banks, financial advisors, lawyers and accountants—all of whom are figured to have known or should have known that Bernie was a multi billion dollar bamboozler. In the case of the Wextrust scam, company executives cheated hundreds of victims out of millions of dollars by repeatedly lying to them about what their money was being used for, and then covering up those lies with more lies. But, they couldn’t and wouldn’t have succeeded if just one or two of the hundred plus lawyers or accountants employed to review the deals had done their job properly, picked up on the fraud, and called in the feds. As an example, Wextrust and Broadway closed a series of deals through dozens of Westrust companies operating in New York, but no lawyer ever discovered (or tried to discover) that not one of the companies was registered to do business in the state. Since no one looked, there were no calls from lawyers or accountants to shut down the Wextrust operation. The feds finally were tipped off by a Wextrust senior exec, who saw the end coming and pulled the plug on the Ponzi operation he had helped to run. He turned on his co-execs and became a government snitch. The bank fraud scam should also have been reported. According to information recently disclosed in the New Jersey case, back in 2007, when Wextrust was desperately looking for money to survive, they went to Broadway Bank, which was having its own problems. Seems that Broadway’s loan business was heading south as local press reports raised continuing questions of mob ties to the lending operations. Broadway’s president Dimitri Giannoulias, whose brother last year was defeated in a bid for President Obama’s old Senate seat, wanted to get the bad loans off the books to avoid a possible takeover by the FDIC. In at least one case, Giannoulias sold a defaulted loan to a hotel in Atlantic City to the Wextrust group for a note. Problem with the transaction was the fact that Wextrust was without funds and insolvent, making its note worthless. Plus there was a quid pro quo. Seems that Wextrust wanted Broadway to fund another loan in New York, which Broadway said it would do --if -- Wextrust bought the defunct hotel mortgage for the worthless note. The Wextrust insolvency should have been discovered by lawyers and accountants working on the deals. The fraudulent loan swap deals worked at the time, and brought in hundreds of thousands of dollars in fees to keep Wextrust afloat –as it turned out only for about nine moths. Then the sky fell in.

In August ’08, the lead Wextrust execs were arrested by the feds, the company was sued by the SEC as a Ponzi operation, and then taken over by a receiver. And by April of last year, Broadway Bank went under, and was scooped up for a cents on the dollar bid by MB Financial Bank, another Chicago lender that recently has made a business of buying up failed banks. It has picked up six over the last two years. According to reports, this is all part of an effort by MB to expand by taking advantage of bank failures. It has surfaced that MB directors have cooked up a plan to grow rapidly through bargain purchases of a bunch of defunct banks seized by the FDIC. Reportedly, the directors’ next move will be to sell MB to a national bank like Chase, Citi or Wells Fargo, before heading off into the sunset with golden parachute checks in their pockets. But MB’s get rich quick plan has drawn the attention of other lawyers. They are looking into the actions of MB and additional banks that are picking up failed lenders and their so-called toxic mortgage loans for next to nothing, and then suing to collect top dollar returns from the borrowers. So, this means that borrowers, who were at first defrauded by operators like the Wextrust scammers and Broadway Bank, now are having to fight off collection suits by the likes of MB, looking to turn their no cost debt purchases into windfall profits. One lawyer reviewing the situation says that the actions of MB are in certain ways far worse than Wextrust. "Look, the Wextrust officials are out right white collar criminals, who caused lots of damage. But banks such as MB should have their bank licenses pulled by the Controller of the Currency. They use a suit and a tie, rather than a mask and a gun to pull off their scam. They buy up fraudulent loans at no or little cost, and then have their law firms to sue to get top dollar returns plus interest and penalties from borrowers - or they move in to seize the properties, and sell them off to the highest bidder, pocketing even greater profits. Such high end bunko operations ought to cause banks such as MB to be sanctioned, or better still, closed down." There have been calls for fed regulators and House and Senate committees to expose this bank profiteering. MB was contacted for comment, but refused to meet or speak on the record.