Wachovia sued for its role in telemarketing fraud

Susan Heylman, Associate Editor

When a telemarketer called and offered to give Mary Faloney a $5,000 government grant that she would not have to repay, the disabled grandmother living on Social Security gave the caller her personal bank account number to cover a $298 processing fee. The telemarketer charged Faloney’s bank account the fee, but she never received the government grant.

Faloney also gave her account number to a second telemarketer, who promised her a credit card and gift certificates in return for a $200 fee. The telemarketer took $200 from Faloney’s account, and, although she received a credit card and gift certificates, they turned out to be worthless.

Last year, Faloney brought a lawsuit on her own behalf and on behalf of others who say they fell victim to similar telemarketing scams. But the suit is not against the telemarketers that took the money; rather, the defendant is Wachovia Bank, which allegedly allowed a payment-processing company for the telemarketers to use accounts at Wachovia to fraudulently debit money from the plaintiffs’ accounts. (Faloney v. Wachovia Bank, No. 2:2007cv01455 (E.D. Pa. filed Apr. 11, 2007).)

Now, new documents have emerged in the case suggesting that Wachovia employees were well aware of fraud allegations against the payment-processing company involved in the scheme, yet the bank continued to allow the money to flow through its accounts.

In Faloney’s case, the telemarketers gave her personal bank account number to a company called Payment Processing Center, Inc. (PPC), which used that information to prepare unsigned bank drafts—checks without signatures—on Faloney’s account. PPC deposited the drafts into its account at Wachovia. Wachovia then forwarded the drafts to Faloney’s bank for payment. Once Faloney’s bank credited the amount to PPC’s account at Wachovia, PPC remitted the amount, less its fee, back to the telemarketer.

Such third-party payment processing is legal only if customers have approved the transactions. (PPC is not named as a defendant in the lawsuit; last year the U.S. attorney for the Eastern District of Pennsylvania obtained a permanent injunction prohibiting PPC’s owners from engaging in any activity in which unsigned bank drafts are used to process payments for telemarketers.)

Faloney’s lawsuit against Wachovia charges that the banking services it provided were an essential element in the scheme devised by PPC and the telemarketers to obtain funds from the plaintiffs’ bank accounts. The suit also alleges that, despite Wachovia’s knowledge that PPC was engaged in unlawful activity, the bank continued to provide its services to PPC involving the fraudulent demand drafts.

Documents filed in the case, especially internal Wachovia e-mails, detail that the bank knew about the fraud allegations involving PPC and other payment processors for years, as it had received warnings from other banks and several federal agencies about ongoing telemarketing scams involving payments processed through Wachovia accounts.

In one Wachovia e-mail, a bank loss-management official warned her colleagues that an account used by telemarketers had drawn thousands of complaints: “YIKES!!! Now the crux of the problem is that ALL their deposits are THIRD PARTY DRAFTS!!! DOUBLE YIKES!!!! There is more, but nothing more that I want to put into a note.” Wachovia’s own fraud investigator also raised questions about the accounts.

Certification of a nationwide class action is pending. Howard Langer of Philadelphia, the attorney who filed the complaint, noted that the class “easily involves half a million people, most of them elderly. The whole thing was to take advantage of the fact that they’re not the most sophisticated people” about consumer fraud.

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News & trends April 2008 | Volume 44, Issue 4

Wachovia sued for its role in telemarketing fraud

Susan Heylman, Associate Editor

News & trends
April 2008 | Volume 44, Issue 4