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Atlanta-When someone with authority to withdraw funds from a bank account asks a bank to disburse funds, in most cases the bank must do it, the 11th U.S. Circuit Court of Appeals has found. That’s true even if the bank suspects that the person requesting the funds might be committing fraud, even if the funds total more than $6 million and even if that $6 million comes from what 7th Circuit Judge Richard D. Cudahy termed “a vast Ponzi scheme.” Cudahy, sitting by designation on a three-judge panel, on Nov. 14 wrote that Kevin O’Halloran, bankruptcy trustee for Greater Ministries International of Tampa, Fla., will probably have a hard time suing First Union National Bank of Florida for allowing Greater Ministries Director Gerald Payne to withdraw $6 million in church funds. O’Halloran v. First Union Nat’l Bank of Fla., No. 02-13084. In the 1990s, Greater Ministries administered a program it called, variously, the “Faith Promise Plan,” the “Double-Your-Blessings Program” and the “Greater Trust Gift Exchange.” Directed by Payne, the purported church investment program bilked approximately 15,000 investors nationwide of about $500 million. When he was appointed bankruptcy trustee for the church, O’Halloran sued First Union for allowing Payne to withdraw $6 million of the church’s money. But U.S. District Judge Elizabeth A. Kovachevich of the Middle District of Florida threw out the suit, finding that the trustee lacked standing to sue and that the plaintiffs had failed to state a cause of action. Cudahy wrote that the appeals court panel agreed with Kovachevich’s reasoning, but the court still vacated her dismissal order and remanded the case to give the plaintiffs a chance to amend their complaint. The court explained that, because the plaintiffs filed their notice of appeal before Dec. 10, 2002, the since-overruled 1991 precedent of Bank v. Pitt, 928 F.2d 1108, still applied, affording the plaintiffs one chance to amend the complaint. “Although such leave need not be granted where amendment would be futile, and we think the issue of futility here is close, the principles delineated in Pitt counsel us to err on the side of generosity to the trustee,” Cudahy said. According to the brief, the opinion and oral arguments, leaders of the church promised to double investors’ money in 17 weeks if each investor managed to persuade two other people to invest amounts equal to the first person’s investment. Eventually, the investors didn’t even need to solicit new investors because Greater Ministries promised to do it for them. The church called the initial investments “gifts.” The proceeds were “God’s blessings.” Church elders administering the program received a 5% commission on each gift they successfully solicited. The church deposited funds from the scheme into the church’s general account, where they mixed with other church money. But in 1999, the church was forced into receivership, and the federal receiver filed for bankruptcy. Together with two investors, O’Halloran as trustee for the bankruptcy estate sued First Union, accusing it of assisting in breaches of fiduciary duty and duties to warn and to control and of negligence. In March 2001, Payne, his wife and three other church officials were convicted on charges that included wire fraud and money laundering. Payne was sentenced to 27 years in prison. His wife received 13 years. In the district court and on appeal, First Union’s lawyer Gary L. Sasso argued that any bank’s first duty is to render the customers their money when they ask for it. It can’t go about policing the accounts of every single customer, he said. “[First Union] does not have to act as judge and jury as to whether it is a good church or a bad church. The bank is not a cop,” he told the panel in January. O’Halloran’s lawyer, J. Michael Rediker, countered that First Union’s fiduciary duty was to the church, which was the true account holder, and not to Payne. Nonetheless, First Union allowed Payne to withdraw about $6 million in funds belonging to the church. On one occasion in August 1998, Payne withdrew $2,892,900 in $100 bills. In the district court, however, Kovachevich also ruled that O’Halloran had no standing to sue, because the church would be trying to recover money it stole from investors it had swindled. “Greater Ministries was merely a ‘conduit for stolen money’ that the officer and directors of Greater Ministries used in their Ponzi Scheme,” she wrote. The 11th Circuit disagreed with Kovachevich on the issue of the trustee’s standing. If a burglar had cracked a safe where Greater Ministries kept its cash, Cudahy wrote, the church’s bankruptcy trustee still could sue the burglar to recover the cash, regardless of where the cash came from. “What we are less certain of,” he wrote, “is whether the complaint states a claim upon which relief can be granted.” Banks, Cudahy said, don’t deal directly with account-holding companies -they deal with the officers and employees of those companies. And banks have a right to assume that people who have permission to handle the company’s money aren’t misusing the funds. “[I]f an employee is sent to the bank to make a withdrawal from the company’s account and to bring the funds back to the corporate office, but instead the employee takes the money and flees to Paraguay, the bank is not responsible for the employee’s actions,” he said.

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