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A New York federal court jury has awarded the Bank of China $132 million in a civil RICO action against more than a dozen individual and corporate defendants that participated in a massive scheme to defraud the bank. The award in Bank of China, New York Branch v. NBM LLC, No. 01-civ-0815, was composed of $35.4 million in compensatory damages and $96.4 million in punitive damages. But because the compensatory damages component may be trebled under the RICO statute, total damages may yet exceed $200 million. After only a day of deliberation following a four-week trial before U.S. District Judge Denny Chin of the Southern District of New York, the eight-person jury returned a unanimous verdict. However, according to one of the defense attorneys, a critical ruling by Chin, barring the introduction of evidence that the bank itself had been punished by the U.S. Office for the Comptroller of Currency for oversight failures connected with the same fraud, meant that the jury never heard the full story and could not make an informed decision about the defendants’ culpability. Hit hardest by the verdict was individual defendant John Chou, who was singled out for $15 million in punitives alone. His wife, Sherry Liu, was assessed $10 million in punitives. The couple has filed for Chapter 11 bankruptcy protection in New Jersey, where they reside. Bank of China, which is owned by the People’s Republic of China, filed suit against Chou and the others last year, alleging that over a 10-year span they defrauded the bank of more than $34 million with the inside assistance of the bank’s own account executive, Patrick Young. Young, who was also a defendant in the suit, was found by the jury to have breached his fiduciary duty to his ex-employer and was found liable for $300,000 in compensatory damages and $300,000 in punitives. He was exonerated on the Racketeer Influenced and Corrupt Organization Act (RICO) claim. Bank of China trial attorney Richard A. De Palma, a partner with New York’s Coudert Brothers, said, “We’re very pleased, obviously. The jury has come back, and to a certain extent, the judge has come back and found the allegations were true.” Defense attorney Steven L. Kessler, who represented Chou, Liu and four of their businesses, said that the same Bank of China branch that sued his clients had itself consented to a $20 million civil penalty last January. Vowing to appeal, he said, “I am confident that if we’re given a second trial and the evidence that we want to come in comes in, there will be a different outcome.” CONVINCING THE JURY In building his case, De Palma called only one bank witness, Huang Yang Xian, a deputy branch manager, who was used to authenticate key documents. He then turned to the defendants, calling them in order of significance and working his way up to Young, Liu and Chou. Young and Liu asserted their Fifth Amendment rights and refused to testify. Chou did so too, but then reconsidered and later took the stand. Using a set of color-coded charts at trial, De Palma explained to the jury how the defendants had used a series of round-robin transactions to take the proceeds of one bank loan and circulate it through the other companies to simulate ongoing business, backed up by falsified invoices, shipping manifests and bills of lading. They then used that cash flow to obtain more credit from the bank, he said. De Palma said Chou and Liu started in 1991 with a business called Non Ferrous BM Corp. (later NBM), which they held out to be a trading company. They used it to obtain from the bank a credit line of $1 million, and ultimately much more. De Palma posited that Chou and Liu used Non Ferrous to borrow money from the bank, then loaned that money at usurious interest rates. By 1995, the loan-sharking stopped and Chou began circulating the money through various corporations that he and Liu controlled, using her parents, brother and household staff as straw officers. Liu’s mother, father and brother all testified at the trial. “Chou made it seem like he was engaging in trade, then used the money for his own purposes,” De Palma said. Along the way, he theorized, the defendants siphoned off money that was deposited in personal accounts in the Cayman Islands and in Switzerland. “The problem with this scheming is it only works as long as it keeps going. Once it stops, everything falls due,” De Palma said. When a routine annual credit-worthiness audit in 1999 revealed a group of suspect transactions connected with the couple, eyes quickly turned to Young, who had been servicing the account. De Palma said Young falsified credit-worthiness reports for the other defendants and had signed off on documents allowing bank collateral to be subordinated to third-party liens, apparently in exchange for a $120,000 payoff. Young went to trial pro se. Efforts to contact him were not successful. The remaining defendants, including Liu’s parents and brother, were represented by Paul Frohman of New York’s Alfieri Frohman and Primoff, who did not return a call seeking comment.

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