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When someone with authority to withdraw funds from a bank account asks a bank to disburse funds, in most cases the bank has to 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 panel also comprising judges Gerald B. Tjoflat and R. Lanier Anderson III, 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 in O’Halloran v. First Union National Bank of Florida. In the 1990s, Greater Ministries administered a program it called, variously, the “Double-Your-Blessings Program,” the “Faith Promise Plan” and the “Greater Trust Gift Exchange.” The church investment program, directed by Payne, bilked approximately 15,000 investors nationwide of about $500 million. When he was appointed trustee for the church, O’Halloran went after First Union for allowing Payne to withdraw $6 million of the church’s money. 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 in O’Halloran v. First Union. In an unusual move, Cudahy wrote that the appeals court panel agreed with Kovachevich’s reasoning, but the court still vacated her order of dismissal and remanded the case to give the plaintiffs a chance to amend their complaint. Because the plaintiffs filed notice of appeal before Dec. 10, 2002, when Wagner v. Daewoo overturned Bank v. Pitt, the plaintiffs still get the one chance Bank allows them to amend their complaint before the court dismisses it. “While we agree with the district court that the plaintiffs’ complaint fails as a matter of law, we vacate the dismissal and remand the case, with instructions to allow the plaintiffs leave to amend their complaint,” Cudahy wrote. “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,” he added. MULTIMILLION-DOLLAR PYRAMID SCHEME 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 percent commission on each gift they successfully solicited. The church deposited these funds from the pyramid 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 bankruptcy. O’Halloran then became trustee for the church’s bankruptcy estate. He and two investors sued First Union, accusing it of aiding and abetting crimes and torts, and assisting breach of fiduciary duty, breach of duties to warn and to control, and negligence. In March 2001 Payne, his wife and three other church officials were convicted of wire fraud and money laundering, among other offenses. Payne was sentenced to 27 years in prison. His wife received 13 years. HOW MUCH CHECKING IS NECESSARY? 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. They can’t go about policing the accounts of every one of their customers, 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, argued that First Union’s fiduciary duty was to the church, which was the true account holder, and not to Payne. Nevertheless, First Union allowed Payne to withdraw about $6 million in funds belonging to the church. On one occasion in August 1998, for example, Payne withdrew $2,892,900 in $100 bills. If that didn’t seem suspicious enough, the plaintiffs pointed out that the Tampa Tribune had published a dozen articles about various states’ investigations into Greater Ministries’ activities. Also, Rediker maintained, bank officials knew that the Treasury Department and the Federal Deposit Insurance Corp. had issued advisories about the illegal activities of a Greater Ministries project called the “Greater International Bank of Nauru.” In the District Court, however, Kovachevich ruled that O’Halloran had no standing to pursue the suit, 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,” Kovachevich wrote, citing Feltman v. Prudential Bache Securities. 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. “[T]he complaint does not suggest that there was absolute identity of interests between Payne and Greater Ministries,” Cudahy wrote. “If, indeed, Greater Ministries were merely the alter ego of Payne, we might agree with the district court that there was also no standing for the embezzlement count — Payne could not embezzle funds from himself.” But the church and Payne are not one and the same, Cudahy wrote. Therefore, the church — and by extension the church’s trustee — can go after First Union for helping Payne make off with the cash the church had deposited with the bank. “What we are less certain of, however, is whether the complaint states a claim upon which relief can be granted,” Cudahy wrote. Banks, the judge wrote, 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,” Cudahy wrote. Rather, the bank is responsible only for ensuring that the employee at the time he makes the withdrawal request has permission to do so. If the employee does, and the bank declines to disburse the money, it violates its deposit agreement. Even if the bank’s suspicions of irregularities at Greater Ministries required it to be more diligent than usual when Payne asked it to give him the money, the bank met that standard, Cudahy wrote. It asked Payne for new signature cards, board resolutions and an asset transfer plan before it would let him have the cash. In short, Payne was authorized to act on behalf of Greater Ministries, the court found. These findings, wrote Cudahy, “foreclose the possibility of the trustee’s prevailing on any of his theories.”

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