Huntington Bank must pay $81M for 2002-04 fraud scheme

Last year, we reported about a bankruptcy court’s ruling that Huntington National Bank failed to act in good faith when it allowed a company’s money to continue funneling through Huntington accounts months after fraud was suspected.

The March 2011, ruling, authored by Hon. Jeffrey Hughes of U.S. Bankruptcy Court for the Western District of Michigan, said the bank could be required to pay up to $73 million in recoverable transfers to a trustee representing lenders defrauded by the now-defunct CyberNET Engineering (d/b/a Cyberco).

On Aug. 1, 2012, Hughes’ final report to U.S. District Court for the Western District of Michigan — based on his July 23, 2012, opinion — was issued, and it awarded the trustee approximately $81 million. The total includes approximately $9 million interest from the date that each fraudulent transfer was received by Huntington from September 2002 through October 2004.

The fraudulent deals started out small — less than $1 million — but by 2004, they rapidly got larger. In all, up to 40 finance companies and banks were bilked out of up to $90 million.

Douglas Donnell of Mika Meyers Beckett & Jones PLC in Grand Rapids, who represented the trustee, told Michigan Lawyers Weekly last year that enough red flags had sprouted up along the way to give Huntington cause to drop Cyberco’s credit line.

One of them was highlighted in Hughes’ March 2011 opinion, where the bank’s then-regional security officer discovered in April 2004 that Cyberco head Barton Watson had served three years in prison for securities fraud, but didn’t tell his superiors or others investigating Cyberco until four months later.

“That’s almost a textbook definition of willful blindness,” Donnell told Lawyers Weekly at the time. “You can’t stick your head in the sand and pretend like you don’t know anything when, in fact, in this case, you did know it.”

Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s