If a bank had done its duty, investors could have kept their money away from a Ponzi scheme.
That’s the claim from Jastram Properties Ltd., a North Vancouver company spearheading a class action lawsuit in B.C. Supreme Court accusing HSBC of failing to investigate fraud.
That fraud was perpetrated by Virginia Tan, a West Vancouver businesswoman who garnered more than $30 million from investors based on a bridge loan company and factoring businesses, both of which were non-existent between 2011 and 2015.
However, Jastram Properties’ lawsuit targets two bank accounts Tan operated at HSBC between 2011 and 2013. One of the accounts was under her name and the other was under a company she controlled: Letan Investments.
According to the lawsuit, Tan was depositing and withdrawing $1 million per month from the accounts. The deposits were large amounts in round numbers. The withdrawals were smaller cheques, also in round numbers, written to individuals.
“These kinds of transactions are hallmarks of a Ponzi scheme,” the lawsuit charges.
The scheme carried on until early 2013 when HSBC became “concerned” about the nature of the activity and conducted a review, according to the claim. “HSBC knew, or concluded that it was reasonably likely, that Tan was using the HSBC Tan Accounts for fraudulent purposes,” according to the claim.
In March 2013, Tan stopped using the HSBC accounts for her Ponzi scheme.
“The particulars of the circumstances surrounding the termination of activity . . . are best known to HSBC,” according to the claim.
The claim blasts HSBC for failing to notify authorities or to warn other financial institutions whose customers’ money was being deposited in Tan’s accounts.
The lawsuit notes that Jastram Properties invested $2,962,000 prior to March 2013 as well as $3.45 million after April 2013. The North Vancouver company received a total of$1,798,566 in interest payments from Tan, putting them $4.6 million in the hole.
Had HSBC “properly discharged its duty,” investors would likely not have suffered financial losses after March 2013, according to the lawsuit.
Jastram Properties is suing HSBC for damages.
Tan admitted to fraudulently raising at least $30 million as part of a Ponzi scheme in a settlement agreement with the B.C. Securities Commission in April.
Prior to 2011, Tan raised money from investors for short-term high-interest loans. But beginning in 2011, Tan stopped using investors’ money for loans, instead paying them interest with money contributed by new investors.
Tan would pay her investors at rates ranging from 12 to 24 per cent a year while encouraging them to renew their investments, according to the lawsuit.
By late 2015, Tan stopped making interest payments.
Tan has been banned from dealing in securities or promoting any activities connected to the stock market.
HSBC has not yet responded to the lawsuit.
None of the claims have been proven in court.