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Attorney General Richard Blumenthal sued the Westport National Bank today for its role in the Bernie Madoff theft. According to the complaint, the bank betrayed its customers in a fundamental way.
To avoid falling into the clutches of a conman, you'd normally hold your investments in a custodial account. The investment manager will tell your custodian what to buy and sell, but never gets his or her hands on the money. The custodian holds your securities, verifies their market value and sends you regular reports.
The Westport bank set up custodial accounts for the investment clients of Wilton resident Robert L. Silverman, a pension consultant and president of PSCC Services, Inc. Silverman directed the money to Madoff. In a press release, Blumenthal said that 240 consumers--of whom 97 live in Connecticut--originally invested $10 million. He's seeking to recover $16.2 million.
The Westport bank never took custody of the investments, according to the complaint. It charged high custodial fees, the bulk of which went to Silverman. But it never checked, independently, on the market value of the investments or, indeed, if the investments even existed. Which of course they didnt. Silverman handled all client contact, on stationary bearing the bank's letterhead.
The bank is charged with other violations, including selling unregistered securities, overlooking inconsistencies in the reported trades and billing customers more than the agreement called for. Prior to 2005, the complaint says, clients were billed 4.1 percent of the assets in their accounts, and 3 percent after 2005. You can read the entire complaint here.
In a statement, the banks president, Richard T. Cummings Jr, denied the allegations and said he would defend the lawsuit vigorously. The attorney generals inflammatory press release contains numerous inaccuracies and fabrications with respect to our role and conduct, he said.
A final point about this mess. Thousands of consumers, furious with the fees and conduct of the too-big-to-fail banks, have been switching their money to community banks. But just because youre in a local bank doesnt mean that all is well.
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