Umpqua Bank settles $30M Ponzi scheme lawsuit

AP News
Posted: Oct 19, 2010 7:04 PM
Umpqua Bank settles $30M Ponzi scheme lawsuit

Umpqua Bank has settled a $30 million lawsuit with the trustee and creditors of Bend-based Summit 1031 Exchange, which had accused Umpqua of aiding and abetting Summit in an alleged Ponzi scheme.

Terms were not available and the parties involved would say only that a settlement was reached, adding that a final document had not been signed, The Bulletin reported.

Both Kevin Padrick, the court-appointed trustee for Summit's 2008 U.S. Bankruptcy Court filing, and Michael Simon, the attorney for some of Summit's creditors, told the Bend newspaper they were barred from discussing the settlement.

Umpqua Bank's general counsel, Steve Philpott, also declined comment.

The 16-month-old lawsuit was initially filed by Padrick, who is in charge of liquidating Summit's assets, such as real estate, in the bankruptcy proceedings for the creditors.

The complaint accused Umpqua Bank of continuing to solicit bank deposits from Summit and promote Summit, even after Umpqua learned of what Padrick alleged was a Ponzi scheme.

As a 1031 exchange, named after Section 1031 of the U.S. Tax Code, Summit would help real estate investors avoid capital gains tax on the sale of a property. Investors can avoid the tax by purchasing another property within 180 days.

Summit eventually ran into liquidity problems, stating on its website that it was short $14.2 million.

It later filed for bankruptcy in December 2008 because the money was tied up in real estate, rather than kept in liquid bank accounts, according to court documents.

Padrick alleged in the lawsuit that the principals of Summit had embezzled money for years by lending Summit's funds to another business they controlled.

The lawsuit said Summit could only pay back former clients by finding new ones and alleged "the principals engaged in a classic Ponzi scheme."

Umpqua denied wrongdoing in the case it settled with Padrick and the creditors.

While Padrick had first filed a lawsuit in June 2009, the creditors filed a suit of their own later that year. Eventually, the two suits were combined in Multnomah County Circuit Court in Portland.

Summit's four principals agreed last March to pay creditors a total of $16.8 million in damages as a part of a settlement in a separate lawsuit Padrick filed in 2009 in U.S. Bankruptcy Court.


Information from: The Bulletin,