According to a Press Release dated August 12, 2003, First Union National Bank agreed on Monday to settle a securities fraud class action lawsuit for $5 million, after only two days of testimony during a federal jury trial in Fort Lauderdale. In addition, pursuant to the settlement agreement, three of Cyprus' directors agreed to a permanent injunction barring them from committing fraud in the future without admitting or denying the allegations. The fourth, Eric V. Bartoli, also was permanently enjoined from committing fraud, in a default judgment against him. U.S. District Judge Kenneth A. Marra has approved the settlement. Final ruling has not been made yet.
In the original complaint plaintiff claimed that First Union and Cyprus Funds, banking and investment company respectively, had certain duties of disclosure to them based on banking regulations and internal policies. Specifically, the plaintiff claimed that one of their employees, Eric Bartoli, had a conscious intent to aid the Cyprus Funds mutual fund's fraud. In addition, the plaintiff claimed that First Union enabled Cyprus to defraud them. First Union claimed that it did not have actual knowledge of the mutual fund's fraud, and argued that them acted in accordance with industry standards.
The court initially held that the banking and investment companies' regulations and policies did not require disclosure to the investors. The court then held that the investors presented sufficient evidence to create a factual issue regarding whether the employee had knowledge of the mutual fund's wrongful purpose based on the series of atypical banking transactions, her unexplained failure to report the suspicious activity, and her statement acknowledging a degree of malfeasance.
On February 19, 2002, the U.S. District Judge Ursula Ungaro-Benages issued an Order granting motion to certified class action. The lawsuit was filed on behalf of Ohio investors Shirley Estes of Fairlawn and Lloyd Smith of Louisville, and Miami-based, court-appointed receiver, Michael Goldberg.
On October 01, 2002, the Judge Ursula Ungaro-Benages issued an Order Of Reassignment transferring case to the calendar of Judge Kenneth A. Marra for all further proceedings.
Cyprus Funds was also sued in a 1999 civil action by the Securities and Exchange Commission, along with its Miami-based investment adviser, Latin American Services Co. Ltd., and four Cyprus directors for defrauding investors. The SEC said Cyprus actually was an elaborate Ponzi scheme, in which money was raised from new investors and used to pay old ones until the company collapsed. (See Securities and Exchange Commission v. Latin American Services Co., Ltd., Cyprus Funds, Inc., Eric V. Bartoli, Douglas R. Shisler, James L. Binge And Peter J. Esposito, Case No. 99-2360-CIV-UNGARO-BENAGES, S.D. Fla.)