A high-stakes suit including claims that Bank of Montreal lied to a judge after a predecessor bank ruined crucial proof is slated for trial this fall, possibly making complex the Canadian banking giant’s offer to get Bank of the West.
The suit, which outgrew a long-defunct Ponzi plan, was submitted a years earlier, however last summer season BMO began revealing disclosures about the possibility of a big monetary liability. The complainant is looking for $1.9 billion in offsetting damages, plus interest, compensatory damages and lawyers’ charges, BMO mentioned in a March 1 report to its investors.
The fit versus BMO’s U.S. subsidiary was submitted by trustees in the insolvent companies of Thomas Petters, looking for damages from Petters’ Ponzi plan, which broke down in 2008.
BMO acquired the legal direct exposure when it obtained Marshall and Ilsley Bank in 2011. Milwaukee-based M&I was declared to have actually looked the other method as Petters, who patronized, moved cash in between his accounts. BMO has actually rejected the suit’s claims.
BMO “continues to vigorously defend itself against unmeritorious allegations about the banking relationship between a company engaged in fraud and a bank that BMO acquired several years after public disclosure of the fraud,” the business stated in a declaration to American Banker.
Earlier in the lawsuits, the personal bankruptcy trustees looked for sanctions versus BMO in connection with the supposed damage of backup files connected to the scandal. In 2019, a judge agreed the trustees, discovering that after M&I ruined files possibly including proof, BMO had actually lied about discovering the backups after taking control of the business.
In a blow to BMO’s defense, the judge ruled that a trial jury can be informed of the file damage throughout future procedures.
Lawyers for the trustees have actually stated that BMO and M&I were likewise discovered to have actually concealed proof and lied to the court throughout discovery for a different case in Wisconsin in 2014.
BMO stated in its latest report to its investors that it was appealing the judge’s judgment concerning file damage.
Last August, BMO notified investors that the case may go to trial in the very first half of 2022. The trial was then postponed, potentially to October, lawyers in the event quote, as the renewal of COVID-19 cases stimulated by the omicron alternative pressed back court house procedures.
A legal disclosure appeared once again in BMO’s March 1 report to investors, this time with a quote that the trial might occur no earlier than late 2022.
The legal imbroglio might draw attention from bank regulators throughout their evaluation of BMO’s offer to get Bank of the West, specialists stated.
The 2 banks revealed the merger in December.
“If U.S. regulators are aware of this huge overhang, it’s still unclear if this could impact their authorization of this deal,” said a source familiar with the case.
The original scandal involving the Ponzi scheme is unlikely to raise any red flags as long as BMO has demonstrated that any managers who were implicated are no longer in place, said Jeremy Kress, assistant professor of business law at the University of Michigan and co-faculty director of the school’s center on finance, law and policy.
But the document destruction issue could be a different story, said Kress, who was previously a bank regulation attorney for the Federal Reserve.
“It does seem like the type of thing regulators would review closely as part of BMO’s merger application,” he said.
Before M&I was acquired, roughly 60 computer tapes containing backed-up emails and other information were destroyed, even though the company had a duty to retain them, U.S Bankruptcy Court Judge Kathleen Sanberg found. The tapes were the only known source of correspondence for a significant period of time between Petters and the bank.
In December 2017, years after BMO acquired M&I, the bank found backup tapes, but it didn’t tell its own attorneys for about a month, Sanberg found. The bank’s attorneys did not disclose the evidence to the plaintiff trustees until about two weeks later — “after close of business on the last day of discovery,” the judge wrote.
Sanberg wrote in her 2019 ruling that as the defendant in the case, BMO “lied to its counsel, lied to the Court, and lied to Plaintiff” as it “dragged its feet or fought production of relevant information every step of the way.”
BMO said in a statement to American Banker that it “approaches litigation with integrity and a commitment to high ethical standards, including by partnering with expert outside counsel.”
BMO has actually stated that its offer for Bank of the West, which is owned by the French banking huge BNP Paribas, is anticipated to nearby completion of 2022. With the trial not anticipated to start up until the fall, regulators might need to count on their own evaluations of the concerns raised by the lawsuits.
“Given for how long these cases take in court, the companies might not wish to await a judicial resolution prior to acting upon the merger application, so they may need to count on their supervisory groups to examine the claims,” Kress stated.
A representative for the Federal Reserve stated regulators might not discuss continuous merger evaluations.
Federal banking regulators and the Justice Department are presently examining the approval procedure for bank mergers, as bought by President Biden last summer season. The White House at the time pointed out the damage that mass combination in the market has actually triggered to neighborhoods of color and small companies.
While regulators have actually continued to authorize large-bank M&An offers, there is growing proof that the procedure is taking longer throughout the Biden administration than it did formerly.
And with the anticipated visit of Lisa Cook and Philip Jefferson to the Fed’s Board of Governors, the difficulties dealing with big-bank mergers might get greater. Cook and Jefferson are amongst a slate of 4 Fed candidates who were just recently authorized by the Senate Banking Committee and are anticipated to be verified quickly by the complete Senate.
Along with Lael Brainard, a Fed guv who has actually revealed issue about combination amongst local banks, Cook and Jefferson might have the ability to affect policy if they wish to hold up offers, Jaret Seiberg, an expert at Cowen Washington Research Group, composed in a current note to customers.
“At a minimum we expect they will use these deals to lay out their merger policy views,” Seiberg composed.