Update in Suit Involving Aftermath of Fraud Arising from Wakpamni Lake Community Corp. TED Bonds in 2014-15

Here are materials in Water Works Board of the City of Birmingham v. U.S. Bank National Association (D.S.D.):

100 Redacted Statement of Material Facts

110 US Bank Motion to Exclude Vinella Testimony

128 US Bank Reply in Support of 110

132 US Bank Reply in Support of 99

155 DCT Order

Excerpts that provide background on the deal:

In 2013, Timothy Anderson (“Anderson”) began doing legal work in the area of economic development for the Wakpamni Lake Community Corporation (“WLCC”). (“Statement of Material Facts “SOMF” 103.) WLCC is a corporation organized under the laws of the Oglala Sioux Tribe, a federally-recognized Indian Tribe, and the Wakpamni Lake Community, and is wholly-owned by the Wakpamni Lake Community. (SOMF 4.) In approximately April 2014, while Anderson was a partner in the law firm Dilworth Paxson, LLP, he attended a conference focused on tribal economic development and while there, was asked by WLCC to attend a meeting wherein John Galanis, father of Jason Galanis, presented the idea for issuing taxable revenue bonds to fund construction projects in the Wakpamni Lake Community. (SOMF 103-106.) John Galanis (a/k/a “Yanni”) connected Anderson with Burnham Securities, Inc. (“Burnham”) based in New York, New York, and his son, Jason Galanis, to serve as the Placement Agent in the WLCC Bond offerings. (SOMF 107.)

Hugh Dunkerley (“Dunkerley”) was an investment banker at Burnham working on the WLCC bond deal. (Pentelovitch Decl. Ex. 49, 1005:11-13.) Burnham hired Anderson and his firm, Dilworth Paxon, to serve as its counsel in the WLCC bond offerings. (SOMF 38, 45-46.) Anderson received written conflict waivers from Burnham and WLCC in order to represent Burnham in the WLCC bond issuances. (SOMF 113.)

***

Anderson had suggested the U.S. Bank National Association (“USB”) would be a good fit as the indenture trustee on the WLCC bond offerings because USB was a well-known and reputable financial institution with “serious experience in tribal Indian Country.” (Murzyn Decl. Ex. 122, Trial Tr. 527-28.) USB is a member of the Federal Deposit Insurance Corporation (“FDIC”) and is a “financial institution” subject to the provisions of the Bank Secrecy Act (“BSA”). (SOMF 24, 25.) USB is engaged in the corporate trust business through its division called Global Corporate Trust Services (“GCTS”) and was known in the corporate trust industry as being one of the largest and most active indenture trustees in the market. (SOMF 26; Murzyn Decl. Ex. 7, Graham Dep. at 58:19-59:16.)

***

USB classified the bonds as municipal bonds. (SOMF 179.) Most municipal bonds are issued to finance a particular project, but the nature of the tribal development project supporting the bond issuance was unclear from the start which counsel for USB acknowledged as being unusual. (Murzyn Decl. Ex. 14, Slania Dep. 195:3-15; 205:8-16.) A term sheet sent by Anderson to USB on July 1, 2014, suggested that part of the proceeds would be used to build a “distribution facility” without any additional detail about what would be distributed from the facility. (Murzyn Decl. Ex. 7, Graham Dep. 78:6-79:8; Ex. 24.) A draft of the indenture dated July 23, 2014, that was provided to USB’s counsel suggested that the bond proceeds would be used to build a “gaming facility.” (Murzyn Decl. Exs. 35, 55.) Under USB policy existing at the time, gaming was designated under USB policy as an additional risk factor that may render a customer account high risk, thus requiring additional due diligence. (Murzyn Decl. Ex. 65.) Typically, a private placement memorandum describing the business purpose of the municipal bond transaction is provided, but no such memorandum was ever prepared with the WLCC bond issuances. Contrary to custom and practice in the industry, no construction budget or plans for the development project were produced. (Murzyn Decl. Ex. 14, Slania Dep. 204:22-205:16; Ex. 13, Pillar Dep. 104:17-105:04; Ex. 89.) Henselen testified at his deposition that he could not recall what the economic development project was for the August 2014 bond issuance and did not recall ever seeing a construction budget. (Murzyn Decl. Ex. 8, Henselen Dep. 206:13-23.)

The deal team members changed throughout the August 2014 bond deal. In a draft Indenture emailed to USB on August 15, 2014, the designated Issuer changed from Wakpamni Lake Community Development Corporation to Wakpamni Lake Community Corporation and provided that WLCC shall deliver a letter to USB at closing appointing Wealth Assurance AG as the Investment Manager. (Murzyn Decl. 8, Henselen Dep. 78:1-15.) The draft Indenture received by USB on August 25, 2014, two days prior to closing, showed a change in the Investment Manager from Wealth Assurance AG to Private Equity Management, LLC. (Murzyn Decl. Ex. 81.)

Ultimately, the Trust Indenture was executed on August 25, 2014, and provided that WLCC would be issuing $24,844,0892 Special Limited Revenue Bonds (Taxable) to finance the purchase of an annuity investment in the amount of $22,094,089 as well as economic development projects for the benefit of the Wakpamni Lake Community, including “projects near the junction of Routes 18 and 391, including a certain warehouse/distribution center and other revenue producing enterprises.” In addition to the development project being ill-defined, another unique aspect of the deal was that it involved an annuity. Deal team members and USB’s expert testified that they had never been involved with a bond issuance involving an annuity, especially one that would finance nearly ninety percent of the principal and interest payments to bondholders. (SOMF 109; Ex. 14, Slania Dep. 148:5-9; Ex. 1, Ambriz-Reyes Dep. 107:12-15; Ex. 16, Von Hess Dep. 22:19-23; Ex. 6, Gadsen Dep. 49:21-25.) Despite the unusual structure of this bond issuance, Henselen indicated on the “Establish Deal” form that the sources for all assets and cash transfers were coming from known sources that fit the standard profile for this product. (Pillar Decl., Ex. O.)

***

The persons designated and authorized to sign for WLCC relating to the August 2014 Bond Indenture, as detailed in the Certificate provided to USB, were Geneva Lone Hill, President of WLCC, and Wilma Standing Bear, Secretary of WLCC. (Murzyn Decl. Ex. 95.)

On August 26, 2014, Jason Galanis, the Placement Agent with Burnham, sent an email to Anderson with wire instructions for the $22,092,089 that was to be transferred out of USB’s settlement account for the purchase of the Annuity Investment and payment of certain closing costs. The wire instructions were to a JP Morgan Chase Bank account in Beverly Hills, California, and the account holder was designated as Wealth Assurance Private Client with an address in Santa Monica, California. Neither WLCC nor its counsel was copied on the email, and WLCC did not consent to any change in the Annuity Provider from Wealth Assurance Private Client, British Virgin Islands, to Wealth Assurance Private Client in California4. On August 27, 2014, Henselen’s manager confirmed that the bank account information provided in the Galanis/Anderson email matched the wire information before USB completed the $22,092,089 wire to the JPMorgan Chase Account in California. (Murzyn Decl. Ex. 16, Von Hess Dep. 101:5-102:7.)

Eventually, Galanis was indicted and pled guilty to fraud. Unfortunately, many of the pleadings are sealed, including the plaintiff’s expert report, which opines on the irregularities of this deal.

Prior post on this case here.

 

Materials in Yet Another Pending Suit Filed in 2017 regarding Galanis et al. Investment Fraud involving Wakpamni Lake Community Corporation

Here are the materials so far in Water Works Board of the City of Birmingham v. U.S. Bank National Association (D.S.D.):

1 Complaint

26 US Bank MTD

29 Opposition

30 Reply

32 DCT Order

68 Chicago Transit Complaint in Intervention

UPDATE:

99 US Bank Motion to Dismiss

151 Stipulation of Dismissal [RHCT]

Materials in Pending Suit Filed in 2017 regarding Galanis et al. Investment Fraud involving Wakpamni Lake Community Corporation

Here are the materials (so far) in Michelin Retirement Plan v. Dilworth Paxon LLP (D.S.C.):

1 complaint

67-1 Greenberg Traurig MTD

91-1 Dilworth Paxon MTD

150 Michelin Response to GT MTD

150-10 GT Opinion Letter

150-12 GT Invoice to WLCC

150-14 OST Resolution on Raines Authority

150-15 OST Council Meeting Minutes

150-16 Morton Materials re WLCC

150-17 GT Opinion Letter

161 Michelin Response to Dilworth MTD

161-2 Dilworth Opinion Letter

161-4 Investment Mgmt Agreement

161-5 Trust Indenture

161-10 SEC Complaint

161-14 Dilworth Opinion Letter

172 Request for Default Judgment on Wakpamni

179 GT Reply

180 Dilworth Reply

203 Magistrate Report

209 GT Objection

218 DCT Order Denial of 67 & 91

372 Notice of Voluntary Dismissal of GT

408 Magistrate R&R re 301

411 Amended Complaint

411-1 Timothy Anderson Engagement Letter

411-10 WLCC Bank Statement

468 DCt Order Granting Dilworth MTD

Jury selection is set for February 2020. Wakpamni Lake Community Corporation did not file a response. The clerk issued a default judgment against WLCC. Docket no. 173.

605 Default Judgment

More Docs Related to Galanis et al. Fraud involving Wakpamni Lake Community Corporation owned by Oglala Sioux Tribal District

We posted a complaint yesterday filed by a Chicago retired employee fund against individuals and law firms that worked on this deal.

Here are a few more docs (there is a lot to dig up, but this is a start):

SEC complaint

federal-brief-in-us-v-archer.pdf [details the scheme, appeal in related conviction]

366_f.supp_.3d_477.pdf [galanis decision, on appeal]

Chicago Employee Retirement Fund Sues “Fly-By-Night Tribal Financiers” + Law Firms over “Issuance of $43 million in Worthless Bonds” [case involves Oglala Sioux Tribal Subdivision] — Updated with Federal Court Materials

Update — the case has been removed to federal court, the Northern District of Illinois:

1 Notice of Removal

1-1 Complaint Exhibits

Additional update (3/17/2020):

18 Greenberg Traurig Motion to Dismiss

23 Dilsworth MTD

32 Plaintiff Opposition to Dilsworth MTD

33 Plaintiff Opposition to GT MTD

Here is the complaint in Chicago Transit Authority Retiree Health Care Trust v. Dilworth Paxon LLP (Cook County Circuit Ct.):

Complaint

An excerpt:

1. This lawsuit arises from the Defendants’ participation in, and assistance with, the issuance of $43 million in worthless bonds (the “Bonds”) to unwitting public pension funds, including RHCT. The Bonds were not part of a legitimate public finance project, but rather a criminal scheme to enrich several individuals connected to the Defendants, including well-known fraudster, John Galanis, his son, Jason Galanis (collectively, the “Galanises”), and fly-by-night tribal financiers, Steven Haynes and Raycen Raines, the latter of whom was romantically involved with the Greenberg partner representing the issuer during the transaction.
2. The fraud, which was concealed from the bondholders until May of 2016, involved the use of bond proceeds to purchase an annuity contract with a fictious offshore entity, which is unheard of in legitimate municipal finance transactions. Only a fraction of the bond proceeds were paid to the issuer, while the majority of funds were instead wired to the offshore annuity. Not surprisingly, the annuity company turned out to be fake, allowing the Galanises and their friends to steal almost $40 million in retirement funds from a variety of public pension funds, including those serving public school teachers, sanitary workers, and in RHCT’s case, retired CTA employees and their dependents.
3. The Bonds have been the subject of criminal, SEC and civil litigation in various jurisdictions throughout the country. In its wake, several individuals have pleaded or been found guilty of criminal charges, and multiple investment companies have been forced out of business.
4. None of this would have occurred without the Defendants’ assistance. As more fully alleged herein, the Defendants–national law firms with supposedly sophisticated municipal finance practices–both served as bond counsel in the transaction, assisting not only their “clients,” but several other parties in carrying out what reasonably prudent lawyers would have recognized to be an obvious financial crime.
5. In addition to preparing transaction documents and supervising the bond issuance. the Defendants authored misleading opinion letters containing statements inconsistent with facts of which they were aware, and which failed to disclose material facts that would have prevented the transaction from closing. Through their opinion letters, the Defendants gave the transaction the appearance of legitimacy necessary for the Bonds to issue. Defendants received hundreds of thousands of dollars in stolen retirement funds as payment for their assistance with the issuance.
6. Through their conduct, and in disregard of the duties they owed foreseeable victims like the bondholders, the Defendants directly and proximately caused RHCT in excess of $6,000,000 in losses, which RHCT seeks to recover in this case.
Another excerpt detailing what appears to be efforts by the tribe to stop the alleged scheme:
64. However, instead, on June 24, 2014, the OST’s Tribal Council passed a resolution stripping Raines of authority to act with respect to tribal economic development matters, including “Tribal Economic Development (TED) Bonds,” but also “any other economic development projects.” (Exhibit C, June 24, 2014 OST Resolution.) The resolution specifically noted that Raines had exerted undue influence over OST’s then-president to gain support for economic development projects.
65. Raines served as WLCC’s primary business representative and contact for the Wakpamni bond transaction. However, the tribal resolution stripping Raines of authority over tribal economic development matters was never disclosed to the bondholders or the Indenture trustee, U.S. Bank, by Greenberg or Dilworth during the transaction.