BMO takes $1.1-billion provision on U.S. Ponzi scheme ruling

TORONTO — BMO Financial Group will record a $1.12-billion provision after a U.S. jury found it liable in relation to a Ponzi scheme alleged to have been facilitated by a bank it bought.

Toronto-based BMO said a jury awarded damages of US$564 million against its U.S. subsidiary BMO Harris Bank N.A., while prejudgment interest charges from the alleged actions between 1999 and 2008 would boost the cost further.

BMO said in a statement it was disappointed with the verdict and plans to appeal the decision to the U.S. Court of Appeals for the Eighth Circuit, along with filing post-trial motions to reverse the verdict or reduce the damages.

Plaintiffs in the case alleged that Marshall and Ilsley Bank, which BMO bought in 2011, was complicit in a Ponzi scheme carried out by Thomas J. Petters and others. Petters was convicted in 2009 of orchestrating the US$3.65-billion scheme and sentenced to 50 years in jail.

They allege that the bank served as "critical linchpin" for Petters who had a chequing account there through which nearly all of the US40 billion the scheme was laundered.

The jury on decided on Tuesday that BMO, as now-owner of the bank, was liable on aiding and abetting breach of fiduciary duty, but not liable on aiding and abetting fraud or direct breach of fiduciary duty.

Michael Collyard, a lawyer at the Robins Kaplan law firm pursing the case against BMO, said he was happy with the verdict that he believes to be the largest civil award in Minnesota state history.

"It has been a long, 14-year road to this verdict, and we are extremely pleased with the jury's decision to hold BMO Harris Bank accountable for its role," said Collyard in an emailed statement.

"This is a fantastic result for the trust pursuing recovery for the people who lost money in this fraud."

BMO was previously sanctioned for destroying email backup tapes related to the case.

The bank said that because of prior settlements, it's entitled to recover about 21 per cent of damages. After taxes, the bank expects to take a charge of $830 million in its fourth quarter because of the ruling.

This report by The Canadian Press was first published Nov. 9, 2022.

Companies in this story: (TSX:BMO)

The Canadian Press