The District sued Bank of America on Friday in an attempt to recoup its losses from a $48 million fraud scheme in the city’s tax office.
Harriette Walters, a former manager in the office, pleaded guilty in October to leading the scheme, which spanned nearly two decades. Bank of America was the main bank used to deposit phony property-tax refunds that Walters generated for her associates. A former bank employee, Walter Jones, pleaded guilty in the scheme.
Jones was fired in February 2007 for violating bank standards of conduct in connection with deposits he made for Walters’ niece, Jayrece Turnbull. His dismissal came months before federal authorities made arrests in the case.
The lawsuit - which also names Walters, Jones and Turnbull as defendants - charges that Bank of America should have noticed irregularities in the large checks being deposited and alerted the city. It says the bank “failed to use ordinary care” to safeguard the city’s money.
The bank is also responsible for Jones’ actions, according to the lawsuit.
“Defendant Jones was wrongfully hired, or received inadequate training or was not adequately supervised by Defendant Bank,” the city said in the suit.
Bank of America spokeswoman Shirley Norton said the bank could not comment because it has not had time to review the lawsuit. However, she noted that the bank worked with authorities throughout the investigation.
At least 116 checks worth $34 million were laundered through the bank, according to the lawsuit.
Walters pleaded guilty to wire fraud, conspiracy to commit money laundering and tax evasion. The plea agreement calls for her to serve from 15 to 18 years in prison when she is sentenced in March.
She will also be required to pay restitution, but the city has little hope of recovering anywhere near the $48 million sought from her.
Walters admitted to issuing the phony refunds to friends and relatives and then sharing the proceeds with them. According to a statement of facts that Walters signed, she began issuing fraudulent checks in 1989 and continued until her arrest in November 2007.
The scheme unraveled after Jones was fired from Bank of America, forcing Walters to do business at another bank. The other bank noticed a discrepancy in a transaction.