A proposed class action alleges the Kingdom Trust Company knowingly provided substantial assistance to a Ponzi scheme broken up by the U.S. Securities and Exchange Commission in 2018.
The 55-page lawsuit claims Kingdom Trust aided and abetted a more than $71 million scheme perpetrated from 2011 though 2016 by William Jordan, who, acting as an advisor and fiduciary, placed proposed class members’ money into several purportedly separate investment funds—the “WJA Funds”—that were, in reality, “commingled, misappropriated, and used as Jordan’s personal piggybank.”
For its part, Kingdom Trust fell short of its duty to segregate and safeguard each investment fund overseen by Jordan, and was negligent in failing to act once it became aware that investor money was being improperly commingled and diverted, the suit claims. According to the complaint, Jordan—a San Juan Capistrano, California resident, the owner of two investment companies and the subject of a 2018 SEC civil enforcement action—improperly used investor money to prop up his failing investment funds and pay out earlier investors to “create and maintain the appearance of a successful business enterprise.” In truth, the case says, “the WJA Funds were not real investment funds but a Ponzi scheme.”
The lawsuit alleges Jordan, who settled the SEC charges, would not have been able to perpetrate the fraud without “crucial” assistance from an entity like Kingdom Trust:
“Jordan could not have perpetrated the WJA Fund fraud on his own. Instead, he crucially depended on the knowing participation of the WJA Funds’ trustee/custodian and de facto bank, Defendant Kingdom Trust, through whose accounts Jordan committed his misconduct, and who knowingly and substantially assisted in Jordan’s misconduct.”
Per the case, investors, many of whom were retirees, believed that the WJA Funds were independent and separate entities, each with its own custodial/trust account, and kept segregated from other WJA Funds. Investors believed that their money would be invested in accordance with each respective fund’s purpose and objectives, specifically in assets or holdings purchased or owned by a fund, the suit says.
To convince prospective investors to trust him with their money and assuage any concerns of misconduct, Jordan, who the suit relays has a long history of impropriety with regard to selling investments, assured proposed class members that the money in each WJA Fund was held separately by a third-party custodian, and that investors’ investment proceeds in each fund would be used accordingly with the funds’ specific “use of proceeds” provisions, the lawsuit claims.
“To that extent, Jordan opened ostensibly separate accounts for the WJA funds with Defendant,” the case says. “Defendant undertook a duty to segregate and safeguard each WJA Fund’s money deposited by investors in that respective WJA Fund.”
The lawsuit, citing the SEC action, says Jordan wrongfully treated the separate, standalone WJA Funds as one pool of money, commingled investors’ money into the various, supposedly separate WJA Funds, improperly overpaid himself and his entities regularly and illegally moved money among the funds to meet his cash flow needs, including making Ponzi-like payments to investors. According to the suit, all of this was done by way of one Kingdom Trust account—the “epicenter of Jordan’s WJA Fund scheme.”
Kingdom Trust, the complaint alleges, had actual knowledge of the WJA Funds’ independence; that they were controlled by Jordan and his business; that each of the funds was supposed to have its own separate, segregated account; that each of the funds received investment proceeds from investors; and that Jordan and his management business were handling investor money as fiduciaries. Kingdom Trust was also aware, according to the lawsuit, that Jordan was misusing the money from the WJA Funds and transferring it to his other funds instead of investing it as represented. From the complaint:
“Armed with such knowledge, Defendant substantially assisted the Jordan Scheme by engaging in highly atypical activities that greatly departed from the typical services offered by a trustee/custodian and bank—and violated the very agreements between Defendant and the WJA Funds designed to safeguard and segregate the investors’ money.”
Specifically, Kingdom Trust executed transactions for Jordan’s scheme that “improperly commingled” known fiduciary funds across the WJA Funds that were to have different purposes and investment objectives, the suit alleges. Moreover, Kingdom Trust, according to the lawsuit, improperly disbursed investor money to Jordan and made Ponzi payments to existing WJA Fund investors with new investor money.
Most egregiously, the complaint says, Kingdom Trust breached its own agreement with the WJA Funds, which required investor money in each fund to be kept segregated from investor money in other WJA Funds, and kept all such money in a single account.
Overall, the lawsuit alleges Kingdom Trust enabled Jordan to prolong his Ponzi scheme and victimize more investors before the fraud began to come apart on May 15, 2018:
“On that date, the SEC filed a civil enforcement action against Jordan. The SEC Complaint alleged that Jordan made material misrepresentations and omissions to solicit investors in California and across the country to invest in his scheme. The SEC also charged Jordan with fraud and asserted violations of the federal securities laws.”
The complaint, initially filed on May 20 in Calloway County Circuit Court and removed to the District Court for the Western District of Kentucky on June 9, can be found below.
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