The Bank of Bermuda has agreed to pay up to US$67.5 million to settle lawsuits over a Ponzi scheme shut down by the U.S. Securities and Exchange Commission.

The SEC today reported a proposed joint settlement of two actions filed against the Bank of Bermuda relating to the SEC’s action in October 1999, shutting down a massive Ponzi scheme operated through C4T Management Inc.

The Bank of Bermuda’s proposed offer will settle both a case brought by Phillip Stenger, the court-appointed receiver in SEC v. Homa, and a class action lawsuit filed in Florida.

The Bank of Bermuda has agreed to pay 50% of verified net investor claims, attorneys’ fees and costs up to a maximum of $67.5 million. The proposed settlement will be considered in a hearing in the class action lawsuit on October 12, in federal district court in Miami.

On October 15, 1999, the SEC filed an action and obtained, among other things, a temporary restraining order and asset freeze against Cash 4 Titles, Charles Richard Homa, Michael Gause and 23 others individual and entity defendants. On June 1, 2000, the commission added 16 defendants to its action, bringing the total number of defendants charged in the case to 42.

The commission alleged that the 42 defendants, led by Homa and Gause, engaged in a massive Ponzi scheme through the sale of notes and bonds and raised approximately US$300 million dollars from approximately 2,500 investors. Investors were told that the money would be loaned to C4T, for use in its car title and payday loan business. The commission alleged that only a small fraction of the money was used for its intended purpose, and instead, the funds were transferred to the Cayman Islands and used to pay existing investors, commissions to marketers and personal expenses.

The commission has obtained permanent injunctions against all but two of the individual defendants and the entities they control. The Bank of Bermuda was not named as a defendant in the commission’s action. Additionally, Homa and Gause have pled guilty to securities fraud, wire fraud and money laundering charges brought by the U.S. Attorney’s Office for the Southern District of New York.

Mary Keefe, director of the Midwest Regional Office of the SEC, commented on the proposed settlement, “In many Ponzi schemes, investors recover less than twenty-five cents on the dollar, and sometimes receive nothing; the proposed settlement appears to be an excellent result for investors.”

In addition to the money obtained in settlement from the Bank of Bermuda, Stenger and the commission are pursuing other assets of the defendants from which to repay investors. Stenger has also been appointed joint liquidator in Cayman Islands proceedings relating to the C4T scheme.