BANK OF GUAM SUES BANK OF HAWAII OVER ‘FRAUD’

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By Gina Tabonares

SAIPAN, CNMI (Marianas Variety, April 16) –The locally owned Bank of Guam filed a lawsuit against the Bank of Hawaii after uncovering an alleged check-kiting scheme involving more than $2 million in payroll of several businesses on the island.

Bank of Guam, which wants Bank of Hawaii to pay for damages, asked the District Court of Guam for a jury trial alleging that Bank of Hawaii intentionally defrauded the local bank causing it to suffer a substantial loss.

The complaint filed by Bank of Guam, through its lawyer Anita Arriola of Arriola, Cowan & Arriola, stated that Bank of Hawaii ing House rules when it debited payroll services to Jale Management’s Information and Data Services, or IDS.

IDS, an account holder of Bank of Guam, provides payroll services to the Hilton Guam Resort and Spa, and Dewitt Transactions.

At the same time, IDS engaged in transactions involving its account at Bank of Guam and Bank of Hawaii through the use of checks and automated clearing house transactions.

The complaint stated that from Sept. 8, 2006 to Oct. 2, 2006, IDS sent items for payment from a computer electronically to a bank using the Bank of Guam computerized cash management system to upload items to Bank of Hawaii.

A total of $2,273,905.50 was uploaded by IDS on three separate occasions: Sept. 28, 2006 — $754,635.45; Sept. 29, 2006 — $751,001.15; and Oct. 2, 2006 — $768,269.99.

Bank of Guam said Bank of Hawaii did not return any of the foregoing IDS transaction items but IDS immediately began drawing on the funds in its Bank of Guam account after the local bank credited the IDS account in the amount of $2,273.905.59.

On Oct. 3 and 5, 2006, Bank of Guam officials met with IDS officers to discuss irregularities in checks written by the payroll firm. As a result of the meetings, Bank of Guam became concerned that IDS may have been involved in a check-kiting scheme and advised Bank of Hawaii officials of their concerns that further transactions with the IDS accounts would create a loss to both banks.

Eight days after being notified of possible irregularities, Bank of Guam stated that Bank of Hawaii, instead of working with the bank to prevent losses, returned the IDS transaction items to Bank of Guam with a return revoked authorization.

As a result of the Bank of Hawaii returns, the automated clearing house network automatically took the funds from Bank of Guam and credited Bank of Hawaii in the amount of more than $2 million.

Under Automated Clearing House operating rules, for purposes of IDS transactions, IDS is both the "originator" and "receiver" for the transactions. Bank of Guam was the "originating depository financial institution" and Bank of Hawaii was the "receiving depository financial institution."

Automated Clearing House rules require that each return entry must comply with the requirements of RO7 Return Code or Authorization Revoked by Customer. It requires that the receiver, IDS, must provide Bank of Hawaii a written statement under penalty of perjury that the authorization for the debit entry has been revoked by the receiver. The written statement under penalty of perjury must be obtained by the Bank of Hawaii prior to initiating a return of the items.

On Oct. 16, 2006, Bank of Guam vice president Josephine Mariano telephoned James Polk, Pacific Islands Division manager and executive vice president at Bank of Hawaii, to determine whether Bank of Hawaii had a written statement under penalty of perjury from IDS as required.

Polk admitted that Bank of Hawaii did not have a written statement under penalty of perjury but that he "expected" to obtain one within 10 days.

On the same day, Mariano contacted IDS president Romy Miclat and determined that IDS had not executed a written statement under penalty of perjury for Bank of Hawaii.

Bank of Hawaii reportedly never provided a written statement under penalty of perjury to Bank of Guam despite the letter of request made by Bank of Guam to Polk on Oct. 16, 2006.

Bank of Guam demanded that Bank of Hawaii return the more than $2 million but the Hawaii-chartered bank refused to do so.

This prompted Bank of Guam to file a complaint against Bank of Hawaii with the National Automated Clearing House Association.

On March 26, 2007, a NACHA panel determined that Bank of Hawaii violated the Automated Clearning House rules in not having a written statement under penalty of perjury as required under the rules.

Bank of Guam received a copy of the NACHA decision on April 3, 2007.

Guam Hilton and Dewitt Transactions

In addition to the scheme to defraud Bank of Guam, the local bank stated that IDS uploaded on Oct. 4, 2006 an amount of $17,362.03 and, on Oct. 5, 2006, it uploaded additional items worth $92,250.56, totaling $109,612.59, an amount uploaded to Bank of Hawaii for Guam Hilton Hotel and Dewitt Transactions.

At all relevant times, Bank of Guam stated that Bank of Hawaii did not have any written statement under penalty of perjury from Guam Hilton Hotel and Dewitt Transactions while IDS received payment from both establishments to process the payroll of the two firms’ employees.

Bank of Guam further alleged that Bank of Hawaii induced a Dewitt representative to execute and deliver a written statement under penalty of perjury to Bank of Hawaii purportedly to revoke Dewitt’s authorization of any and all future payments on Oct. 17, 2006.

The accused bank reportedly did the same thing with Guam Hilton Hotel, inducing the firm representative to execute a backdated written statement under penalty of perjury on Oct. 27, 2006 to affect transactions of Oct. 20, 2006.

The plaintiff stressed that Bank of Hawaii knew or should have known that at the time it was procured, such written statement under penalty of perjury was untimely and ineffective to support a return of the Guam Hilton Hotel and Dewitt Transactions items when it returned the transactions items long after Bank of Hawaii had already debited the firms’ accounts.

On Dec. 1, 2006, Bank of Guam filed a violation of rules with NACHA and demanded that Bank of Hawaii return the $109,612,590 but the latter has refused to do so.

In their complaint before the District Court, Bank of Guam is asking for general and compensatory damages for breach of warranties, fraud, intentional misrepresentation, conversion, and for unjust enrichment relating to the IDS transaction.

The plaintiff also wants general and compensatory damages for breach of warranties, for conversion, for intentional misrepresentation, and unjust enrichment relating to the Guam Hilton Hotel and Dewitt Transactions.

Bank of Guam wants indemnification by Bank of Hawaii for its breach of warranties in all transactions in an amount according to proof for punitive damages, pre-judgment and post-judgment interest, reasonable attorneys’ fees and cost of suit and further relief that the court may deem appropriate.

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