IRA used to support Ponzi scheme, says another suit against Millennium
A Dupage County finance company is again being sued after allegedly allowing one of its clients to fall victim to a Ponzi scheme.
Sharon Cobb, formerly known as Sharon Shahan, and John Shahan filed a lawsuit May 24 in St. Clair County Circuit Court against Millennium Trust Company LLC. Cobb and Shahan reside in Florida.
In 2003 Shahan allegedly signed a self-directed IRA Adoption Agreement with Millennium naming Cobb as the beneficiary. At the time of the transaction Cobb and Shahan were married but have since divorced, according to the complaint. As part of the divorce decree, Cobb was awarded a portion of Shahan's IRA accounts.
Beginning in December 2003 Shahan says he instructed Millennium to transfer $100,000 from his IRA account to the British Lending Program. He again made two more requests to transfer $100,000, in March 2004 and July 2004, bringing the total transfer amount to $300,000. That money, according to Shahan, was a loan intended to go to a company overseas to be invested in real estate projects in England.
However, the British Lending Program allegedly turned out to be a Ponzi scheme operated by two attorneys, one from St. Louis and the other from Kansas. Apparently self-directed IRAs were the primary source of funding for their program. Shahan and Cobb contend self-directed IRAs require qualified custodians, which Millennium allegedly claimed it was. The couple says that custodian role is especially important when dealing with alternative investments like the British Lending Program. Millenium held itself as an "expert" in this arena, according to the petition.
A similar suit against Millennium, brought as a proposed class action, was also filed in St. Clair County on May 24 by another Florida resident.
Cobb and Shahan claim Millennium should have been able to identify fraudulent activity on their investments. For example, in each of his requests to transfer IRA funds to the British Lending Program, Shahan claims Millennium sent a wire transfer to the lawyer in St. Louis instead of the intended borrower in England. Cobb and Shahan allege proper auditing by Millennium would have uncovered the fact that the British company never received the money, thus highlighting the fraud. Having allegedly not been warned of the obvious issues, Cobb and Shahan say they continued to invest another $115,000 between August 2006 and September 2009.
Finally in July 2008, Millennium allegedly discovered the British Lending Program was a fraud and reported it to bank regulators but did not disclose the report to its IRA holders who invested with the company. Cobb and Shanan claim Millennium also tried to cover up its mistakes in the process. They say the company provided account statements falsely showing the money went to the British company, with repayment coming from that company. The couple also alleges Millenium never required the proper loan documents to be reviewed.
Even after learning the British Lending Program was actually a Ponzi scheme, Millennium allegedly allowed $20 million more from its clients
accounts to be invested in the fraudulent venture.
Cobb and Shahan say this information only came to light after a criminal indictment of the St. Louis attorney involved in the scheme was unsealed in May 2011. They claim there is no possibility of recovering the money they lost from the operators of the Ponzi scheme.
The plaintiffs accuse Millennium of negligence, breach of fiduciary duty and unjust enrichment. They seek to be awarded more than $5 million, which includes punitive damages and court costs.
Attorneys Jonathan F. Andres and Nathan E. Ross of Clayton, Mo. represent Cobb and Shahan. They ask for a jury trial.
St. Clair County Circuit Court Case No. 12-L-278