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'Bad faith' shown by bank in Crundwell thefts?

City says deposition shows negligence on part of the Fifth Third

DIXON – The city, in court documents filed Wednesday, says testimony from a former branch manager in deposition proves that Fifth Third Bank showed "bad faith" in its handling of an account used by former Comptroller Rita Crundwell.

In the deposition, former Fifth Third Bank branch manager Amanda Powers said the bank did not follow reasonable commercial banking standards when it cashed unendorsed checks from Crundwell, cashed checks made payable to "treasurer" without further inquiry, and allowed the secret account Crundwell used personally to be opened as a city account without proper verification.

Crundwell on Feb. 14 was sentenced to nearly 20 years in federal prison after pleading guilty to wire fraud. She admitted to stealing nearly $54 million from city funds over 22 years.

The city of Dixon names Fifth Third Bank, along with its auditors, as defendants in a lawsuit seeking $53 million in damages, laying blame on them for the theft.

Crundwell used fake Illinois Department of Transportation invoices to write checks payable to "treasurer" and then transfer millions of dollars into a secret account at the bank.

Fifth Third, however, asked to be removed from the lawsuit earlier this month, saying the city is barred from suing it by the Illinois Fiduciary Obligations Act, which protects banks from liability for its dealings with an account holder's dishonest finances.

That is, if it is ruled to have done so in "good faith."

Attorney Devon Bruce, who is representing the city in the lawsuit, argues in court documents that Powers' testimony on April 5 supports negligence on the bank's part.

Powers worked at Fifth Third Bank and its predecessor banks from April 1986 until August 2007, when she left to take a supervisory role at U.S. Bank. Crundwell's theft started in 1990 and continued until her arrest in April 2012.

Many of the checks Crundwell cashed did not have a signature, the document said.

Powers said a check should not be paid out, unless it is signed on the back by an authorized person for that account, and to do so would violate banking standards.

Also, the bank allowed Crundwell to deposit million of dollars when the payee was listed as just "treasurer."

Powers said, based on her experience, "it would raise caution" if she were a teller standing at a bank branch in Dixon and somebody tried to cash a check for hundreds of thousands of dollars and it's made payable to just "treasurer."

Powers said she knew Crundwell was the city's comptroller, but their relationship was strictly professional. She said Crundwell had some personal relationships at the bank, as well.

Powers said her experience working with other municipalities taught her that a resolution from the city of Dixon would have been required to open up the secret account Crundwell used for personal expenses. She said it is up to the bank to verify this. Bruce argues in court documents that no paperwork has been presented showing the city made any such resolution.

Also, Powers said the bank could obtain all of the city's accounts within 10 minutes by inputting its federal tax identification number into a computer. It disclosed the secret account to auditors in 2010, which argues against Fifth Third's claim that the secret account was not listed as a "city account."

From the items in Powers' deposition, the city will file another complaint against Fifth Third Bank on or before May 23, Bruce said in court Thursday. Fifth Third Bank will have 30 days after the filing to reply.

For its part, Fifth Third Bank says:

– The city was negligent in detecting the theft, so Fifth Third is not liable for the results of that negligence.

– It owes the city no money, because the bank no longer has any of the city's funds that "in equity and good conscience should be returned."

– The city can't claim a breach of contract, because no contract has been provided in court documents, and because the secret account was not listed as a city account.

"Fifth Third Bank had actual and undisputed knowledge based upon Fifth Third's bank account statements, deposits and canceled checks that Rita Crundwell transferred over $40 million from the Capital Development Fund to the [secret account] over a period of years," the city's argument says.

It continues: "To suggest that the plaintiff cannot prove, let alone plead, that Fifth Third Bank knew about Rita's misappropriation of money and/or acted in bad faith by deliberately ignoring her spending rampage when it all happened through Fifth Third Bank's own accounts and with its assistance is preposterous."

The next hearing in the case is scheduled for July 16.

The city's lawsuit also names its former auditors – CliftonLarsonAllen, LLP, Clifton Gunderson, LLP, Janis Card Co., LLC, Samuel S. Card, CPA, P.C., Samuel S. Card, Todd Etheridge and Ron Blaine – saying they should have detected the 20-plus-year theft.

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