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Fifth Third: ‘Bad faith’ not proven by the city

Bank says Crundwell’s withdrawals OK practice

DIXON – Fifth Third Bank says it did not act in “bad faith” when it allowed former comptroller Rita Crundwell to withdraw more than $48,000 in cash directly from a city account.

The bank argues in court documents that there is no evidence those were cash withdrawals from Dixon’s capital development fund, or that it was used for “non-city purposes.”

Primarily, Fifth Third Bank said in the documents, filed last week, that it should not be included in Dixon’s lawsuit that lays blame on the bank and auditors for Crundwell’s theft of nearly $54 million from city funds over 22 years.

The bank’s attorneys said the city cannot bring suit because of the Illinois Fiduciary Obligations Act.

That act says: If a person is empowered to write checks in an account, the bank is authorized to pay those checks without being liable, unless the bank pays the check with knowledge that the person is in wrong doing, or with knowledge that its action amounts to bad faith.

Dixon’s attorney, Devon Bruce, argued Crundwell’s withdrawal was a violation of “reasonable banking standards” and should not have been allowed to occur, thus showing “bad faith.”

On May 25, 2000, Old Kent Bank, a predecessor to Fifth Third, allowed Crundwell to withdraw $29,032.16 in cash from the city’s capital development fund, according to the withdrawal slip copied in court documents.

On July 19, 2000, Crundwell was allowed to withdraw $19,080.55 in cash, another slip showed.

The mere attempt should have flagged a report to the bank’s fraud detection staff, Bruce said. The transaction also should have been reported to her supervisors, thus saving Dixon the $40 million Crundwell subsequently stole, he said.

The bank said that there is no evidence cash was received or how it was used, and that it has “no obligation to inquire into a municipal customer’s need for cash” under protections from the fiduciary act.

“There are legitimate reasons for a city to need cash that do not raise ‘red flags’ for a bank,” the bank’s attorneys said.

Bruce also said the bank “intentionally and deliberately ‘turned a blind eye’ to the tens of millions of dollars and thousands of checks Crundwell wrote for purely personal items” from a secret account, dubbed RSCDA, that she created to siphon money from the city.

The city’s attorney said the bank knew Crundwell was acting improperly – that she lacked the authority to open the secret account – but failed to investigate.

A valid resolution from the city is required to open a city account, former Fifth Third Bank manager Amanda Powers said in a deposition. No resolution was presented.

Bruce said the bank was required by law to maintain procedures that allowed it to know the true identity of each customer, and when an account is opened by an entity and not an individual.

The bank fired back in documents: “Who at Fifth Third Bank had actual knowledge of ‘all of the relevant facts’ and that Crundwell was defrauding the city? How and when did that person obtain that actual knowledge? Despite its length, no such allegations are contained in the [city’s] fourth amended complaint.”

The city’s complaint, the bank’s attorneys said, failed to supply factual evidence that the bank turned a blind eye to Crundwell’s opening a secret account without authority or her stealing from the city.

Also, the bank is not required to review its customer’s checks to ensure that the person receiving money is doing so properly. Previous court cases have proved this exercise to be burdensome, the bank’s lawyers said.

In fact, the city itself neglected to detect the fraud and is trying to pass those duties to the bank, the documents said.

The bank’s attorneys added there was nothing in Crundwell’s activities that would have alerted bank employees to wrongdoing.

“Why is it per se suspicious that a city, acting through its long-time treasurer/comptroller, would make payments to gas stations, wireless companies, landscaping companies, and others? Why would that cause someone to leap to the conclusion that a fraud was being committed by a trusted and well-known fiduciary?”

Additionally, the bank said, there was nothing suspicious about a city employee asking for checks to be sent to a different address or about the amount of money flowing in and out of Crundwell’s secret account.

The city has until Aug. 13 to respond to Fifth Third Bank’s arguments, Judge Daniel Fish said at a status hearing Tuesday. Any further replies from then are due Sept. 10.

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-year theft.

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