Zions Bank processed illegal poker payments, records show
In the mid-to-late-2000s, one of Utah's most iconic institutions, Zions Bank, processed tens of millions of dollars of illegal online-poker payments and then assisted a Logan businessman in sending at least $150 million overseas, court documents show.
During that same period in the depths of the Great Recession the regional banking power also sought to boost its bottom line in what appears to be poorly supervised practices, including processing payments for legally questionable mass marketers. Among those were St. George businessman Jeremy Johnson, whose accounts during that time were being closed by other banks.
"Zions has taken great effort at a great cost to try to prevent fraud, to prevent merchants and other individuals from using the banking system for fraudulent purposes," said James Abbott, spokesman for Zions Bancorp, corporate parent of Zions Bank. "Obviously we process millions of transactions, and there are situations that develop over time where we perhaps have given customers the benefit of the doubt and, in retrospect, perhaps that trust was misplaced."
The poker payments are described in documents filed in criminal cases and may be why Zions reported it is under investigation by the U.S. attorney's office in New York City.
A spokeswoman for the U.S. attorney's office declined to comment on the probe, but Zions Bank is mentioned in documents in the criminal case against Logan businessman John Scott Clark, who pleaded guilty in 2012 to four charges of conspiracy and obstruction of justice for processing millions of dollars of illegal payments to online poker companies.
Court records indicate Clark may be cooperating with federal investigators. He was sentenced in December to time served, which amounted to about a week in jail in mid-2009 before he bailed out, according to the case docket.
Clark did not respond Tuesday to an interview request sent through his New York attorney.
Philly flap • Zions also is battling a Philadelphia lawsuit alleging that in the months before the bank processed the poker payments (exact dates are unclear) it assisted a Pennsylvania company, which defrauded elderly consumers by selling them bogus products and charged their bank accounts through Zions.
The Salt Lake City-based bank also has reported it is under investigation by the U.S. attorney's office in Philadelphia, apparently in relation to Modern Payments, the processing subsidiary Zions owned in the mid-to-late 2000s.
In addition, the federal government fined Zions $8 million in 2011 for failing to adequately monitor its former foreign customers, including $7.9 billion of wire transfers to Latin America from 2006 to the end of 2008, before the bank shut down that operation.
Abbott, citing the ongoing litigation and investigations, said the bank was reluctant to answer specific questions about what was going on within the company during that time.
"But I can assure you we do spend millions of dollars and are successful at preventing ... potentially fraudulent merchants from doing business," he said. "We file hundreds, if not thousands, of suspicious-activity reports every year."
Attorneys in the Philadelphia lawsuit allege the bank ignored several indicators of fraud, including rates of return of its customer companies far in excess of 10 percent, which the Federal Reserve considers evidence of possible fraud.
They also accuse Zions of ignoring warnings from outsiders and some of its own officers.
The Johnson link • Johnson turned to Zions and other banks in 2009, when some banks began shutting down merchant accounts associated with his I Works company because of high rates of consumer chargebacks. Johnson formed at least 10 "shell" companies he used to open processing accounts at Zions, according to documents filed in a 2010 Federal Trade Commission lawsuit and a 2013 criminal indictment.
Johnson, who is at the center of the scandal engulfing Utah Attorney General John Swallow, is accused in the Nevada FTC suit of bilking consumers out of millions through monthly charges on debit or credit cards while offering "free" products that included moneymaking schemes, stay-healthy programs and information on obtaining government grants.
The St. George businessman denies the allegations, and the case is moving closer to trial.
He also faces 86 criminal counts in Salt Lake City's federal court related to bank fraud and the creation of the "shell companies."
Johnson and company officers tried to hide the true ownership of the shell companies, according to prosecutors, because he was on a bad-merchant list that would keep him from processing cards.
At least one of those companies with a Zions account, Net Business Success, had statements sent to I Works' address in St. George, according to the FTC lawsuit.
The Zions account for Net Business was one of three I Works-related accounts mentioned in the latest indictment of Johnson and four other I Works officers.
Johnson and his co-defendants have pleaded not guilty.
Johnson declined to comment for this story, citing a gag order in his criminal case. He previously said that third-party processors and banks with whom I Works opened accounts knew the true ownership of the accounts and even encouraged their formation. Johnson also has argued that processing of online-poker payments was legal.
The $150 million • Clark opened 200 to 250 accounts at Zions, according to court documents.
Zions told the FBI that money frequently was transferred between accounts "without any business purpose ascertainable to the Utah bank, and that more than $150 million was ultimately transferred to offshore accounts," according to Clark's criminal complaint.
In early 2009, the complaint says, the Utah bank discovered some of Clark's accounts had been transferring more than $10 million to an account linked to a gambling-processing company. Clark also was sued by the Securities and Exchange Commission in March 2011 and accused of running his payday-lending companies, Impact Cash and Impact Payment Systems, as a Ponzi scheme in which investors lost more than $5 million. He has agreed to a settlement, which is awaiting SEC approval.
It's unclear how long Clark companies processed poker payments through Zions before the bank shut down the Clark accounts in early 2009.
One of the Clark-related companies was first registered in Florida in May 2007, and he moved poker monies through a Florida bank from February to July in 2008. That bank closed his accounts, court documents show, because he could not identify the purpose of the transactions and prove that consumers had authorized the debits from their accounts.
In March 2008, Clark registered Desert Payment Systems with the Utah Department of Commerce. Desert Payment is one of the companies through which Clark processed online-poker payments, according to court documents. The next month, Clark registered Digital Processing Systems, another poker processor.
Clark used accounts of those two companies at Zions to send money to Bank of America accounts, which later were seized by federal authorities as part of their probe, according to an affidavit from an FBI agent.
One of Clark's Las Vegas business partners, Chad Elie, was indicted in a separate New York case in April 2010 as part of a crackdown on illegal poker payments.
Elie's partner in that venture: Johnson, who was not indicted even though the two were 50-50 owners in a company that processed millions in poker payments through SunFirst Bank in St. George.
In November 2010, the Federal Deposit Insurance Corp. told SunFirst to stop all processing on accounts linked to Elie and Johnson. State regulators later closed SunFirst and most of the deposits were shifted to another bank.