Class action certified against Bank of Montreal

Can a bank be held liable by victims of fraud if the fraudster was a customer of the bank and carried out his fraud using various bank accounts, in the process arousing concerns by bank staff? We will soon find out as, on Aug. 15, the Ontario Superior Court of Justice approved a class-action lawsuit against the Bank of Montreal (BMO).

The lawsuit, Pardhan v. Bank of Montreal, alleges that BMO is culpable because Salim Damji, who defrauded investors of more than $77 million from 1999-2002, deposited the stolen money into various personal accounts at various BMO branches, as well as into an account in the name of a numbered company operating as Cash Plus. Many investors' cheques were written "in trust,î yet Damji deposited them into non-trust accounts. The suit maintains that BMO knowingly assisted this breach of trust, knowingly received the fraudulent funds and/or was negligent in its receipt of these funds.

Damji, a resident of Toronto, claimed that his company, STS Inc., had recently developed a new teeth-whitening product that was soon to be sold to industry giant Colgate-Palmolive. He offered investors the chance to buy into his company before the sale, putting the money "in trustî until the deal was inked. Damji must have been very persuasive, as he was able to extract more than $77 million from investors.

But it was all a lie ó there was no teeth-whitening product, no sale to Colgate, not even a company and certainly no money in trust. On April 26, 2002, Damji was arrested and charged. He pleaded guilty and was sentenced to seven and a half years in jail. He left behind a web of thousands of transactions but little cash. Damji had an internet gambling habit and had transferred funds offshore

This recent decision represents the culmination of many administrative battles within the court system itself. Ruling that the litigation plan was deficient, the court had declined to certify the proposed class action as recently as April 2012.After considering additional evidence, the court has decided to certify the proceeding. Those investors who gave money to Damji for the STS scheme in trust and whose money was deposited in the Cash Plus account, will be represented in the action.