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The Chicago Transit Authority is the latest organization to claim that one of its benefit plans lost millions in a fraudulent scheme involving worthless bonds issued by a Sioux tribe ( Michelin Ret. Plan v. Dilworth Paxson LLP , D.S.C., No. 6:16-cv-03604-HMH-JDA, motion to intervene filed 2/9/17 ).
The retiree health trust for the CTA—the agency in charge of the country’s second-largest public transportation system—on Feb. 9 asked a federal judge in South Carolina for permission to join a three-month-old lawsuit by French tiremaker Michelin’s U.S. retirement plan. The Michelin lawsuit claims that its plan’s advisers invested more than $8 million in bonds issued by the Wakpamni Lake Community Corp., a tribally chartered corporation connected to the Oglala Sioux Tribe in South Dakota. These bonds purported to support tribal community improvement projects but actually established a fraudulent slush fund for defendant Jason Galanis and his alleged co-conspirators, the lawsuit alleges.
Both the CTA and Michelin plans lost their entire investments in Wakpamni bonds—a combined amount totaling more than $12 million, according to the CTA’s court filings. The alleged scheme was an “unconscionable abuse of the goodwill associated with what is known as ‘socially responsible investing,’” according to Michelin’s complaint.
Galanis pleaded guilty to criminal charges in the Wakpamni scheme in January, agreeing to forfeit more than $43 million and raising the possibility of a decadeslong prison sentence. Galanis and his associates allegedly convinced the Wakpamni corporation to issue more than $63 million in bonds that were then forced on “unsuspecting” investors such as the Michelin plan through a “massive fraudulent scheme” that federal prosecutors say allowed the defendants to pay for personal expenses, homes, cars, travel and jewelry.
The Michelin plan alleged in its complaint that at least nine other investors—including an unnamed pension fund—have been similarly victimized by the scheme.
Besides the CTA, no other investors have sought to intervene in the lawsuit, which is pending before Judge Henry M. Herlong Jr. in the U.S. District Court for the District of South Carolina.
The CTA is represented by Kenison Dudley & Crawford LLC and Burke Warren MacKay & Serritella PC. Haynsworth Sinkler Boyd represents Michelin.
The defendants are variously represented by Lewis Babcock & Griffin, Jenner & Block, McNair Law Firm, Maslon LLP, Griffith Sharp & Liipfert, Beattie B. Ashmore Law Office, Spertus Landes & Umhofer LLP and Carter Smith Merriam Rogers & Traxler.
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