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Fenty General Counsel Halted Action Against Bank in Tax Fraud Case

Peter Nickles said he was comfortable with his decision.
Peter Nickles said he was comfortable with his decision. (James M. Thresher - The Washington Post)
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By Carol D. Leonnig
Washington Post Staff Writer
Monday, January 28, 2008

Mayor Adrian M. Fenty's top legal adviser blocked District attorneys from seeking damages from a bank caught up in the massive tax office scandal, a decision that experts say could jeopardize a chance for the city to recover millions of dollars.

Peter Nickles, Fenty's general counsel, ordered the attorney general's office early last month to drop its tentative plan to sue Bank of America for its role in cashing fraudulent city checks.

One of the bank's former employees is among those arrested in the tax investigation, and some experts said that could strengthen the city's case if it files a civil suit to help recover losses. But what could hurt the city's chance of recovering as much as possible, experts say, is putting off a decision to sue.

"Stop work on this," Nickles wrote Dec. 6 in an e-mail to Linda Singer, the attorney general at the time. "This is premature, would interfere with the grand jury and we are not rushing into lawsuits."

Nickles's decision came as the D.C. government was reeling from the loss of at least $20 million in the largest public corruption case in the city's history, a scam that went undetected for at least a decade. Harriette Walters, a former manager in the city's Office of Tax and Revenue, and others are accused of generating hundreds of property tax refund checks to sham companies and cashing them for their benefit.

Walter Jones, a former assistant branch manager at a Bank of America branch in Baltimore, is among 10 people arrested in the case. Jones was charged last month with helping to launder stolen money by accepting and cashing fraudulent checks. Bank of America accepted dozens of fraudulent checks over at least four years, according to court documents.

Several experts in banking liability expressed surprise that the city is not moving faster to pursue claims against Bank of America or others for failing to prevent the fraudulent checking activity. The city is running the risk of being able to recover less taxpayer money because of time limits on such suits, they said. They specifically noted the bank employee's alleged role in moving the money.

"That's devastating," said Jim White, a nationally recognized expert on bank liability and a commercial law professor at the University of Michigan. "Whether it's a case that could be settled for $1 million or $10 million, I don't know, but I don't understand why the city would not proceed."

Among the fraudulent checks cashed through Bank of America were three for a total of $1.1 million in late December 2004, according to court and bank records. Under a three-year statute of limitations that could apply, the city might have lost a chance to go after the money by not filing a suit last month, several experts said.

In an interview, Nickles said he stopped Singer from laying the groundwork for a suit because he didn't want to jeopardize Bank of America's assistance in providing records to federal prosecutors. He said he will decide whether to sue after the criminal investigation is complete and he has a chance to review city records seized by federal agents.

Nickles said he is confident that the city is not at risk of losing money through delay. The time limit does not apply, he said, because the case involves "fraudulent concealment." Nickles did not ask Bank of America for a tolling agreement -- a common step in litigation to essentially stop the clock and protect a party's option to make legal claims during the time it is deciding whether to sue.

"I'm completely comfortable with my decision," Nickles said.

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