Fenty General Counsel Halted Action Against Bank in Tax Fraud Case

He declined to say whether he thought any suit against Bank of America was a good idea.

Nickles was a longtime senior partner at Covington & Burling before signing on as Fenty's counsel. Bank of America is listed on the firm's Web site as one of its major clients. Nickles said that he didn't know that and that it had no bearing on his decision.

Singer resigned Dec. 17. She declined to comment on the matter. Aides have said that Singer stepped down after repeated clashes with Nickles, a longtime Fenty ally, and what she considered his overstepping of his authority. Fenty then appointed Nickles acting attorney general.

Bank of America was on both sides of many of the fraudulent checks. It handles the city's checking account, so all the checks in question were drawn from that bank. The bank also unknowingly helped cash many of the fraudulent checks, according to FBI affidavits, because the conspirators opened several accounts at the bank in the names of companies that didn't exist and used them to launder the money.

Bank of America eventually became suspicious of Jones's activities, particularly his dealings with Jayrece Turnbull, a niece of Walters's who is accused of being a main player in the conspiracy. The bank's security personnel questioned Jones in late 2006 because he had made several high-dollar-amount transfers of money between Turnbull's accounts, court papers say. The bank dismissed him in February for violating its standards of conduct.

Shirley Norton, a Bank of America spokeswoman, said the bank would not comment on the embezzlement case or the bank's potential liability. She said the bank continues to cooperate with investigators.

SunTrust Bank also cashed some of the fraudulent checks, according to FBI affidavits. But that bank triggered the fraud investigation, authorities said, by taking their suspicions about Turnbull and a $410,000 check to the FBI in July.

According to records and interviews, the debate over suing Bank of America began Nov. 28, three weeks after authorities made the first arrests.

Robert Ludwig, a partner in a D.C. law firm with experience in suing banks, called Alan B. Morrison, Singer's special counsel, and said his firm would be willing to handle such a case for a fee. Morrison began looking into a suit with Singer's and Fenty's approval, and Ludwig wrote a Dec. 4 letter to help Morrison and Singer present a case to the mayor.

"BOA particularly as depositary [bank] would very likely have serious liability for a substantial if not full portion of the loss for the last three years, if not longer," Ludwig wrote. "As discussed, time is of the essence, as each day that goes by, another half-million dollar check deposited in December 2004 potentially will be time-barred."

Nickles wrote Singer two days later ordering her to quit considering the idea. He said he was alerted to the work by the general counsel for Chief Financial Officer Natwar M. Gandhi, who oversees the Office of Tax and Revenue.

Singer disagreed and immediately wrote back, emphasizing two points: The city had a strong case that the banks had not exercised proper care in cashing checks made out to fictitious companies, and a quick decision was needed because a statute of limitations could apply.