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Ponzi scheme victims can't sue bank

Victims of a $90-million international Ponzi scheme can't sue the bank used in the scam, the state Supreme Court ruled Thursday.

Court-appointed receiver Lewis Freeman had sued First Union National Bank, alleging it had "aided and abetted" Unique Gems International Corp. in defrauding about 16,000 people from 1995 through 1997. The work-at-home scheme capitalized on a photo taken with former President Clinton and used a Hispanic TV psychic as a pitchman.

Money flowed from First Union to the small European banking haven of Liechtenstein at a rate of more than $1-million a day, Freeman said.

But a federal judge dismissed the lawsuit, finding it had no basis in Florida law. Freeman appealed that decision to the 11th U.S. Circuit Court of Appeals.

The federal appellate court asked the Florida Supreme Court to rule whether state law allowed for lawsuits against defendants accused of "aiding and abetting a fraudulent transfer" if the defendants were not on the receiving end of the transfer.

In Thursday's unanimous decision, the state's high court said Florida's Uniform Fraudulent Transfer Act was intended to give creditors a way to recover debts their debtors had transferred to a third party. But it was not intended to allow for lawsuits like the one against First Union, the court agreed.

"We simply can see no language in FUFTA that suggests an intent to create an independent tort for damages," the court wrote.

Lawyers for Freeman didn't return phone calls. Elliot Scherker, a Miami attorney for the bank, said they were "pleased and grateful that the Supreme Court accepted our arguments."

In May, former Unique Gems CEO Enrique Pirela was sentenced to 14 years in prison for his part in what officials say was the biggest credit card fraud of its time.

Famed Spanish-language psychic Walter Mercado promoted the company's hematite necklaces as a cure for cancer, sexual dysfunction and poverty, Freeman said.

The Democratic National Committee handed over $15,000 to Freeman out of profits from a Clinton fundraising dinner in 1996 attended by 30 people from Unique Gems at the posh Biltmore Hotel in Coral Gables. The White House protested when the company used a Clinton-Pirela photo in widely circulated brochures.

The fraud was a classic Ponzi scheme that pays the first batch of necklace assemblers with money from newcomers.

People deposited $3,000 for necklace kits worth $100 and returned the completed necklaces to the company. They were told they could move up to "authorized merchants" earning commissions from a stable of "assemblers." The merchants needed to turn in $5,000 a month to keep their supervisory status.

About half of the money has been recovered.

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