A sufferer of an alleged escrow fraud scheme is now suing Flagstar Financial institution, saying it ought to have acted to cease the theft.
Elizabeth Capital Success had $148 million allegedly diverted from an lawyer escrow account by former lawyer Mark Nussbaum, who’s dealing with state fees of grand larceny associated to comparable allegations.
Now, in a swimsuit filed Monday in U.S. District Courtroom for the Southern District of New York, the agency says Flagstar Financial institution, the place Nussbaum deposited his funds, knew in regards to the fraudulent exercise. Flagstar workers flagged suspicious transactions from Nussbaum’s account, in line with the criticism, however a key vice chairman on the financial institution would assist him to hide the illegal transfers.
“With out the energetic, substantial, and understanding help of Flagstar, Nussbaum’s fraudulent schemes wouldn’t have succeeded, and Elizabeth Capital wouldn’t have suffered a lack of [$148 million],” plaintiffs wrote within the criticism.
Nussbaum was an lawyer together with his agency Nussbaum Lowinger and his lawyer escrow account at Flagstar was a key piece of his alleged fraudulent exercise. Nussbaum moved billions by way of the Flagstar account.
Elizabeth Capital first started to ship hundreds of thousands to Nussbaum’s account in 2023, underneath an settlement that the funds could be untouched in escrow. However unbeknownst to the agency, Nussbaum was loaning cash from the account to actual property investor Mendel Steiner, and utilizing the account for private transactions.
Nussbaum wouldn’t solely agree to carry the agency’s cash in escrow within the account, however he and Steiner additionally allegedly offered Elizabeth Capital with fictitious joint ventures to spend money on or fund, with the obvious aim of getting the agency to fund the account.
Elizabeth Capital’s principal requested Nussbaum to return the funds on Jan. 8, 2025. He allegedly didn’t accomplish that, saying he was coping with “an emergency.”
Steiner died by suicide the following day.
Now, Elizabeth Capital says the financial institution had been turning a blind eye.
Within the years that Elizabeth Capital was investing with Nussbaum, Flagstar allegedly contacted the lawyer 10 instances about suspicious transactions.
In certainly one of these communications, Nussbaum admitted in writing to commingling consumer funds within the escrow account and to misrepresenting the account stability to purchasers.
However in every case, financial institution vice chairman Timothy Collins would allegedly warn Nussbaum by way of calls and emails in regards to the fraud inquiries straight earlier than or after they went out. He would inform Nussbaum to say as little as attainable in regards to the transactions in order that Collins might make the problem “go away,” in line with the criticism.
A financial institution worker flagged that Nussbaum was utilizing the account, a sort that’s regulated by state regulation, to ship cash to his mom and to congregations, apparently private makes use of that have been improper for an lawyer escrow account.
Flagstar, as an alternative of shutting down the account, allegedly raised its credit score restrict 3 times.
Nussbaum maintained a relationship with Collins, referring further enterprise to him, treating his workplace to breakfast and gifting Collins “costly wines,” in line with the criticism. When Collins moved to Prospects Financial institution, Nussbaum allegedly adopted, opening an account there.
Collins additionally would have been conscious of Nussbaum’s funds from the account to charities, faculty tuition accounts and entities blacklisted by Fannie Mae, together with funds that have been instantly returned by their recipients.
After Collins’ departure, Flagstar lastly did transfer to shut Nussbaum’s accounts in November 2024, however let him make transactions till simply earlier than Christmas. In that point, Elizabeth Capital wired greater than $50 million to Nussbaum’s account.
Flagstar declined to touch upon litigation or purchasers.
Voice and textual content messages to Collins’ quantity have been unreturned Thursday. Prospects Financial institution mentioned he’s now not employed with the corporate as of 2025.
An preliminary convention within the swimsuit is scheduled for mid-December.
Nussbaum in Could 2025 was charged with first-degree grand larceny by the Manhattan district lawyer. He pleaded not responsible.
In April, The Actual Deal reported Nussbaum allegedly had in depth pre-indictment plea talks with the U.S. Division of Justice and was dealing with imminent federal felony fees, in line with the lawyer overseeing his law firm’s winddown.
Former Nussbaum Lowinger purchasers, largely within the tristate space Orthodox Jewish neighborhood, are owed over $400 million from Nussbaum’s former regulation corporations.
One other swimsuit relating to Flagstar’s relationship to Nussbaum was filed earlier within the month in District Courtroom in New Jersey. Nussbaum creditor Blueberry Funding made comparable allegations about Flagstar’s obvious information of the fraud, saying it was out greater than $58 million from Nussbaum’s schemes.
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