California Sen. Dianne Feinstein on Friday sued her former campaign treasurer Kinde Durkee -- a popular accountant among California Democrats -- for allegedly defrauding her campaign of as much as $5.2 million. She also sued her bank, First California, for failing to stop Durkee when warning signs of a massive check-kiting scheme arose. The bank, Feinstein's suit alleges, was "at the heart of the illegal transfer out of plaintiffs' accounts" and her action against it details for the first time the suspicious activity Durkee reportedly engaged in as she allegedly moved clients' funds from account to account, covering payouts she made to herself for mortgage payments, clothes, food, credit card bills, and business expenses.
"Despite knowledge of this pervasive pattern of misconduct, First California Bank continued to provide banking services to Durkee and Durkee Associates, LLC for many years, happy to collect the fees and interest generated by the scores of accounts Durkee maintained at the Bank," Feinstein's legal complaint claims. Feinstein's argument against Durkee and the bank rests on claims already made by the FBI, that Durkee transfered millions of dollars between the 400 accounts over which she had signing authority. All those transfers should have raised suspicions at the bank long ago, the suit asserts, but "because the accounts Durkee and D&A [the accounting firm Durkee and Associates] handled held millions of dollars and generated thousands of dollars in transaction and overdraft fees for the Bank," managers turned a blind eye.
Durkee and Associates provided regular statements to the campaign, detailing balances, deposits, and expenses. But in order to provide those, the suit says Durkee swiftly transferred money from account to account, and the balances were much lower than she reported. The suit gives an example:
A few months Later, a balance of $2,455,076 turned out to be just $356,250, the suit alleges.
All this transferring of money should have raised alarm bells among vigilant managers, who ought to have questioned Durkee on her behavior and reported it to the campaign, the suit claims. It cites "multiple red flags" and says the bank "had knowledge of the fraud." Those red flags include unusual transfers of funds among related accounts, "payments or receipts with no apparent links to legitimate contracts, goods or services," transfers made in round, hundred or thousand-dollar amounts, and more egregiously suspicious claims, such as this one:
The suit goes on to detail Durkee's alleged check-kiting scheme, and to give example after example of how the bank should have caught it. It's interesting reading for white-collar crime buffs, but by now you get the idea: Feinstein is very, very disappointed in her bank. First California's behavior after the Durkee affair broke on Sept. 2 has Feinstein and her lawyers as steamed as its alleged lack of oversight: She charges the bank refused to give its affected clients a look at their remaining funds unless they agreed to indemnify it. "Simply put, the bank is holding plaintiffs' funds hostage," the suit reads.
First California hasn't yet responded to the suit. Feinstein recently donated $5 million of her own money to the campaign to replace the missing funds, and she's out to get it back.