Celtic Bank accused of fueling multimillion Ponzi scheme
Celtic Bank has been accused of wreaking “financial havoc” by helping to fuel a Ponzi scheme involving water vending machine franchises that defrauded investors of millions of dollars.
A lawsuit filed Wednesday in U.S. District Court for the District of Utah charges the Salt Lake City-based bank with fraud, conspiracy to defraud, aiding and abetting fraud, negligence, breach of fiduciary duty, and violating the Racketeer Influenced and Corrupt Organizations Act.
Also named in the case is former senior vice president Scott Foster, who oversaw Small Business Administration lending at the bank.
The complaint alleges that Celtic Bank, its investment arm, and Foster knowingly participated in the scheme, exploiting the SBA’s 7(a) loan program and taxpayer funds to facilitate fraudulent franchise sales by WaterStation Technology.
The plaintiffs argue the bank “abdicated its responsibility as a prudent lender and instead became an active participant in a Ponzi scheme.”
From 2020 to 2022, nine plaintiffs were introduced to Celtic by WaterStation, which assured them the bank would arrange SBA financing for franchises. In total, Celtic provided roughly $17 million in loans during that period, the complaint states.
The plaintiffs allege that Celtic used its preferred lender status to approve SBA loans without adequate scrutiny, thereby enabling WaterStation’s scheme.
According to the lawsuit, Foster personally encouraged some investors to buy more machines, even as he demanded repayment of his own investment.
Foster and his wife had invested $2 million in a WaterStation franchise using an SBA-backed loan from another lender, the suit alleges.
Plaintiffs contend he then leveraged his position at Celtic to process loans he knew were ineligible, funding his own returns at the expense of others. Foster was dismissed by the bank in January.
WaterStation filed for bankruptcy last year. Earlier this month, the Securities and Exchange Commission charged the company’s founder, Ryan Wear, with operating Ponzi-like schemes that raised about $275 million from 250 investors.
Prosecutors in the Southern District of New York have separately charged Wear with securities fraud and wire fraud.
The lawsuit accuses Celtic of failing to verify collateral, ignoring SBA rules, and concealing conflicts of interest tied to Foster.
Plaintiffs say they lost millions in payments and remain burdened with debt owed to Celtic, with some facing foreclosure of their homes and properties.
Even as the scheme collapsed, plaintiffs argue, the bank profited from administration fees, interest, and collateralized assets. The plaintiffs now seek to void the allegedly fraudulent agreements and loans.
Celtic Bank did not respond to a request for comment. Scott Foster could not immediately be reached.