The Bank of Bermuda has been put in the line of fire by more than 1,000 victims of an alleged Ponzi scheme which cost them $300 million.

The bank's Cayman Island subsidiary, Bank of Bermuda (Cayman) Limited, is one of eight defendants in the class action civil lawsuit filed in the US by the investors.

The Bank of Bermuda confirmed a suit had been filed and said it therefore could not comment. It also denied that the action could be detrimental to its efforts to list on the Nasdaq Exchange.

The alleged scheme was called Cash 4 Titles and was the brainchild of businessman Michael E Gause, who was indicted in the US last October on conspiracy, securities fraud and international money laundering.

Forty-four-year-old Gause said he "transferred much of the ($300 million) to an offshore account at the Bank of Bermuda''.

According to the complaint, Gause and his partner Charles Horna raised funds from investors from the mid 1990s to October 1999, by offering returns of two to five percent per month or 24 to 60 percent annually.

Cash 4 Titles was allowed to charge its US customers loan interests of up to 25 percent per month. This fact made investors in the scheme believe that the returns touted were achievable.

But instead of using the monies raised to fund the high interest short-term loans as they had purported, Gause and Horna were charged with using the money for themselves.

A recent article in the business news magazine Offshore Alert quotes the filed complaint. It said: "What began as a legitimate enterprise with plaintiffs providing funds for loans to defendants' business, ended with defendants stealing and diverting such funds through a pattern of racketeering involving acts of money laundering, mail fraud, wire fraud, obstruction of justice and more.

"This scheme was made possible through the consent and involvement of the defendant Bank of Bermuda (Cayman) Limited, which played a primary and pivotal role in what became a fraud scheme.'' The article also said that senior officers of the Bank of Bermuda "played an active role in the scheme and facilitated its continued existence even as United Sates federal authorises began investigating Horna, Gause and the Cash 4 Titles business.'' According to Offshore Alert, the complaint stated that senior officers of the Bank of Bermuda (Cayman) were also early investors in the scheme and had made "handsome returns on their investments''. It alleged that officers personally met with prospective investors, to assure them of the legitimacy of the scheme.

But also concerning is a report that charges that the bank was alerted to the fraud some two years before US authorities became aware of it. Still quoting from the complaint Offshore Alert said: "Bank of Bermuda's outside counsel generated a report of its internal investigation. The report concluded that the Bank was involved in facilitating illegal transactions, including money laundering.

"Although the results of this report were made known to the Bank and certain high-level Bank officers, the Bank did not cease its involvement with the defendants Gause and Horna and related entities; specifically, the Bank continued its involvement for its own benefit and profit for almost two more years.'' No Bank of Bermuda officers were named in the lawsuit but according to Offshore Alert, three officers were fired last December following an internal investigation into the bank's involvement in Cash 4 Titles.

In Bermuda, a bank spokesperson said: "Since this is litigation pending before the court, the Bank cannot comment further beyond saying that it denies in the strongest possible terms any wrongdoing and it will defend its position vigorously.'' But with the Bank's share prices reaching record highs in recent weeks and the possibility of being listed on the Nasdaq, around the corner, the spokesperson added: "The Bank is well progressed in planning for a secondary listing and has no plans to alter that course of action.'' Eugene Cox COURTS CTS