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Ripped-Off Americans Sue Over Missing Mexican Millions

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This article appeared in bloomberg.com. The entire article can be read here.

Ripped-Off Americans Sue Over
Missing Mexican Millions

Jim and Ken Karger want to hold Monex responsible after a former bank employee allegedly stole their money.

Monex Grupo Financiero may wish that it had never done business with Jim and Ken Karger. The American brothers, who’re among a slew of expatriate investors who say they were ripped off, are doing what few in Mexico dare: taking on a bank in the nation’s courts.

About this time last year, more than 50 retirees in San Miguel de Allende, most of them American, found their Monex savings and brokerage accounts had been cleaned out. San Miguel is a city about 500 miles south of McAllen, Tex., that has long attracted tourists and retirees from north of the border. The victims’ personal banker, an English-speaking woman named Marcela Zavala Taylor, stopped all correspondence after millions of dollars went missing. Monex blamed Zavala, making a criminal complaint against her. It’s been arguing with clients about how much cash should be returned.

Many settled with the bank, often for much less than they believed they held in the accounts. Some did so just to get cash to pay bills. Others figured suing a Mexican bank would result at best in a Pyrrhic victory in which legal fees chew up much of their settlement, according to several victims interviewed by Bloomberg Businessweek.

The Kargers won’t back down. They not only declined Monex’s offer for about 60% of their principal in dollars, they’re suing and have mounted an internet campaign to draw attention to the case. They want their cash, but they also want to make a point that the Mexican banking system should take responsibility for the actions of employees. So far they’ve spent $150,000 in pursuit of about $1.5 million.

“This is a cause, and it’s bigger than Jim and me,” says Ken Karger, a retired dentist who lives in Fort Worth and has a business in San Miguel with his brother, a co-plaintiff. The Kargers have filed legal actions aimed at getting the matter taken up by Mexico’s federal financial crimes prosecutors, and they want them to look at Monex and its officers as well as Zavala. The Kargers are hoping to use a two-year-old law that says financial institutions can be liable for the acts of their agents and employees.

“Monex is trying to let everyone believe that Marcela was the only one involved,” says Antonio Holguin, an attorney representing the Kargers. “We think she was not the only one responsible. She was using tools of the bank, so the bank as an entity should face criminal charges.”

Bank spokesman Fernando Garcia said in an email that the group has been cooperating with investigators and settled with all but three clients. “It is up to the judicial system to determine those responsible,” Garcia wrote. “Monex Financial Group reiterates that it is an institution that acts with strict adherence to national and international standards.” Efforts to reach Zavala and her lawyer were unsuccessful.

Jim and Ken Karger aren’t ordinary litigants, even by U.S. standards. Before moving to San Miguel, Jim had a labor law practice in Dallas. He advised corporate clients on how to battle unions, but perhaps more notorious were his seminars on avoiding sexual harassment and age discrimination in the workplace. They often started with an example of humor that would draw litigation if openly used at work, and it was often a crack meant to shock. He would ask men who watch pornography to raise their hands. No hands would go up. “Men are not just horny,” Jim would say. “We are all liars, too.”

Jim moved to San Miguel 18 years ago and continued to practice law globally and, with Ken, runs a private lending business in Mexico. He needed a Monex account for himself because transferring funds from U.S. banks to Mexico can be cumbersome and expensive. Ken made his money from his dental practice and his wife’s veterinary clinic in Texas. They invested in Mexican real estate in 2003 at the bottom of the market and profited by flipping beachfront property in Playa del Carmen. They have other investments and a ranch in Mexico.

In addition to legal action, the brothers have put up a website called BancoMonexFraud.com with news stories about allegations against the bank. Monex complained to the web host, alleging trademark infringement. The U.S.-based company took their site down. The Kargers put it back up using a Bulgarian host.

Proving that Monex is responsible could take a long time, says Kevin Carr, founder of financial technology company Finiden in Washington, D.C., and formerly the U.S. Treasury Department’s primary representative in Mexico. Court cases can take years and tend to push the two sides toward settlement, making litigation risky, he says.

Part of the dispute is that Zavala told clients their accounts were denominated in dollars. When the Kargers started talking to Monex about their missing funds in January, Monex told them their account had been in pesos. Since the peso has dropped in recent years, this could mean they’d get less back in dollars. Jim Karger says that they had cash in a Monex bank account and shares in Apple Inc. and Tesla Inc. in a brokerage account, which allegedly was looted. He and Ken are suing for their principal investment in dollars.

Monex asked some of those who settled to sign an agreement blaming Zavala but not the bank. Lani Van Petten, a retiree in Querétaro, was one of them. She says she got her entire principal back, which was small amount, but none of the returns Zavala had said she earned. Howard Haynes, a college administrator from Kansas who retired to San Miguel, says he got 90% of his money back and no returns. He says he settled because he was just happy to move on. He says he refused to sign anything saying only Zavala was at fault.

“Most people settled for less than principal because they can’t afford to do what we’re doing,” says Ken Karger. “It may be a long shot, but what we’re doing will punish the bank, which will force them to the table.” —With Nacha Cattan

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