The financial crisis brought with it the exposure and collapse of hundreds of Ponzi schemes,1 many of them headline news over the past five years. Scrambling to recover their lost investments, defrauded investors have turned to the courts. And with the shell companies run by the Ponzi scheme perpetrators typically bankrupt, victim-investors have pointed the finger elsewhere: at the banks where the perpetrators held accounts. The logic goes (according to these investors) that whatever tort the Ponzi schemer committed, the bank was liable for aiding and abetting by way of the banking services that it provided. Plaintiffs have also attempted to hold banks liable on other tort-based theories such as negligence, conspiracy, and conversion. Despite the influx of lawsuits against banks, courts have consistently dismissed the suits for sound legal and policy reasons, and three main themes have emerged. First, banks do not owe a duty to non-customers. Thus, negligence and breach of fiduciary duty claims against banks have failed for want of any duty owed to the investor/non-customer. Second, “red flags”—suspicious, atypical banking activity—do not constitute “actual knowledge,” an element that must be proven for an aiding and abetting claim. Third, providing routine banking services for a client is not enough to constitute “substantial assistance,” another element that must be proven for an aiding and abetting claim. More on Bloomberg Law here.
