Bank Did Not Aid and Abet Ponzi Scheme Through Routine Services
Susan M. Greenwood | Bloomberg Law
In an unpublished decision, the U.S. Court of Appeals for the Eleventh Circuit affirmed dismissal of plaintiff’s common law action alleging that Bank of America, N.A. (BOA) aided and abetted a Ponzi scheme orchestrated by one of its account holders.
Ponzi Schemer Deposits Monies at BOA
According to plaintiffs, Beau Diamond ran a Ponzi scheme through his company Diamond Ventures LLC. Investors deposited funds in Diamond’s BOA account for him to trade in off-exchange foreign currency markets. Although Diamond guaranteed the safety of investors’ funds—and promised a monthly return of 2.75 to 5 percent—he diverted millions of dollars for gambling and other personal expenditures.
Investors flocked to Diamond and the amount of funds he deposited with BOA qualified his account for BOA’s premier banking division (PBD). PBD provided a “more in-depth review of the clients’ accounts” and allowed PBD representatives to access Diamond’s account and receive daily updates on deposits and wire transfers. Plaintiffs alleged that PBD’s review of Diamond’s account should have revealed (1) $37.6 million deposited by 200 investors, (2) $15.4 million transferred to foreign exchange companies, (3) no profits transferred from the foreign-exchange companies to Diamond, and (4) checks totaling $15.6 million sent to investors. From these facts, plaintiffs contend, PBD and BOA should have known that Diamond used new client deposits, rather than profits, to pay earlier investors.
In addition, Diamond provided BOA with other information that allegedly revealed his fraud including (1) large deposits and withdrawals of money, (2) wire transfers unrelated to legitimate business activity, and (3) characterization of his business as an “investment club.”
BOA Lacked Knowledge of the Ponzi Scheme
Plaintiffs alleged that BOA aided and abetted the Ponzi scheme under theories of common law fraud, conversion, and breach of fiduciary duty. In rejecting all three theories, the Eleventh Circuit reviewed the elements of an aiding and abetting claim under Florida law: (1) an underlying violation by the primary wrongdoer, (2) knowledge of the underlying violation by the aider and abettor, and (3) substantial assistance in the wrongdoing by the aider and abettor. BOA, the Court said, provided “only routine banking services” to Diamond and under Florida law was not required to investigate his transactions. Accordingly, allegations that “the transactions were atypical and therefore [BOA] should have known of the Ponzi scheme” are insufficient to plead aiding and abetting liability.
Amendment Is Futile
The Eleventh Circuit further affirmed the district court’s refusal to grant plaintiffs leave to amend their complaint. Plaintiffs planned to add allegations that a PBD representative told a BOA customer that members of Diamond’s investment club were “happy” with the investment. To plaintiffs, this statement revealed that BOA took part in the Ponzi scheme. The Eleventh Circuit, however, held that plaintiffs’ interpretation was not plausible. “Rather,” said the Court, “such a positive comment would more easily be interpreted to demonstrate [BOA's] lack of awareness of Diamond’s fraudulent activities.”
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