O’Dell v. Berkshire Bank, 5:24-cv-00652 (N.D.N.Y.)

On October 31, 2024, the Northern District of New York dismissed a putative class action against Berkshire Bank (“Berkshire”) with prejudice.[1]

I. Facts

O’Dell involved the standard story of a Ponzi class action against a bank, in which investors lost money through a Ponzi scheme—perpetrated by a

Continue Reading… Northern District of New York Dismisses Claim—With Prejudice—of a Bank Aiding-and-Abetting Ponzi Scheme

With a new decision settling the issue, businesses run the risk of being held liable for the conduct of their customers with the potential for increased Ponzi scheme related litigation following the Pennsylvania Supreme Court’s approval of a cause of action for aiding and abetting fraud. 

Continue Reading… Pennsylvania Supreme Court Recognizes a New Cause of Action Against Those Who Aid and Abet Fraud

McGuireWoods’ Ponzi Litigation team launched its Ponzi Perspectives blog in early 2021.  Since that time, our focus is to track key cases and decisions that have the potential to influence controlling law on Ponzi-related issues.  The blog also offers analysis on practical considerations when defending Ponzi litigation.  This 2022 mid-year round up summarizes the new
Continue Reading… Ponzi Perspectives: 2022 Midyear Roundup

Backed by unrealistically ambitious owners, well-intentioned business ideas that fail to meet expectations or become unsustainable regrettably often become full-fledged Ponzi schemes.  Today’s Growth Consultant, Inc. (“TGC”) represents an entity that faced the same fate.

TGC advertised to potential investors its expertise in building, acquiring, and monetizing online websites.  Investors paid an upfront fee to TGC to purchase, host, maintain, and market the investors’ websites in exchange for TGC’s guarantee that investors would receive a minimum rate of return in perpetuity on the revenues TGC generated from those websites.  TGC raised at least $75 million during a nearly three year period, but its business model proved unsuccessful—it failed to timely purchase and build the promised websites or generate the promised revenue to cover the guaranteed returns to investors.  Instead, TGC turned into a Ponzi scheme to sustain its failing business by paying early investors with money it raised from later investors.

TGC maintained its business bank accounts at Defendants Heartland Bank and Trust Company (“Heartland”) and PNC Bank, N.A. (“PNC”) (collectively, “Defendants”).  TGC banked with Heartland until October 2018, and with PNC thereafter until December 2019.  Defendants provided TGC with typical banking services, including deposit accounts, commercial loans and revolving lines of credit, ACH capabilities, and transfers into, out of, and among TGC’s accounts.

In a recent decision in PLB Investments LLC et al. v. Heartland Bank and Trust Co. et al., the Northern District of Illinois decided that various defrauded investors of TGC (“Plaintiffs”) did not set forth sufficient allegations to show actual knowledge of a Ponzi scheme or bad faith in support of various Illinois state law claims against PNC.  No. 20 C 1023, 2021 WL 5937152 (N.D. Ill. Dec. 15, 2021).  While different jurisdictions set varying thresholds for adequately alleging actual knowledge or bad faith, PLB Investments emphasizes the importance of analyzing these elements early on to determine whether a plaintiff has alleged sufficient facts on the pleadings.

Continue Reading… Illinois Federal Court Carves Up Plaintiffs’ Ponzi Scheme Claims For Lack of Actual Knowledge or Bad Faith

McGuireWoods’ Ponzi Litigation team launched its Ponzi Perspectives blog in early 2021 to track key decisions and new cases in Ponzi civil and criminal litigation.  Ponzi Perspectives focuses on cases and decisions that have the potential to influence controlling law on Ponzi-related issues.  The blog also offers analysis of key decisions and practical considerations when
Continue Reading… Ponzi Perspectives: 2021 Year-End Roundup

Ponzi schemes focused on fake investment opportunities are nothing new. Bernie Madoff, Allen Stanford and Tom Petters are now household names. But there has been a particular rise of Ponzi schemes specifically in the film and video content industry that has intensified in the last few years.

As streaming services vie for dominance in the frenzied content wars in an effort to draw in more and more viewers, this trend is likely to accelerate. These streaming services will spend tens of billions of dollars this year alone creating and acquiring video content.[1]

These conditions create a perfect breeding ground for Ponzi schemes, given the amount of money changing hands and the lax due diligence standards investors sometimes accept in exchange for the chance to tap into this hot market.

In the last year alone, the largest film financing Ponzi scheme in U.S. history collapsed, and these schemes spread to overseas markets, like China.

Continue Reading… Ponzi Schemes: A Growing Hazard in Film Financing

The collapse of a Ponzi scheme usually follows a familiar pattern.  When the scheme is exposed, the company created by the schemer—which is usually little more than a sham entity—is placed into receivership or declares bankruptcy (or both).  A receiver or bankruptcy trustee is then tasked with recovering any funds belonging to the estate so that they may be distributed to creditors.  As part of this process, these court-appointed parties step into the shoes of the company and may bring any litigation that the company itself could have brought.  Bankruptcy trustees are also granted the exclusive right to bring “general claims” on behalf of the entities’ creditors.

This process creates a thorny question: who may seek recovery from a third party alleged to have been involved in the fraud?  Creditors that lent funds to sham companies often pursue claims against financial institutions that banked the schemers on aiding-and-abetting theories.  Yet receivers and trustees also often bring these claims, leading to duplicative litigation and the question of who properly “owns” the claim.

A recent decision by the U.S. District Court for the District of Minnesota provides important guidance on this question.  Ritchie v. JPMorgan Chase & Co., No. 14-cv-04786, 2021 WL 2686079 (D. Minn. June 30, 2021) untangles who has standing to bring claims against a third party alleged to have aided and abetted a Ponzi scheme.  As the Court explains, “general” claims for loss of funds belong exclusively to court-appointed bankruptcy trustees.  Third parties may only bring particularized claims that arise from injuries “directly traceable” to the defendant’s conduct.  Ritchie thus serves as a touchstone in disputes over standing in Ponzi litigation.

Continue Reading… Minnesota Court Untangles Who Owns What Claim in the Fallout of a Ponzi Scheme

In a recent decision in Anderjaska v. Bank of America, N.A., et al., the Southern District of New York decided that three national banks were not subject to general jurisdiction in New York for allegedly aiding and abetting a Ponzi scheme.

Anderjaska highlights the utility of procedural mechanisms when defending against Ponzi-related allegations in a forum where a bank neither has its principal place of business nor its place of incorporation.  Such procedural tools should not be overlooked as a means to defend litigation.

Continue Reading… Personal Jurisdiction – An Effective Defense As Illustrated by the Southern District of New York in Dismissing Ponzi Litigation

February 3, 2021 – Rotstain v. Mendez, 2021 WL 359989 (5th Cir.)

On February 3, 2021, the United States Court of Appeals for the Fifth Circuit issued an opinion in Rotstain v. Mendez, holding in part that a receiver had standing to bring claims on behalf of investors in connection with a Ponzi scheme.

In the context of denying a motion to intervene, Rotstain clarified that receivers and their assignees have standing to bring claims on behalf of investors when the investors’ claims are against alleged conspirators for conduct in furtherance of that scheme and are derivative of and dependent on the claims of the receivership estate.

Continue Reading… Fifth Circuit Holds that Receiver Has Standing to Bring Derivative Claims on Behalf of Investors Harmed by Ponzi Scheme

November 13. 2020 – Heinert v. Bank of America, N.A., 2020 WL 6689287 (2d Cir.)

On November 13, 2020, the United States Court of Appeals for the Second Circuit issued an opinion in Heinert v. Bank of America, N.A. imposing a heavy pleading burden upon plaintiffs seeking to sue banks for the facilitation of a Ponzi scheme.

As the recession deepens, Ponzi schemes that benefitted from a thriving pre-pandemic economy are likely to collapse. While investors may pursue claims against the fraudsters themselves, these suits are unlikely to yield meaningful recovery as Ponzi schemes are frequently operated by judgment-proof shell entities. As a result, investors may look to deep-pocketed financial institutions to recoup their losses. Indeed, banks are a frequent target of Ponzi-scheme related aiding and abetting claims. These claims can present significant exposure risks to banks if they survive a motion to dismiss. Heinert shields banks from some of those risks by setting a high bar for pleading a key element of an aiding and abetting claim—actual knowledge of the underlying scheme.

Continue Reading… Second Circuit Rejects Ponzi Scheme-Related Facilitation Claims against Bank