Associated Bank Avoids an Aiding and Abetting Claim in Ponzi Scheme Case. How Can You Do The Same?

01.24.19

Associated Bank got caught up in the clutches of a receiver who was trying to find assets on behalf of people who were defrauded in a Ponzi scheme. The receiver sued Associated Bank, which was the scammers’ depository bank, on an aiding and abetting theory. The receiver alleged that Associated Bank knew of the Ponzi scheme and assisted the scammers in defrauding helpless individuals. The Ponzi scheme happened in Minnesota so Minnesota law governed. Under Minnesota law, like Wisconsin law, the receiver had to prove that Associated Bank had actual knowledge of the scheme. The receiver couldn’t point to anyone at Associated Bank confessing that he or she knew of the scheme and continued to help the scammers anyway. What the receiver relied on instead was a slew of circumstantial evidence to point out that even though no one confessed to knowing, all the circumstantial evidence led to the inevitable conclusion that the Associated Bank account representative did in fact know of the scheme and continued to help the scammers with their deposits. 

The circumstantial evidence included suggesting to the scammers the type of deposit account they should establish, opening deposit accounts without having the proper articles of incorporation for the depositor in hand, assisting the client with intra-bank transfers between accounts and even socializing with the schemers. Fortunately for Associated Bank, the court held that the circumstantial evidence wasn’t enough to show that the banker knew of the scheme. Rather, the court acknowledged the actions of the banker but stated that the actions could be attributable to the banker trying to accommodate a client, being responsive to a client and simply socializing with a bank client. Although following proper due diligence procedures would have disclosed the scheme sooner, the failure to follow protocol wasn’t enough to show actual knowledge. The court acknowledged that the banking practices might be sloppy but that it could not reach the conclusion that the banker was aiding and abetting the scammers ​“without resorting to speculation and conjecture.” 

What is the lesson for bankers? Bankers should make sure to follow the bank’s procedures. It’s easy to say but sometimes hard to do on a day-to-day basis. We all know that a bank’s procedures can’t be followed in all cases. In those cases where there has to be a deviation from the procedures, the banker should note in the file the business reason that the procedure was not followed. What were the circumstances that required the bank to waive a particular requirement? Acknowledging that a procedure wasn’t followed but explaining the reason for the deviation is important in defending against allegations of aiding and abetting. 

As well, it cannot be said loudly enough, if the banker suspects something or if something seems ​“off”, the banker should report it to more senior personnel, including the BSA officer, who might have more experience in these matters. Perhaps more investigation is necessary. If the bank isn’t satisfied with the answers, it can always end the deposit relationship. Finally, don’t forget to file a SAR if an illegal activity is suspected. 

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