"It’s time to stop protecting the banks”
Ponzi schemes seem to be everywhere these days. Yes of course, there is Bernie Madoff and upwards of $50 billion he stole from the rich, the famous, and scores of charities and philanthropic foundations. But Madoff was hardly alone. There are plenty of lunch bucket schemes robbing hard working middle class people around the country.
On Long Island a convicted felon Nicholas Cosmos (no not Kramer from Seinfeld) fleeced firemen, municipal employees, and blue collar workers of likely $400 million claiming he was putting their money in high interest rate bridge loans for construction projects. Nope. He was instead lavishly spending those hard earned dollars and speculating on high risk commodities trading.
Where did he deposit all that money? Bank of America.
In another scheme operated from Quincy, Florida, another convicted felon Andy Bowdoin had the clever idea to pay people to “surf” the Internet. But what they were really doing was operating a multi-level marketing scheme, which had no actual investments and paid participants for not “surfing the web” but signing up new participants. ADSURF fooled over 100,000 people hoping to earn a little extra money from home in an economy where jobs are often hard to come by.
Where did he bank: Yep. Bank of America.
All these schemes need a bank to thrive: a financial institution accepting deposits and funneling monies to the schemers and their confederates. Victims think the scheme is legitimate when they can wire transfer their “investment” to Bank of America.
But the law and Judges almost without exception shield banks from liability in connection with a Ponzi scheme. In most cases the perpetrator of the scheme is gone (sipping rum drinks on some distant island) or in jail awaiting sentencing. Victims look to the bank. However, even if they can establish the bank had actual knowledge of the Ponzi scheme and had “violated its own internal policies and repeatedly violated the anti-money laundering provisions of the Patriot Act”, the bank will not be held liable. Mazzaro De Abreu, et al. v. Bank of America 525 F.3d 381 (S.D.N.Y 2007).
The legal hurdles victims of a Ponzi scheme must surmount make it nearly impossible to hold the bank liable regardless of their assistance to the fraud.
To be sure, the banks should certainly not be responsible for every bit of illegal conduct flowing from monies held in deposit. But when the bank takes affirmative steps to help the scammers they must be held liable. They cannot gain fees and other income by sponsoring the scheme – without the risk of liability.
If the courts get tough on the banks they will be more vigilant and Ponzi schemes will be shunned to the back alleys of the financial, system where they belong.
There – they are less likely to grow and ruin the financial lives of so many thousands.
*Steven Berk is currently counsel to victims of Ponzi schemes who have filed cases against Bank of America for their alleged substantial assistance to perpetrators of these schemes.
