With a new ruling settling the issue, businesses risk being held liable for their customers’ behavior, with the potential for increased lawsuits related to the Ponzi scheme after the Pennsylvania Supreme Court approved a lawsuit alleging an accessory to fraud .
In David Marion et al. v Bryn Mawr Trust Co.the Court investigated a Ponzi scheme involving the sale of fraudulent certificates of deposit. To facilitate his fraud, the schemer had opened deposit and wire transfer accounts with the Bryn Mawr Trust Company (“BMT”), eventually becoming one of the bank’s largest clients. When BMT was sued by a court-appointed bankruptcy trustee for aiding and abetting fraud, the trial court entered summary judgment in favor of BMT, noting that there is no statute or Supreme Court case recognizing the plea.
The Supreme Court reversed the court’s decision, recognizing that in Pennsylvania individuals and organizations can be held liable for aiding and abetting fraud of which they have actual knowledge. While acknowledging that this cause of action targets individuals and organizations associated with schemers, the court noted: “[m]any fraud, especially complex commercial fraud, cannot be perpetrated without the active support of secondary actors such as accountants, lawyers, bankers, analysts, etc.” Furthermore, rather than schemers, these secondary actors have the deep pockets needed to ensure that victims are recovered and are therefore often an attractive target for litigation.
The court’s decision limited the scope of this new cause of action; Acknowledging – consistent with the majority of jurisdictions across the country – that actual knowledge is required to establish liability in that tort and rejecting a “should have known” standard. Citing thirteen cases in a variety of jurisdictions and the restatement as examples of factual knowledge requirements, it found that “a negligence scholar would effectively oblige banks like BMT and other companies that engage in high-volume commercial transactions with numerous customers to do so to engage in costly and intrusive surveillance and investigations into their clients’ activities.”
As a result of this decision, fraud victims have a new avenue to get help from Pennsylvania banks, accountants, attorneys, analysts, and other secondary actors who knowingly assist scammers. While plaintiffs will find it difficult to demonstrate factual knowledge in summary judgment, defendants are not immune from costly investigations and filings while the lawsuit is pending.