Can a bank be liable for the wrongful acts of its customer? The frustrating and unsatisfying answer: It depends.
Lawsuits against banks for aiding and abetting the wrongdoing of their customers are frequent, as highlighted by the recent rash of litigation accusing banks of assisting their clients’ high-profile Ponzi schemes. And the stakes are high. Earlier this year, a jury in Florida awarded $67 million to an investor group that accused TD Bank of facilitating a $1.2 billion fraud perpetrated by its customer, Scott Rothstein, a now disbarred lawyer serving a 50-year prison term.
In some cases, a bank’s liability is obvious. For example, an employee’s active involvement in the customer’s misdeeds is all but certain to expose the bank to liability. In other cases, however, a fine line separates a finding of no liability and exposure to a massive jury verdict.
The requirements of an aiding and abetting claim are easy enough to articulate and are essentially the same throughout the country although a small number of jurisdictions do not recognize the cause of action at all. They are: an underlying violation (e.g. fraud) by the bank’s customer; knowledge of that violation by the bank and the bank’s substantial assistance of its customer. The difficulty arises with how judges interpret the knowledge requirement.