Third Circuit Rules that Financing Partners Not Liable to Ponzi Schemer’s Receiver
The Third Circuit has ruled that third parties that helped finance a ponzi scheme do not have liability to the receiver for the ponzi firm. In the case, the receiver sought to recover damages from a bank and a CD broker that helped the defendant continue his CD-brokering ponzi scheme. The Third Circuit opined that there is no liability to a corporation for increasing its short-term liquidity because of the intervening acts of company management that perpetrated the illegal scheme. Said another way, the financing was not the cause of the company’s harm i.e. the obligations to investors. The Court did note that its decision did not affect whether the third parties had direct liability to harmed investors. Also, the Court did rule that the receiver had standing to bring the claims.
OUR TAKE: The import of the Court’s decision is that merely doing business with a defendant does not make you liable for all its losses. However, securities law liability to defrauded investors will depend on the extent of the aiding and abetting.