Banks and companies must protect themselves against litigation related to Ponzi schemes.
R. Allen Stanford’s investment scheme defrauded thousands of Florida investors out of billions of dollars, and Scott Rothstein, a former Broward attorney, orchestrated a $1.2 billion Ponzi scheme for which he is serving 50 years in prison. But the perpetrators of these schemes aren’t the only ones facing litigation. ln fact, several banks which held significant deposits for these Ponzi schemers are facing damaging lawsuits.
“Headline-making Ponzi schemes have made it essential for banks and other businesses to protect themselves from litigation,” says Helen Davis Chaitman, a business litigation partner in the New York office of the law firm of Becker & Poliakoff. “Fraudulent conveyance cases arising out of Ponzi schemes expose banks and other businesses to a new level of risk that requires policies and procedures they can use to protect themselves.”
Chaitman should know. ln early 2009, she began representing victims of Bernie Madoffs Ponzi scheme. Today, Chaitman represents 850 investors, including banks that served as trustees, private businesses and individuals, in various lawsuits filed by Irving Picard, the trustee managing the Madoff liquidation. Picard has filed 988 “claw back” suits against Madoff investors alleging “fraudulent transfers” alleging that they withdrew more than they deposited, sometimes over a period of 30 to 40 years.
“In the past, banks and other businesses have been willing to accommodate a wealthy and powerful client,” Chaitman says. “ln this new climate, business leaders must be prepared to confront the client and deal with sensitive issues that preserve the client relationship, while protecting the investing public.”
Chaitman and her colleagues have trained account managers to notice certain indicia of fraudulent activity, such as irregular transactions, repetitive transactions or transactions that don’t have any apparent business justification. In addition, she has recommended internal policies and investigative procedures to protect both the company and its customers.
Picard continues to aggressively pursue financial institutions, and he has sued a number of banks, alleging that they aided and abetted Madoffs fraud. He cited the banks’ internal requirements to “know your customer” under the Patriot Act, post-9/ 11 legislation intended to prevent terrorists from transferring funds.
“Picard argued that banks were negligent, and should have shut Madoff down by using the standards of the Patriot Act,” explained Chaitman. Federal District Court Judge Jed Rakoff recently dismissed Picard’s claims against one bank holding that Picard lacks standing. Thus, only the investors have standing to assert these claims. “Cases like these will continue as Picard and others look for ways to recover their losses,” Chaitman says. Chaitman has a long history representing financial institutions and protecting them from liability. She is credited with defining the term “lender liability,” wrote a treatise on the subject, and since 1987 has written a monthly newsletter, “The Lender Liability Law Report,” to help financial institutions analyze and understand current cases impacting their business operations.
blogs at www.chaitmanonmadoff.com.
She can be contacted at
Becker Et Poliakoff,
Ashley Cisneros is a co-founder of Chatter Buzz Media, an Orlando Internet marketing firm that helps companies and organizations engage with their target markets through inbound marketing via the Internet. Chatter Buzz Media, which won the Social Madness competition for the Orlando small business market, is a full-service digital marketing firm specializing in website design, search engine optimization (SEO), social media marketing and content creation. Prior to founding Chatter Buzz, Ashley worked as a newspaper reporter, magazine editor, technical writer, marketing manager, public relations practitioner and freelance journalist. To see Ashley’s content writing, visit www.ashleycisneros.com. You can also reach Ashley on her Google profile.
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