There are a host of legal obstacles to trying to assert a fraud claim against banks for the acts of others, whether they are the banks’ customers, borrowers, or simply in the chain of funds transfers. I have chronicled many cases and situations in this area. See, e.g., Fraud and Aiding and Abetting Claims Against Lender Fail; Federal Court Dismisses Aiding and Abetting Fraud Claim Against Banks Arising from Customer’s Ponzi Scheme.
The principal legal theory that is often tried against banks that do not themselves directly commit the fraud in question is the claim of “aiding and abetting” the fraud of others. “In order to plead properly a claim for aiding and abetting fraud, the complaint must allege: ‘(1) the existence of an underlying fraud; (2) knowledge of this fraud on the part of the aider and abettor; and (3) substantial assistance by the aider and abettor in achievement of the fraud’.” Stanfield Offshore Leveraged Assets, Ltd. v Metro. Life Ins. Co., 64 AD3d 472, 476 (1st Dep’t 2009)(citation omitted).
As demonstrated by a new decision of the Federal Court in the Southern District of New York (applying New York substantive law), in Huang v. Hong Kong and Shanghai Banking Corporation Ltd., No. 1:20-cv-03548-LTS-SN, (S.D.N.Y. Sept. 9, 2022), this is not so easy to prove against banks in various contexts.
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