A recent decision in the United States District Court for the Southern District of New York granted a motion to dismiss claims attempted to be asserted by a bankruptcy trustee on behalf of the debtor companies against Citibank for the fraud of its customer (the debtor companies), but sustained claims on behalf of investors of the debtors for aiding and abetting the fraud.
The decision, in Kenneth B. Silverman v. Citibank, 1:22-cv-5211-GHW (U.S.D.C., S.D.N.Y. Nov. 6, 2023), addressed the defense known as in pari delicto as well as the circumstances under which a bank can be held liable for the fraud of its customer.
The procedural posture of the case in Silverman guided the Court’s disposition of the motion to dismiss. The trustee in bankruptcy was seeking to assert claims against Citibank on behalf of two separate parties: (1) the debtor companies themselves and (2) investors of the debtor companies. The in pari delicto defense barred the claims on behalf of the debtors themselves, but not the claims of the investors.
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