Let’s say you open up a business account for a new member. The account is used to hold funds invested in the account holder’s business. You start seeing some suspicious activity such as frequent transferring of funds to other accounts, but you don’t believe it rises to the level of filing a SAR. Eventually, the business goes under because your account holder was running a Ponzi scheme. The irate investors end up suing the credit union for its mismanagement of the account. Do they have a case?
This is the basic factual framework of a case recently decided by a Federal court in New York called HONGYING ZHAO, et al., Plaintiffs, v. JPMORGAN CHASE & CO. & JPMORGAN CHASE BANK, N.A., Defendants. The bank was holding funds for investors who thought they were putting money into an enterprise which involved owning and renting co-working stations across the United States. The irate investors basically argued that the bank knew or should have known that illegal activity was taking place and that by failing to act, it was aiding in the criminal deception. Interesting argument, but the court rejected it. It explained that “neither the Plaintiffs nor the Court have been able to locate a case which even suggests that New York law imposes upon banks a duty to protect non-customers from a fraud involving depository accounts.” see alsoRenner v. Chase Manhattan Bank, No. 98 Civ. 926 (CSH), 1999 WL 47239, at *14 (S.D.N.Y. Feb. 3, 1999).
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