On November 6, 2023, the U.S. District Court for the Southern District of New York denied in part and granted in part Citibank’s motions to dismiss claims for allegedly aiding and abetting an accountholder’s multi-million dollar Ponzi scheme. The accountholder, Jason Nissen and a group of his companies, solicited investments for a sham ticket resale business, allegedly defrauding investors of at least $70 million. Nissen ultimately pleaded guilty to wire fraud in 2017, leading the companies to file for bankruptcy. The bankruptcy trustee subsequently filed aiding and abetting fraud claims on both the companies’ and the investors’ behalf against Citibank.
The court dismissed the trustee’s claim on the companies’ behalf based on the doctrine of in pari delicto, because the trustee “stands in the shoes” of the companies, whose illegal acts precluded them from filing lawsuits against others relating to the scheme. The court permitted the trustee’s claim on the investors’ behalf to proceed. Under New York law, aiding and abetting requires proof of (1) the existence of a fraud; (2) the defendant’s knowledge of the fraud; and (3) that the defendant provided substantial assistance to advance the fraud’s commission. While Citibank argued that the trustee failed to sufficiently plead the second two prongs, the court disagreed. The pleadings detailed how Citibank’s internal monitoring teams consistently flagged Nissen’s accounts for suspicious activity, including frequent overdrafts and round-number transactions. While the court stated that details of Citibank’s internal flags alone would not have been enough to sufficiently plead Citibank’s alleged knowledge of, and assistance to, the fraud, the Court was most persuaded by an alleged conversation between one of Citibank’s account relationship managers and a company investor. During that conversation, the Citibank relationship manager allegedly corroborated Nissen’s lie about the whereabouts of missing wired funds to the company investor. Based on these details in the pleadings, the court concluded that the trustee sufficiently cleared the high bar for pleading an aiding and abetting fraud claim against a bank.
The case is Silverman v. Citibank, N.A., No. 1:22-cv-5211 (S.D.N.Y. Nov. 6, 2023). The trustee is represented by Kasowitz Benson Torres LLP. Citibank is represented by Shearman & Sterling LLP. The order is available here.
