The United States Law Week

Associated Bank Off Hook in Ponzi Scheme Recovery Suit

Jan. 10, 2019, 9:58 PM

Associated Bank N.A. could only be found to have aided and abetted a $193 million Ponzi scheme through conjecture and speculation, a split panel of the U.S. Court of Appeals for the Eighth Circuit ruled Jan. 10.

After five Minnesota-based scammers were caught and sentenced in the scheme, a receiver appointed to recover assets for the fraud victims filed suit against Associated Bank alleging it aided and abetted several torts. The reciever focused on the actions of a former assistant vice president at the bank, Lien Sarles, in setting up accounts and moving funds.

The district court granted summary judgment in favor of the bank. The Eighth Circuit affirmed, saying that actual knowledge of wrongs is required for liability under Minnesota law.

Here, Sarles’s co-workers and two of the scammers denied he knew anything about the fraud. And “none of the circumstantial evidence compiled by the Receiver points to anything more than ‘sloppy banking’ by Sarles or ‘red flags’ that, with the benefit of hindsight, should have prompted further investigation or inquiry,” the court said in an opinion by Judge L. Steven Grasz.

Judge Jane Kelly dissented.

A genuine dispute of fact exists as to whether Sarles knew about the scheme and substantially assisted the scammers, Kelly said.

The evidence could support jury conclusions that “Sarles was intimately aware of the principals’ business (which was a fraud); took action to assist them in furthering their tortious conduct; and was unusually close with the principals, and with Cook in particular,” she said.

Flachsbart & Greenspoon and others represented the receiver.

Mayer Brown and Faegre Baker Daniels LLP represented Associated Bank.

The case is Zayed v. Associated Bank, N.A., 8th Cir., No. 17-1250, 1/10/19.

To contact the reporter on this story: Martina Barash in Washington at mbarash@bloomberglaw.com

To contact the editors responsible for this story: Jo-el J. Meyer at jmeyer@bloomberglaw.com; Steven Patrick at spatrick@bloomberglaw.com

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