JPMorgan seeks to dismiss claims it helped Ponzi scammer Renwick Haddow

In line with their previously voiced plans, JPMorgan Chase & Co. (NYSE:JPM) and JPMorgan Chase Bank, N.A. have sought to dismiss a complaint alleging that the banks helped Ponzi scammer Renwick Haddow.

On Monday, May 14, 2018, the banks filed their Motion to Dismiss a case brought by more than 200 Chinese investors defrauded by Renwick Haddow’s Bar Works entities.

Let’s recall that, according to the plaintiffs, JPMorgan had actual knowledge of the “Bar Works” fraud. The most solid facts which are seen to support the bank’s actual knowledge involve the notoriety and infamy of the Bar Works scheme’s mastermind, Renwick Haddow. He is also known for other fraudulent schemes, including ones involving Bitcoin. The plaintiffs insist that JPMorgan had been aware of Haddow’s true identity and his fraudulent activities while he presented himself under a fake name in communications with “Bar Works” investors.

The defrauded investors assert that JPMorgan aided and abetted Haddow. Their theory is that the bank was required to police transactions in the two Bar Works accounts to protect them from losses, and failed to do so.

In their Motion filed yesterday, however, the banks note that New York law is clear about the obligations of banks. According to the defendants, banks are not, as a general rule, obligated to protect third parties from the misdeeds of their accountholders. A civil action against a bank can be maintained only in the narrow circumstance where the complaint pleads facts sufficient to show that the bank had both actual knowledge of the accountholder’s fraud and substantially assisted it by engaging in conduct beyond the provision of ordinary banking services.

According to JPMorgan, the allegations of the complaint are insufficient to plead that the banks had actual knowledge of Haddow’s alleged scheme. Rather, the complaint is said to be predicated on allegations that the bank should have learned of Haddow’s scheme based on anti-money laundering (AML) laws that require banks to detect and report suspicious activity to the government. These allegations are insufficient as a matter of law: AML laws do not give rise to a private right of action; they do not give rise to duties to private parties; and, in all events, the caselaw is clear that allegations that a bank supposedly ignored “red flags”—which is what the complaint alleges—do not rise to the level of actual knowledge, JPMorgan argues.

Furthermore, according to the defendants, the law is well settled that allegations that a bank provided banking services are insufficient as a matter of law to plead substantial assistance.

JPMorgan argues that the plaintiffs’ claims for unjust enrichment and gross negligence should be dismissed, as the defrauded investors did not have a relationship with JPMorgan sufficient to support unjust enrichment; nor have they pleaded facts showing that the bank was unjustly enriched. Also, according to JPMorgan, the plaintiffs fail to state a claim for gross negligence, because the bank did not owe them any duty.

A response by the plaintiffs is expected by June 25, 2018.