US Courts must stop offering blanket protection to banks, victims of Ponzi scammer argue

Several hundred investors in a Ponzi scheme run by notorious fraudster Renwick Haddow have sought to rebuff efforts by JPMorgan Chase & Co. (NYSE:JPM) and JPMorgan Chase Bank, N.A. to dismiss their complaint that the bank aided the scammer.

Let’s recall that the plaintiffs – investors in the Bar Works entities, operated by Haddow, have pled causes of action for: knowing participation in a breach of trust (Count 1), aiding and abetting embezzlement (Count Two), aiding and abetting a breach of fiduciary duty (Count Three), aiding and abetting conversion (Count Four), aiding and abetting fraud (Count Five), unjust enrichment (Count Six), commercial bad faith (Count Seven), and gross negligence (Count Eight).

On Monday, July 16, 2018, the defrauded investors responded to JPMorgan’s motion to dismiss the action. The document, seen by FinanceFeeds, reiterates the plaintiffs’ original arguments that the bank was aware it was sending investors’ money to a fraudster but turned a blind eye on the scam.

The plaintiffs note that while the general rule in New York is that a bank has no duty to police transactions in its customers’ accounts to protect third parties, the investors have sufficiently alleged that the bank knew who fraudster Renwick Haddow was as soon as he opened an account with JPMC; that the bank had actual knowledge of the breach of fiduciary duty and theft engaged in; and, after acquiring that knowledge, that the bank continued providing the assistance Renwick Haddow needed, including services which go beyond the provision of “ordinary banking services.”

In short, on February 4, 2016, Haddow walked into a JPMC branch and opened an account at JPMC and identified himself as “Renwick Haddow” to the bank staff, including Chase AVP Kanel Madhu. Thereafter, Haddow, using a fake alias “Jonathan Black” proceeded to raise tens of millions of dollars from unsuspecting investors throughout the world.

Inter alia, the plaintiffs allege that JPMC ignored clearly illicit transaction activity within the subject accounts – including millions of dollars in suspicious transactions from all over the world – and disregarded its own anti-money laundering policies.

Further, the plaintiffs provide a specific instance where, on March 23, 2017, one of the plaintiffs – Seye Ogunrotimi, sent his $35,000 investment funds to Bar Works Inc. The funds were not properly routed to the Bar Works Inc. account. Shortly after this happened, Seye Ogunrotimi became aware of the news about Renwick Haddow’s involvement in the “Bar Works” scheme. Seye Orgunrotimi’s bank put in a recall request to JPMorgan. Rather than return the money to Seye Orgunrotimi, JPMorgan held onto the money for approximately three weeks and then released it to Haddow.

Finally, the investors have alleged that the bank had various duties to report Haddow’s activities to regulators, but failed to do so in the hopes of continuing to earn generous fees.

The defrauded investors criticize the corporate culture at US banks. The plaintiffs say they are cognizant of the reality that the Federal Courts, to date, have been hesitant to permit plaintiffs to proceed on aiding and abetting fraud claims against banks.

”With that in mind, Plaintiffs do believe, as a result of a culture of unethical behavior which has been pervasive at JPMC, and other American banks, within the last decade or so, it is in the public interest that Courts do not continue to offer blanket protection to banks who find themselves facilitating crimes against the public”.

The plaintiffs say JPMC is “the preferred bank for financial fraudsters”.

In addition, according to the defrauded investors, American banks, generally, have created a culture of unethical behavior, which should not be ignored. For instance, in November 2013, JPMC settled with the U.S. Justice Department over claims that it bundled and resold toxic mortgage securities.

Several other banks were involved in the toxic mortgage scandals too. In addition, the plaintiffs mention the recent scandal with Wells Fargo Bank opening fake accounts to increase fees.

“Throughout the American banking industry, banks have created a climate where profit, at any cost, overrides ethical behavior and following proper regulatory guidelines”, the defrauded investors argue.

The plaintiffs claim combined $16,907,626.00 in damages.

The case, captioned ZHAO et al v. JPMorgan Chase & Co., et al (1:17-cv-08570), continues at the New York Southern District Court.