In a January 10, 2017 decision, United States District Judge Thomas M. Rose in the Southern District of Ohio ruled that plaintiffs, who claimed to be investors in a Ponzi scheme operated by customers of PNC Bank, failed to state a claim against PNC Bank, National Association and The PNC Financial Services Group, Inc. (collectively, "PNC") for allegedly violating the Ohio Securities Act, Ohio Rev. Code § 1707.01, et seq. Cruz v. PNC Bank, N.A., No. 3:16-cv-292, slip op. (S.D. Ohio Jan. 10, 2017). Plaintiffs alleged that PNC was liable for their losses because the alleged ringleaders of the fraud, William and Connie Apostelos (who are currently awaiting trial on various federal criminal charges), deposited virtually all of the funds they raised from investors into a PNC business account and made interest payments to investors from the account. Plaintiffs claimed that by providing the Aposteloses with account services and allegedly allowing them to use PNC facilities, PNC participated in the sale of unregistered securities by the Aposteloses.
The Court rejected plaintiffs' theory. It ruled that plaintiffs' allegations that PNC provided the ringleaders of the alleged fraud with deposit accounts, approved transfers of funds, and authorized overrides on account holds to expedite transfers were insufficient to state a claim against PNC for violating Section 1707.43(A) of the Ohio Securities Act. Specifically, the Court ruled that PNC's extension of ordinary banking services to plaintiffs did not constitute participation or assistance by PNC in the sale of unregistered securities.
The decision is the latest in a series of decisions by Ohio courts holding that a financial institution is not liable for aiding or participating in the sale of unregistered securities under the Ohio Securities Act simply because it provided deposit services or other normal commercial banking services to a customer. See, e.g., Boyd v. Kingdom Trust Co., No. 3:16-CV-009, 2016 WL 6441411 (S.D. Ohio Nov. 1, 2016); Wells Fargo Bank v. Smith, No. CA2012-04-006, 2013 WL 938069 (Ohio Ct. App. Mar. 11, 2013). The emergence of this consensus is significant because it means that in cases where plaintiffs seek to hold banks responsible for fraud by bank customers, plaintiffs cannot avoid the demanding requirements of an aiding and abetting claim – a claim that requires a plaintiff to plead that the bank had "actual knowledge" of the fraud – by instead asserting claims under the Ohio Securities Act.
This article is presented for informational purposes only and is not intended to constitute legal advice.
