There is now officially civil liability for "aiding and abetting fraud" in Pennsylvania. This means businesses that are willfully blind to lies and misleading conduct could pay damages to victims, including punitive damages. The overall result is to impose a potentially onerous new duty upon those doing business in Pennsylvania. Now they have an affirmative obligation to patrol themselves and prevent their personnel from assisting those – especially customers – they know are deceiving others.
Marion v. Bryn Mawr Trust
The case was Marion v. Bryn Mawr Tr. Co., 2023 Pa. LEXIS 57, 2023 WL 308110, decided by the Pennsylvania Supreme Court on January 19, 2023. Marion arose from the fraudulent activities of convicted Ponzi schemer, Robert Bentley. For years, Bentley sold fake certificates of deposits ("CDs") to new investors to pay off previous investors. To operate his scheme, Bentley opened deposit and wire transfer accounts with Bryn Mawr Trust Company ("BMT"). Following Bentley's conviction, a federal court appointed David Marion as a receiver for two of the companies Bentley used to operate his schemes. Marion sued BMT, claiming, among other things, that BMT had aided and abetted Bentley in his fraudulent Ponzi scheme. Bentley had been one of BMT's biggest customers.
After a jury found for BMT, lower Pennsylvania courts split on whether there was a civil claim for aiding and abetting fraud. On appeal, the Pennsylvania Supreme Court ruled in favor of Marion and recognized the tort. The Court reasoned that public policy considerations warranted a cause of action for aiding and abetting fraud because complex commercial frauds and schemes frequently require the assistance of secondary actors. The Court concluded that allowing a separate tort of aiding and abetting fraud would deter those who may facilitate fraud by exposing them to the risk of paying damages to victims. Those with actual knowledge could be liable. However, mere circumstantial evidence and willful blindness could support a finding of actual knowledge. In other words, "turning a blind eye" to fraudulent activity may support a finding that a party aided and abetted fraud.
Considerations Following Marion
With Marion, Pennsylvania joins at least seven other states imposing potential civil liability for aiding and abetting fraud. Other jurisdictions include: New York, Washington, New Jersey, Connecticut, Massachusetts, Tennessee, and Arizona. The Pennsylvania Supreme Court has significantly expanded the pool of defendants from whom victims of alleged fraud may demand compensation. While a perpetrator like Bentley may be in prison and insolvent, plaintiffs may now instead look to the alleged "deep pockets" of those that provided services and advice that may have enabled the fraud to occur. These will likely be licensed "gate keeping" professionals like lawyers, accountants, brokers, and bankers and their employers. Victims may allege that these professionals were in a position to know about the fraud and do something about it, like reporting suspicious activity to law enforcement or regulators. At the very least, they could have severed ties and stopped facilitating the fraud. Invariably, victims will contend that those who allegedly aid and abet fraud were greedy and ignored the signs of wrongdoing in the pursuit of profit. The question will be their state of knowledge – whether they knew that a client or customer was using them for fraudulent purposes. If in the reasonable exercise of its professional judgment and experience a business realized that its clients or customers were using it to commit fraud, then there could be potential exposure. Determining someone's actual knowledge may ultimately rest upon an assessment of his or her believability and credibility. This will likely be a fact issue with no clear-cut answer and necessitate potentially costly discovery in litigation. The best protection will be to train and educate personnel to know and avoid from the outset situations, clients, and customers that show signs of misusing or manipulating advice and services.
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