R.J. Zayed, In His Capacity As Court-Appointed Receiver For The Oxford Global Partners, LLC, Universal Brokerage FX, and Other Receiver Entities Plaintiff - Appellant
Associated Bank, N.A. Defendant-Appellee
Submitted: May 17, 2018
from United States District Court for the District of
SHEPHERD, KELLY, and GRASZ, Circuit Judges.
period of several years, a group of scammers based in
Minnesota swindled investors out of more than one hundred
million dollars in a prolific Ponzi scheme utilizing numerous
business entities. A receiver was appointed to take charge of
what assets remained in the business entities that were used
to perpetrate the scheme and to recover any assets he could
for the victims of the fraud. The Receiver sued Associated
Bank, N.A., which provided banking services to some of the
scammers' entities, accusing the bank of aiding and
abetting the Ponzi scheme. At issue in this appeal is whether
the district court correctly concluded there was not
sufficient evidence to reasonably infer the bank knew about
and assisted the scammers' tortious conduct. Because a
conclusion that the bank aided and abetted the Ponzi scheme
could only be reached through considerable conjecture and
speculation, we affirm the district court.
2006 to 2009, five individuals - Trevor Cook, Christopher
Pettengill, Jason Beckman, Gerald Durand, and Patrick Kiley
("the scammers") - perpetrated a Ponzi scheme that
took in over $193 million from investors and returned only
$49 million (all from new investors' money). See
United States v. Beckman, 787 F.3d 466, 474 (8th Cir.
2015) (discussing the scheme in an appeal from some of the
scammers' criminal convictions). The scammers used a
number of business entities that went by several variations
of names that included "UBS," "Universal
Brokerage," "Oxford," "Crown Forex,"
and "Basel Group." See id. at 475, 488;
Zayed v. Associated Bank, N.A. ("Zayed
I"), 779 F.3d 727, 730 (8th Cir. 2015). They told
potential investors that their investments would be held in
segregated accounts, completely liquid, and invested in a
currency exchange program through a Swiss company, Crown
Forex, S.A. Zayed I, 779 F.3d at 730. Eventually,
the scammers were caught and ultimately sentenced to lengthy
prison terms for various crimes including wire and mail fraud
and money laundering. See Beckman, 787 F.3d at 477.
the fraud was uncovered in 2009, the U.S. Securities and
Exchange Commission and the U.S. Commodity Futures Trading
Commission filed civil actions against the scammers and their
entities. In those civil actions, the district court
appointed a receiver, granting him the power to take control
over the scammers' entities and assets and to bring legal
actions in order to discharge his duties.
2013, the Receiver filed suit against Associated Bank for
allegedly aiding and abetting the torts of fraud, breach of
fiduciary duty, conversion, and negligent misrepresentation.
The allegations underlying these claims centered on one
former Associated Bank employee, Lien Sarles. Sarles helped
open accounts for the scammers and then serviced those
accounts at the bank. The Receiver alleged Sarles knew about
and assisted in the scheme.
that year, the district court granted Associated Bank's
motion to dismiss, concluding that the Receiver had not
sufficiently pled a plausible claim that the bank aided and
abetted the scammers' tortious conduct. On appeal, this
Court reversed the district court's dismissal, concluding
the Receiver's pleadings were sufficient to survive a
motion to dismiss. See Zayed I, 779 F.3d 737.
remand and discovery, Associated Bank moved for summary
judgment. The district court granted the motion, concluding
there was insufficient evidence that Associated Bank knew of
and provided substantial assistance to the scammers'
tortious conduct. The Receiver filed a timely appeal.
Receiver argues on appeal that the district court erred in
granting summary judgment to Associated Bank. Summary
judgment is appropriate where a party shows "there is no
genuine dispute as to any material fact" and the party
"is entitled to judgment as a matter of law."
Fed.R.Civ.P. 56(a). A dispute of fact is "genuine"
if a factfinder could reasonably determine the issue in the
non-moving party's favor. See Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986). A
factfinder's decision is reasonable if it is based on
"sufficient probative evidence" and not on
"mere speculation, conjecture, or fantasy." See
Williams v. Mannis, 889 F.3d 926, 931 (8th Cir. 2018)
(quoting Barber v. C1 Truck Driver Training, LLC,
656 F.3d 782, 801 (8th Cir. 2011). "We review an order
granting summary judgment de novo." Oppedahl v.
Mobile Drill Int'l, Inc., 899 F.3d 505, 509 (8th
Receiver's claims against Associated Bank are for aiding
and abetting the torts of conversion, breach of fiduciary
duty, fraud, and negligent misrepresentation - all under
Minnesota law. Aiding and abetting is not an independent
tort, but a theory of liability under which a party may be
held jointly and severally liable for the underlying tort.
See Leiendecker v. Asian Women United of Minnesota,
848 N.W.2d 224, 228 n.2 (Minn. 2014); Witzman v. Lehrman,
Lehrman & Flom, 601 N.W.2d 179, 185-86 (Minn. 1999).
Minnesota law, a plaintiff must show three things to hold a
defendant liable for aiding and abetting a tort: first
"the primary tortfeasor must commit a tort that causes
an injury to the plaintiff," second "the defendant
must know that the primary tortfeasor's conduct
constitutes a breach of duty," and third "the
defendant must substantially assist or encourage the primary
tortfeasor in the achievement of the breach." Zayed
I, 779 F.3d at 733 (quoting Witzman, 601 N.W.2d
parties do not dispute the first element, that the scammers
committed torts. The question in this case is whether
Associated Bank knew that the scammers were engaged in the
tortious Ponzi scheme, and substantially assisted the
scammers in achieving that scheme. See id. at 733.
Knowledge of the Ponzi Scheme
Minnesota law, the scienter (knowledge requirement) for
aiding and abetting is "actual knowledge."
Varga v. U.S. Bank Nat. Ass'n, 952 F.Supp.2d
850, 857 (D. Minn. 2013) aff'd, 764 F.3d 833
(8th Cir. 2014) (applying Minnesota law). The evidence
necessary to sufficiently show actual knowledge "depends
in part on the particular facts and circumstances of each
case." Witzman, 601 N.W.2d at 188.
"[W]here there is a minimal showing of substantial
assistance, a greater showing of scienter is required."
Id. (quoting Camp v. Dema, 948 F.2d 455,
459 (8th Cir.1991)). Courts consider "[f]actors such as
the relationship between the defendant and the primary
tortfeasor, the nature of the primary tortfeasor's
activity, the nature of the assistance provided by the
defendant, and the defendant's state of mind."
knowledge may be shown by circumstantial evidence,
'courts stress that the requirement is actual
knowledge and the circumstantial evidence must demonstrate
that the aider-and-abettor actually knew of the
underlying wrongs committed.'" Varga, 952
F.Supp.2d at 857 (quoting Wiand v. Wells Fargo Bank,
N.A., 938 F.Supp.2d 1238, 1244 (M.D. Fla. 2013)). A
plaintiff must show more than "awareness of the conduct
in question . . ., that it raised 'red flags,' . . .
or even that it amounted to gross negligence," but must
show that the defendant "was aware of the
wrongfulness of the challenged conduct."
Id. at 858 (citing Camp, 948 F.2d at 459,
463; Wiand, 938 F.Supp.2d at 1244; Witzman,
601 N.W.2d at 188).
summary judgment record contains no direct evidence Sarles or
anyone at Associated Bank knew of the Ponzi scheme. In fact,
all of the direct evidence was to the contrary. The
Receiver's own expert witness agreed that "[there
was] nobody at the bank who put this information together and
determined there was a Ponzi scheme going on."
Associated Bank's expert stated that he agreed with the
Receiver's expert that "there is no one at
Associated Bank who actually concluded . . . that the
[scammers' entities] were engaged in a Ponzi
scheme." David Martens, Associated Bank's regional
security officer, testified based on his extensive law
enforcement experience that he believed Sarles's actions
were attributable to "sloppy banking" rather than
anything "nefarious." Two of Sarles's coworkers
testified that they did not observe anything that would
indicate to them that Sarles knew about the Ponzi scheme.
Ryan Rasske, Associated Bank's Director of Risk and
Financial Crimes, testified that he had not uncovered any
evidence that Sarles or anyone at Associated Bank knew of the
Ponzi scheme. Furthermore, an employee of one of the scammers
testified that she had no evidence Sarles knew of the Ponzi
scheme. One of the scammers, Pettengill, said that Sarles was
not part of the fraud. Another scammer, Cook, testified that
Sarles "knew nothing about what was going on."
this absence of direct evidence, the Receiver attempted to
amass circumstantial evidence that he claimed showed that
Sarles had actual knowledge of the Ponzi scheme. But 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. Even
on this twenty-seven volume, six-thousand page record, the
leap cannot be made to infer that Sarles or anyone at
Associated Bank actually knew about the Ponzi scheme without
resorting to speculation and conjecture. See
Williams, 889 F.3d at 931 (discussing the summary
first met Kiley, one of the scammers, around December 2007
when Sarles pitched him on switching his business's
banking services to Associated Bank. Sarles, who held the
position of assistant vice president at Associated Bank, had
the primary job duties of "marketing, opening new
commercial accounts, and providing account management and
services to new and existing commercial customers."
Sarles first opened an account for Kiley for the entity
Universal Brokerage FX Management, LLC in January 2008.
Between then and June 2009, Sarles opened a total of eight
accounts at Associated Bank for Kiley and fellow scammer Cook
for different entities.
2008, Sarles opened an account for "Crown Forex
LLC" for Cook. The Receiver argues that the fact this
account was opened in the name of a domestic entity shows
that Sarles knew about the Ponzi scheme and was attempting to
help the scammers avoid detection. According to Cook, he
intended to open an account for Crown Forex, S.A., the Swiss
investing entity, but Sarles suggested that he open it under
the name of a domestic ...