779 F.3d 727 (8th Cir. 2015), 13-3388, Zayed v. Associated Bank, N.A.

Docket Nº:13-3388
Citation:779 F.3d 727
Opinion Judge:RILEY, Chief Judge.
Party Name: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 v. Associated Bank, N.A., Defendant - Appellee
Attorney:For 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: Brenton A. Elswick, Brian William Hayes, Tara Norgard, Russell Rigby, Carlson & Caspers, Minneapolis, MN; William Flachsbart...
Judge Panel:Before RILEY, Chief Judge, WOLLMAN and BYE, Circuit Judges.
Case Date:March 02, 2015
Court:United States Courts of Appeals, Court of Appeals for the Eighth Circuit
SUMMARY

For about three years ending in 2009, five schemers bilked unsuspecting investors of an estimated $190 million in a Minnesota Ponzi scheme. They took more than $79 million of the investors’ funds with the help of Associated Bank. After the scheme was exposed, the district judge in a related case appointed a receiver to take custody of funds owned by the schemers’ estates and by organizations... (see full summary)

 
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Page 727

779 F.3d 727 (8th Cir. 2015)

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

v.

Associated Bank, N.A., Defendant - Appellee

No. 13-3388

United States Court of Appeals, Eighth Circuit

March 2, 2015

Submitted October 9, 2014

Page 728

Appeal from United States District Court for the District of Minnesota - Minneapolis.

For 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: Brenton A. Elswick, Brian William Hayes, Tara Norgard, Russell Rigby, Carlson & Caspers, Minneapolis, MN; William Flachsbart, Robert P. Greenspoon, Flachsbart & Greenspoon, Chicago, IL; D. Timothy McVey, Mcvey & Parsky, Chicago, IL; Keith Vogt, Takiguchi & Vogt, Oak Brook, IL.

For Associated Bank, N.A., Defendant - Appellee: Paul Whitfield Hughes, Alex C. Lakatos, Charles Alan Rothfeld, James Fallows Tierney, Mayer & Brown, Washington, DC; Charles F. Webber, Faegre & Baker, Minneapolis, MN.

Before RILEY, Chief Judge, WOLLMAN and BYE, Circuit Judges.

OPINION

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RILEY, Chief Judge.

For a period of approximately three years ending in 2009, five schemers bilked unsuspecting investors of an estimated $190 million in a Minnesota Ponzi scheme. The schemers took in over $79 million of the investors' funds with the help of defendant Associated Bank, N.A. After the scheme was exposed, the district judge in a related case appointed a receiver to take custody of funds owned by the schemers' estates and by organizations under their control (receiver entities).1 The receiver then brought this action on behalf of the receiver entities, alleging Associated Bank aided and abetted the scheme. The district court granted Associated Bank's motion to dismiss for failure to state a claim and denied the receiver's request to file a motion to reconsider. The receiver appeals. We reverse and remand for further proceedings.2

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I. BACKGROUND

A. Facts

In reciting the facts, " we accept as true the well-pleaded allegations in the . . . complaint," Varga v. U.S. Bank N.A., 764 F.3d 833, 836 (8th Cir. 2014), and we " 'draw[] all reasonable inferences in favor of the nonmoving party,'" the receiver, Topchian v. JPMorgan Chase Bank, N.A., 760 F.3d 843, 848 (8th Cir. 2014) (quoting Simes v. Ark. Jud. Discipline & Disability Comm'n, 734 F.3d 830, 834 (8th Cir. 2013)).

The Ponzi schemers, including Trevor Cook and Patrick Kiley, convinced potential investors their money would be held in totally liquid and segregated accounts and invested, with lucrative returns, in a currency exchange program with a Swiss trader, Crown Forex, SA. To convert the investors' funds to their own use, the schemers opened bank accounts where they could deposit the investors' checks written to one of the receiver entities. One of Kiley's employees referred Kiley to the employee's step-brother, Lien Sarles, an assistant vice president at Associated Bank. Having visited Kiley at his office before Kiley opened an account at Associated Bank, Sarles knew Kiley ran his supposed investment business, along with the radio program used to promote it, from a converted bedroom office and a basement in a suburban home. Sarles assisted Kiley and Cook in opening several accounts at Associated Bank, many of which Sarles understood would be used to hold investor funds.

Cook and Kiley wanted to open an account at Associated Bank in the name of Crown Forex, SA, but Sarles told Kiley it would be difficult to open an account for a foreign entity. Sarles recommended opening the account in the name of a domestic entity, Crown Forex LLC. Sarles personally met with Kiley to open the account for Crown Forex LLC. Kiley and his assistant, Julia Smith, signed account documents as " members" of Crown Forex LLC. When opening the account, Kiley did not provide required registration verification from the Minnesota Secretary of State, and Sarles was aware of this fact. Sarles told Kiley he must provide the documentation. Kiley never did so, because Crown Forex LLC was a fictional entity, not organized under any state's law. Yet the Associated Bank account application, " prepared by" an Associated Bank employee and signed by Kiley, falsely stated the Crown Forex LLC documentation was provided from a " [r]eport from a state registration information website." Kiley submitted another form, signed by Sarles for Associated Bank, falsely stating Crown Forex LLC was organized in the state of Minnesota. Although Sarles knew Associated Bank's monitoring department would freeze or close accounts without proper documentation, Sarles claims he forgot to contact Kiley about the missing Crown Forex LLC documentation.

Within two years, investors deposited over $79 million into the phony Crown Forex LLC account at Associated Bank. Although Sarles was aware the investors' funds theoretically were to be used for trading by Crown Forex, SA, none of the money in the Crown Forex LLC account was ever transferred to Crown Forex, SA, which was neither an owner of nor a signatory to the Crown Forex LLC account. Rather, the Crown Forex LLC funds were transferred to other accounts associated with the scheme both at Associated Bank and at other banks.

Sarles personally approved several such transfers requested by Cook, even though Cook was not a signatory on the Crown Forex LLC account--only Kiley and Smith were signatories. Sarles approved over $3 million in transfers from the Crown Forex

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LLC account to Cook's personal accounts, even though Sarles knew the Crown Forex LLC account held client investment funds and Cook had no signatory authority.

Associated Bank also issued checks from the Crown Forex LLC account that did not include the Crown Forex LLC name, but fictitiously read, " Client Disbursement Account." Some of the account applications for other receiver entities also contained falsehoods, such as fake suite numbers in the addresses. Although Associated Bank knew some of the accounts were to hold investment funds, the account applications stated the accounts would be checking or money market accounts.

In December 2008, the Swiss Financial Market Supervisory Authority (FINMA) announced it had frozen Crown Forex, SA's accounts. In February 2009, Google alerted that Crown Forex, SA was under investigation--the next day, Sarles organized a phone call with Cook. A few days later, one of the scheme investors received an email from FINMA stating Crown Forex, SA was no longer authorized to conduct business. That day, Sarles organized a phone call regarding " Crown Forex." FINMA two weeks later announced Crown Forex, SA would be liquidated. Three days later, Sarles organized an " important" phone call with Cook. After the liquidation of Crown Forex, SA, Associated Bank continued to approve transfers of millions of dollars out of the Crown Forex LLC account to other accounts apparently unassociated with Crown Forex, SA, even though Associated Bank knew the Crown Forex LLC account had been set up as a vehicle for investments into Crown Forex, SA.

In June 2009, Cook asked Sarles to open an account for another fictitious entity, Basel Group LLC, " exactly like the Crown set-up." Like Crown Forex LLC, Basel Group LLC submitted an account application " prepared by" an Associated Bank employee, falsely asserting website verification of its registration with the secretary of state. At least within nine days of opening the account, Sarles knew Basel Group LLC did not have registration documentation listed on the Minnesota Secretary of State's website. There is no indication in the record Sarles did anything to follow up on the discrepancy.

In...

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