• Claim for Aiding and Abetting Fraud Stands, Others Dismissed Against Investment Management Company Involved in Ponzi Scheme: Winick v Van Zandt
  • September 18, 2012 | Author: Adam M. Rafsky
  • Law Firm: Farrell Fritz, P.C. - Uniondale Office
  • In an August 2, 2012 decision by Justice Bucaria, the court granted in part and denied in part the moving defendants’, IRA Services, Inc. and Ira Services Trust Company (the “IRA Defendants”) motion to dismiss. The action arose out of the plaintiffs’ investments in a Ponzi scheme directed by the non-moving defendant Robert Van Zandt. To make their investment, the plaintiffs rolled over a $190,000 IRA account into a new IRA account for which the IRA Defendants were the administrator and custodian. The plaintiffs commenced this action asserting claims against the IRA Defendants for fraud, aiding and abetting fraud, conversion, unjust enrichment, breach of fiduciary duty, negligence, gross negligence, and breach of contract.

    The court denied the motion as to aiding and abetting fraud, finding that an inference was raised that the IRA Defendants had knowledge of the fraud because they rolled the IRA account over to the defendant MIG, who issued some of the notes the plaintiffs invested in, on the same day the account was opened. Contrary to the IRA Defendants’ position that they had no duty of due diligence because they merely provided routine business services not constituting substantial assistance, the court explained that “a 1-day rollover does not appear to be a routine business service.”

    The court granted the motion to dismiss as to each of the other claims, holding: as to fraud, that the plaintiffs failed allege any misrepresentation by the IRA Defendants; as to conversion, that the IRA Defendants, as custodian or administrator, did not exercise any unauthorized dominion or control over the plaintiffs’ property; that the plaintiffs’ were precluded from recovering for unjust enrichment because there was a valid written contract governing the new account; that the IRA defendants had no fiduciary duty to give advice to the plaintiffs because such an obligation did not arise from the self-directed accounts; and that there could be no claim for negligence, gross negligence, or breach of contract because such claims cannot stand against an investment management company with respect to a self-directed account, where, as here, the investment management company does not disregard the customer’s instructions.

    Winick v. Van Zandt, Sup Ct Nassau County, August 2, 2012, Bucaria, J, Index No 600098/12