On March 23, 2023, the U.S. Bankruptcy Court for the Southern District of Florida partially denied summary judgment to Deutsche Bank on, among others, claims for aiding and abetting conversion and breach of fiduciary duty, asserted by certain foreign representatives and liquidators of entities used by fraudsters to carry out an alleged global Ponzi scheme. In the alleged scheme, four individuals misappropriated hundreds of millions of dollars by issuing worthless notes to real estate investors and transferring the investors’ funds to special purpose vehicles that they created (certain of the plaintiffs). The plaintiffs sued Deutsche Bank, contending that the bank was aware of, and assisted in, the Ponzi scheme.

The court largely rejected Deutsche Bank’s assertion of the in pari delicto defense, which prevents a wrongdoer from suing another participant in the wrong. The court found that Deutsche Bank failed to provide sufficient evidence that all but one of the plaintiffs were actively engaged in the Ponzi scheme as more than “mere instrumentalities” of the individual fraudsters, and thus refused to impute the scheme to those plaintiffs. Additionally, Deutsche Bank moved for summary judgment on the ground that the plaintiffs lacked any evidence that Deutsche Bank had “actual knowledge” of the alleged Ponzi scheme or gave “substantial assistance” to the individual fraudsters. The court disagreed, however, finding that evidence of (i) inaction on the part of employees at the bank who aware that sub-accounts were being used to benefit the fraudsters, and (ii) assistance by bank employees to avoid internal systems intended to thwart criminal acts and approving various wire transfers, were sufficient to show material questions of fact on the issue.

The case is Pearson v. Deutsche Bank AG, No. 21-22437 (S.D. Fla. Mar. 23, 2023). The plaintiffs are represented by EFR Law Firm. Deutsche Bank is represented by Cahill Gordon & Reindel LLP and Duane Morris LLP. The order is available here.