357 F. Supp. 3d 70
D.D.C.2019Background
- Plaintiffs filed a consolidated amended complaint (SCAC) alleging TelexFree was a Ponzi/pyramid scheme and that multiple financial institutions (including Bank of America, N.A. (BANA) and TD Bank) provided services that enabled it.
- Allegations against BANA/TD: maintained TelexFree deposit accounts; received large volumes of deposits and transfers; allowed TelexFree to identify them as account-holders in promotional materials; processed transfers to promoters, principals, and affiliates; and provided credit services.
- Plaintiffs contend banks had actual knowledge of the scheme (via sign-up materials, on-line procedures, prior bank sanctions, and transaction patterns) yet continued to provide services and fees.
- Defendants moved to dismiss under Rule 12(b)(6) and (as to fraud-based claims) Rule 9(b), arguing the allegations describe routine, passive banking services and lack the particularized facts showing actual knowledge or substantial assistance.
- The court evaluated whether plaintiffs pleaded (a) a viable aiding-and-abetting cause of action under M.G.L. c.93/c.93A, (b) unjust enrichment tied to banks’ receipt of fees/interest, and (c) tortious aiding-and-abetting requiring actual knowledge and substantial assistance.
- Ruling: The court granted BANA and TD Bank’s motions to dismiss the Third (aiding/abetting statutory claims), Fourth (unjust enrichment), and Tenth (tortious aiding and abetting) claims for the reasons below.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Existence of private aiding-and-abetting claim under M.G.L. c.93 and c.93A | Banks aided and abetted violations of §§12, 69 and c.93A by enabling TelexFree’s scheme | Massachusetts statutes do not expressly create private aiding-and-abetting liability; precedent limits such liability to certain fiduciary contexts | No separate cause of action for aiding-and-abetting under these statutes; claim dismissed |
| Unjust enrichment based on fees/interest | Banks were unjustly enriched by fees, interest, and service charges related to TelexFree funds | Fees were routine payments for banking services; any benefit was conferred by TelexFree (not plaintiffs), so plaintiffs lack standing | Dismissed for failure to allege unjustness or proper conferral/standing |
| Tortious aiding-and-abetting (knowledge and substantial assistance) | Banks knowingly and substantially assisted TelexFree (long banking relationships, transfers, allowing use of bank name, processing payments to principals) | Allegations at best show passive, routine banking services; plaintiffs failed to plead actual knowledge or facts showing substantial, active assistance | Dismissed: plaintiffs failed to plead actual knowledge and substantial assistance plausibly |
| Pleading particularity for fraud-based aiding claims (Rule 9(b)) | Complaint alleges many transactions and some specific transfers, nearly meeting particularity | Most allegations are omnibus and lack specificity tying particular acts to particular banks or showing causation/intent | Plaintiffs largely failed Rule 9(b) particularity; remaining specific allegations (e.g., payments to Merrill) insufficient to show bank causation/active role |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility standard for Rule 12(b)(6))
- Ashcroft v. Iqbal, 556 U.S. 662 (plausibility requires more than conclusory allegations)
- Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164 (private aiding-and-abetting liability not implied absent statutory text)
- FTC v. LeadClick Media, LLC, 838 F.3d 158 (entity acting with knowledge may be liable where it directly participates or controls deceptive practice)
- In re Sharp Int'l Corp., 403 F.3d 43 (elements of tortious aiding and abetting require knowledge and substantial assistance)
- Arcidi v. Nat'l Ass'n of Gov't Employees, Inc., 447 Mass. 616 (Massachusetts discussion of aiding/abetting standards)
- Cahaly v. Benistar Prop. Exch. Trust, 451 Mass. 343 (actual knowledge requirement for aiding-and-abetting in Massachusetts)