In re Telexfree Sec. Litig.
360 F. Supp. 3d 46
D.D.C.2019Background
- TelexFree ran a large Ponzi/pyramid scheme (2012–2014) causing widespread investor losses; many related suits were consolidated in multidistrict litigation in Massachusetts.
- Wells Fargo is accused in the Second Consolidated Amended Complaint (SCAC) of maintaining TelexFree accounts, processing tens of millions in transactions, and providing routine banking services and fees to TelexFree.
- Plaintiffs assert claims against Wells Fargo including: aiding and abetting violations of Mass. Gen. Laws ch. 93 §§ 12 & 69 and ch. 93A §§ 2 & 11 (Count III), unjust enrichment (Count IV), and tortious aiding and abetting (Count X).
- Plaintiffs plead both bank-specific allegations and omnibus allegations against all bank defendants, asserting banks profited and ignored red flags about TelexFree’s scheme.
- The complaint lacks particularized factual allegations that Wells Fargo had actual knowledge of fraud or provided active, substantial assistance beyond ordinary banking services.
- Wells Fargo moved to dismiss under Fed. R. Civ. P. 12(b)(6); the court granted the motion and dismissed the asserted counts against Wells Fargo.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether aiding-and-abetting liability exists under Mass. Gen. Laws ch. 93 and ch. 93A | Banks can be liable for aiding and abetting TelexFree’s statutory violations by facilitating the scheme | Chapters 93 and 93A do not create private aiding-and-abetting causes of action; no statutory text supports it | No separate private aiding-and-abetting claim exists under these statutes; claim dismissed |
| Whether unjust enrichment alleged against Wells Fargo survives | Plaintiffs: banks were enriched by fees/interest tied to TelexFree and retention is inequitable | Wells Fargo: alleged fees were ordinary banking payments; any benefit was conferred by TelexFree (not plaintiffs) | Unjust enrichment dismissed for failure to plead unjust (or plaintiff-conferred) benefit |
| Whether tortious aiding and abetting plead adequately (knowledge and substantial assistance) | Plaintiffs: banks provided services and had access to TelexFree materials and should have known the scheme | Wells Fargo: provision of routine banking services is passive and insufficient; must show actual knowledge and substantial assistance | Dismissed: Plaintiffs failed to allege actual knowledge or active/substantial assistance beyond ordinary banking services |
| Pleading particularity for fraud-based aiding-and-abetting claims (Rule 9(b)) | Plaintiffs rely on generalized and omnibus allegations about banks’ conduct and red flags | Defendant: Rule 9(b) requires particularized allegations of who knew what and when | Plaintiffs did not meet heightened pleading standard; fraud-based aiding-and-abetting claims fail |
Key Cases Cited
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (plausibility standard for Rule 12(b)(6))
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading must contain plausible factual content beyond conclusory statements)
- Rodriguez-Reyes v. Molina-Rodriguez, 711 F.3d 49 (1st Cir. 2013) (dismissing conclusory complaints under Twombly/Iqbal)
- SEC v. Tambone, 597 F.3d 436 (1st Cir. 2010) (discussing pleading standards in complex fraud cases)
- 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 (2d Cir. 2016) (discussing limits on imposing aiding-and-abetting liability under consumer protection law)
- Cahaly v. Benistar Prop. Exch. Trust, 451 Mass. 343 (Mass. 2008) (actual knowledge requirement for aiding-and-abetting liability under Massachusetts law)