1:22-cv-05211
S.D.N.Y.Nov 6, 2023Background
- From 2015–2017 Jason Nissen ran a Ponzi scheme that raised tens of millions and used accounts at Citibank as primary banking relationships.
- Citibank employees (including FIU) repeatedly flagged the accounts for suspicious activity—round‑number transactions, structuring/layering, chronic overdrafts—and FIU recommended account closure in November 2016.
- Relationship managers Jack Crowley and Josh Santana resisted closure, sought overdraft accommodations, pressed colleagues to keep processing transactions, and received documents from Nissen that failed to allay FIU’s concerns.
- In April 2017 Santana, at Nissen’s request, told an investor (Taly) a false story corroborating a forged Citibank letter about a missing wire.
- Nissen confessed in May 2017, was prosecuted and convicted; the bankruptcy trustee sued Citibank for aiding and abetting the fraud on behalf of (1) the Company and (2) the Investors.
- The court dismissed the trustee’s Company claim under the in pari delicto doctrine but denied dismissal of the Investors’ aiding‑and‑abetting claim, finding the complaint plausibly alleged Citibank’s actual knowledge and substantial assistance (notably Santana’s alleged intentional misrepresentation).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Trustee’s claim on behalf of the Company is barred by in pari delicto/Wagoner | Trustee seeks recovery for corporate victims; Nissen’s misconduct shouldn’t bar relief because of alleged harms | Citibank: Nissen’s fraud is imputed to the Company; Wagoner/in pari delicto bars trustee’s claim | Court: Dismissed Company claim—in pari delicto applies; adverse‑interest exception inapplicable |
| Whether complaint adequately pleads Citibank’s actual knowledge of the fraud (aiding & abetting element) | Allegations of FIU reports, sustained red flags, managers’ conduct, and Santana’s lie to Taly show knowledge of the primary fraud | Citibank: Suspicion/flags are legally insufficient; managers acted in ordinary course and lacked knowledge of specific fraud details | Court: Denied dismissal—viewing allegations in totality (including the intentional misrepresentation), plaintiff plausibly pleaded actual knowledge |
| Whether plaintiff pleaded substantial assistance by Citibank | Processing atypical transactions, delaying account closure, fulfilling overdrafts, and Santana’s lie materially advanced the scheme | Citibank: Routine banking services and delayed action do not constitute substantial assistance | Court: Denied dismissal as to Investors—Santana’s alleged false statement plus surrounding conduct plausibly amounts to substantial assistance |
| Remedy/pleading posture (leave to amend) | Trustee requests to proceed or replead if necessary | Citibank opposes repleading | Court: Dismissed Company claim without prejudice and granted leave to amend within 14 days |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (pleading must state plausible claim)
- Ashcroft v. Iqbal, 556 U.S. 662 (court need not accept legal conclusions)
- Krys v. Pigott, 749 F.3d 117 (2d Cir.) (aider‑and‑abettor must have actual knowledge of the primary fraud)
- Lerner v. Fleet Bank, N.A., 459 F.3d 273 (2d Cir.) (knowledge element must concern the primary violation)
- Loreley Fin. (Jersey) No. 3 Ltd. v. Wells Fargo Sec., LLC, 797 F.3d 160 (2d Cir.) (evaluate surrounding circumstances in totality)
- Wight v. BankAmerica Corp., 219 F.3d 79 (2d Cir.) (Wagoner rule and trustee standing)
- In re Bernard L. Madoff Inv. Sec. LLC, 721 F.3d 54 (2d Cir.) (trustee stands in debtor’s shoes for in pari delicto analysis)