Blawgletter laments that most cases involving the worst instances of fraud suffer from a sad but inexorable fact: the victims' money has vanished.
Just ask the people who trusted their savings to Bernie Madoff, for instance.
Judges (and, occasionally, juries) struggle with competing urges in such cases. On the one hand, they want to find a way to right the wrong. But they also worry about "imposing . . . endless, unpredictable liability" on actors that aided the fraud without meaning to. Chaney v. Dreyfus Service Corp., No. 08-60555, slip op. at 12 (5th Cir. Jan. 25, 2010) (applying New York law).
Chaney involved looting of several insurance companies. The looter-in-chief, Martin Frankel, gained control of the insurers through minions, who then sold the carriers' good assets and pretended that they re-invested the proceeds in U.S. Treasury instruments. As "Eric Stevens", Frankel also gulled a broker-dealer, Dreyfus Service Corp., into moving hundreds of millions of dollars in looting proceeds into his Swiss bank account.
Should Dreyfus pay the receivers who took over the insurance companies after they collapsed for their losses? Yes and no, the Fifth Circuit held yesterday.
New York law did require Dreyfus to watch for suspicious activity in accounts that named insurers as owners but not in accounts that stood in the name of another Frankel outfit.
Would Chaney tempt us as a case to take on a contingent fee basis? Probably. Although the opinion doesn't disclose how much money went through the insurer-specific accounts, it does say that Frankel and his helpers moved $480 million through Dreyfus to Switzerland over a five-year period. We'd want to check the net worth of Dreyfus, of course. But the case looks like one that would appeal to a jury, the members of which may marvel at the ease with which Dreyfus seems to have allowed Frankel to use it for half a decade in aid of a massive fraudulent scheme.