During a fraud investigation, one of the first things we look for is to determine the total pool of potential liability for recovering from that fraud.
If you’re a victim of a Ponzi scheme or a crypto scam, whoever the scammer is may have some assets that can be recovered, but what if they don’t have enough to pay off the victims? That’s where the legal theory of third-party liability comes in to help recover funds for the victims.
Remember, we’re not attorneys and this isn’t legal advice. As you’re looking into your case, or your investigator is looking into it, make sure to look for potential third parties that could be liable.
Examples of third-party liability in a fraud case or criminal investigation
In recent news regarding the FTX crypto scam, attorneys for victims are looking into third-party liabilities. One customer is going after the Golden State Warriors because they endorsed FTX, calling it their ‘official cryptocurrency platform’. As a professional sports team, they may have liability for this endorsement.
Similarly, celebrity endorsements can carry this same liability. Promoters like Tom Brady and Shaq are now being sued by victims for their public endorsement of the platform. However, this all hinges on whether or not it is deemed a security, and whether compensation was disclosed.
In the Jeffrey Epstein case, victims and accusers are suing Deutsche Bank and JP Morgan because of the claims that the banks helped to facilitate these crimes, even though they weren’t directly involved. There is a legal theory known as enabling the fraud or extending the fraud, where if a third party accidentally enables the fraud because of not doing proper due diligence, they can be held liable and potentially be sources for recovery.
In the Scott Rothstein case, and similarly, the Bernie Madoff case, these victims in the end were made whole by third-party liabilities. In the Rothstein case, the bank that allowed the scammer to open an account was held liable because they didn’t have the proper paperwork completed that would’ve alerted the bank to the fraud and it would’ve been stopped.
There have also been cases where landlords or property management companies have been held liable for enabling fraud by allowing fraudsters to rent a building or space in a building to execute their schemes.
So make sure that when you’re investigating your case, or your investigator is doing it for you, you’re not just looking for the scammer’s assets, but also third parties that may have deep pockets and liability. Additionally, these third-party companies have insurance policies. Many times as soon as a professional or company gets notice of a claim, the insurance company wants to pay it off. The insurance companies don’t want their insureds to have liability, so they’re usually willing to settle and buy their way out of a situation.