Bank denies Ponzi scheme liability – Boston Globe
Citizens Bank could be on the hook for money investors lost in a high-profile Ponzi scheme a decade ago.
Yesterday, a state appellate court panel overturned a decision to dismiss a lawsuit against the bank brought by an Asian company that lost $5 million in a scheme allegedly masterminded by a lawyer, Morris M. Goldings.
The court ruled it was too early in the case to determine whether the bank might be liable. But the appellate judges agreed the lawyer’s former partners cannot be held liable in the case.
Goldings was disbarred after pleading guilty to federal charges of defrauding his clients and associates.
After two successful deals with Goldings, Go-Best Assets Ltd., a Hong Kong company, agreed in 2000 to loan $5 million to Goldings to help purchase 170,000 shares in Starwood Hotels and Resorts Inc. Go-Best was promised both interest and a portion of the profits.
Goldings promised to hold the money in a trust account for clients at Citizens Bank. Goldings later told Go-Best there were no Starwood shares and the money was gone, according to the ruling. Goldings used the money to pay other debts.
Go-Best argued that Citizens was negligent, partly because Goldings was chronically overdrawn on the account and the bank had an obligation to investigate red flags in client trust accounts.
Citizens Bank argued the account was not a true trust account and said it did not know it was being used as such. Go Best also argued the bank made other missteps, which Citizens denied.
In a partial dissent, one justice said there was no legal basis for “the imposition of liability against Citizens Bank.’’
© Copyright 2011 Globe Newspaper Company.