Lack of Knowledge of Ponzi Scheme Not Sufficient to Hold Financial Broker Liable for Fraud

By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold, NJ Elder Abuse & Financial Exploitation Attorney

The case of Cantillo v. Fraenkel details whether an elderly plaintiff is entitled to damages from a defendant financial planner, based on his bad recommendations to invest $200,000 in an investment company that was later discovered to be a Ponzi scheme.  The investment company and the financial planner both assured plaintiff that his investments were safe and low-risk.  Each denied knowing the company was running a Ponzi scheme, even though the financial representative was using unoccupied office space owned by the company.  Once it came out that the company was a Ponzi scheme, the defendant assured the plaintiff that the investment was still safe, and offered plaintiff alternative investments.  The plaintiff also alleged collusion against both the defendant and the owner of the investment company because the same investment company offered the defendant free office space to make it look like there were more people in the office.  In addition, the owner of the investment company introduced himself to the defendant’s clients while they waited to meet with the financial planner at their office.

The court granted partial judgment but dismissed the claims for fraud, consumer fraud, aiding and abetting fraud, breach of fiduciary duty, and violations of the Securities Act.  There was no evidence that the defendant knew about the Ponzi scheme, and the incorrect representation that the money would be safe did not count as knowledge.  The plaintiff also did not cite legal authority concerning the breach of fiduciary duty or violation of the Securities Act or Consumer Fraud Act.  However, the court did not dismiss the negligent misrepresentation claim, which requires an incorrect statement of fact that is justifiably relied upon by a plaintiff that causes him or her economic damage.  Because of the assurances that the investment company would provide better returns on investment with little risk, the court held the plaintiff could potentially prove a case for this tort, and denied partial summary judgment on that claim alone.

As the court alluded, there were not enough facts to sustain many of the claims the plaintiff asserted.  Even with the evidence presented, there must be some fraud based on the close relationship between the defendant and the investment company, but there was not enough evidence of the relationship presented to establish any fraud claim against the defendant, which obligated the court to dismiss those counts.

To discuss your NJ Elder Abuse & Financial Exploitation matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.  Please ask us about our video conferencing consultations if you are unable to come to our office.