Why It's Hard to Recover Damages From a New York Bank When You've Been Defrauded
Contrary to popular belief, when you've been defrauded by a fiduciary who ups and runs off with your money, you don't necessarily have automatic recourse to recover your losses from the bank or banks that allowed him to divert the funds.
Far from it.
To the contrary, the general rule in New York holding that the banks cannot be held liable under these circumstances isn't really subject to debate, and is rather clear:
"It is well-settled as a matter of law in New York that generally neither a bank, nor a brokerage, owes a duty to third parties with respect to any fraud or wrongdoing that may be perpetrated by a client of the bank (Lerner v. Fleet Bank, N A, 459 F3d 273, 286 [2d Cir 2006]; In re Agape Litigation, 681 F Supp 2d 352, 359 [EDNY 2010]; Winkler v. Battery Trading, Inc, 89 AD3d 1016, 1018 [2d Dept 2011]) or the brokerage (Kolbeck v. LIT America, Inc, 923 F Supp 557 [SDNY 1996] ("Securities brokers do not owe a general duty of care or disclosure to the public simply because they are market professionals…. A duty of care arises only when the broker does business with the plaintiff. Then, the duty of the broker is to attend to the plaintiff's business with due care"))."
As a result, the banks often cannot be held liable to the defrauded party on a negligence theory because the claimant is typically not a client of the bank, which would be necessary in order to establish that the bank owed the plaintiff a particular duty of care (an essential element to a negligence claim).
Moreover, and finally, where the accounts at issue were all merely depository, and not trust accounts, the banks are not chargeable with any extraordinary duty to plaintiff to be accountable for diversion of funds known to be held in trust (see Renner v. Chase Manhattan Bank, 2000 WL 781081, 2000 US Dist LEXIS 8552 [SDNY]; In re Agape, 682 F Supp 2d at 360; Matter of Knox, 64 NY2d 434, 439  (Even in a situation in which the account is of a fiduciary nature, "the bank is not the fiduciary's guarantor"). Nor does the Bank Secrecy Act or the USA Patriot Act (31 USC §§5311 et seq, specifically §5318), create a private right of action for the failure to investigate allegedly "suspicious" activity in the accounts of a client (In re Agape at 360; Aiken v. Interglobal Mergers and Acquisitions, 05-Civ-5503, 2006 US Dist LEXIS 45730 [SDNY 2006]).