Unreported / Non-Citable
Background
T. Denny Sanford purchased two certificates of deposit totaling $15 million from Stanford International Bank Limited through Stanford Group Company in 2005 and 2007. He lost the investment after authorities exposed R. Allen Stanford’s Ponzi scheme. Pershing served as the clearing broker for Stanford Group Company, and Sanford alleged that Pershing materially assisted the scheme.
Sanford asserted New Jersey common-law claims for indirect fraud and participation in, or aiding and abetting, a breach of fiduciary duty. Pershing sought summary judgment, arguing that the claims were untimely and that Sanford lacked sufficient evidence to establish their elements.
The Court’s Holding
The court denied Pershing’s motion for summary judgment. It held that a genuine factual dispute existed over when Sanford knew or reasonably should have known that Pershing allegedly contributed to his loss. The public disclosure of Stanford’s fraud in February 2009 did not establish as a matter of law that Sanford was then on notice of potential claims against Pershing. Because Sanford filed suit within six years of the November 2009 filing of a related investor action, the unresolved accrual question prevented summary judgment under New Jersey’s six-year limitations period.
The court also found sufficient evidence for a jury to consider Sanford’s indirect-fraud claim. Testimony and Pershing communications could support findings that Pershing made material representations about its due diligence and Stanford’s legitimacy, intended those assurances to reach investors, and indirectly caused Sanford to rely on them. The court declined to bar claims involving Sanford’s 2005 CDs as impermissible “holder claims” because New Jersey courts had not precluded such common-law fraud claims.
Sanford likewise raised triable issues on aiding and abetting a breach of fiduciary duty. Evidence concerning Pershing’s knowledge of Stanford’s business, the benefits Pershing received, its awareness of warning signs, its recruitment assistance, its encouragement of advisers to use Pershing’s reputation, and its involvement in transactions could allow a jury to find both the required knowledge and substantial assistance.
Key Takeaways
- Knowledge that the Stanford scheme had collapsed did not necessarily put Sanford on notice that Pershing may also have contributed to his injury.
- Under New Jersey law, indirect fraud may be established when a defendant intends a misrepresentation to reach a plaintiff through an intermediary and the plaintiff actually and reasonably relies on it.
- Pershing’s alleged recruiting, promotional, monitoring, and transactional activities could be viewed as more than routine clearing services and therefore as substantial assistance in a fiduciary breach.
Why It Matters
The ruling preserves an individual Stanford investor’s state-law claims against a clearing broker and underscores that limitations accrual may depend on when the investor had reason to suspect the particular third party’s involvement, not merely when the underlying fraud became public.
It also illustrates how a clearing broker’s activities beyond ministerial processing—including reputational support, adviser recruitment, and encouragement of sales efforts—may create jury questions on indirect fraud and aiding-and-abetting liability. The decision resolves only summary judgment; it does not establish that Pershing is liable.