IRA Administrator and Custodian May Be Liable For Aiding and Abetting Fraud in Ponzi Scheme

In Winick v. Van Zandt, 2012 NY Slip Op 32264 (Sup. Ct. Nassau County, August 2, 2012), the court granted in part and denied in part the moving defendants, IRA Services, Inc. and IRA Services Trust Company (the IRA Defendants) motion to dismiss. The action arose out of the plaintiffs investments in a Ponzi scheme directed by the non-moving defendant Robert Van Zandt. To make their investment, the plaintiffs rolled over a $190,000 IRA account into a new IRA account for which the IRA Defendants were the administrator and custodian. The plaintiffs commenced this action asserting claims against the IRA Defendants for fraud, aiding and abetting fraud, conversion, unjust enrichment, breach of fiduciary duty, negligence, gross negligence, and breach of contract. The court denied the motion as to aiding and abetting fraud[1], finding that an inference was raised that the IRA Defendants had knowledge of the fraud because they rolled the IRA account over to the defendant MIG, who issued some of the notes the plaintiffs invested in, on the same day the account was opened. Contrary to the IRA Defendants position that they had no duty of due diligence because they merely provided routine business services not constituting substantial assistance, the court explained that a 1-day rollover does not appear to be a routine business service.