WASHINGTON - Claiming that the future of checking accounts is at stake, banking trade groups are imploring a Louisiana appellate court to overturn a verdict holding two banks liable for a customer's Ponzi scheme.
The American Bankers Association and the Louisiana Bankers Association said March 31 that the jury's decision threatens the basic tenets of this country's political and economic systems.
"The decision drastically alters the role of financial institutions from that of service provider facilitating a customer's own decisions and activities, to that of a 'big brother' institution prying into the customer's business and, in effect, making his business decisions for him," the groups wrote.
The trade groups are upset that Bank of LaPlace and First National Bank of Commerce are on the hook for a Ponzi scheme run by Lynn Martin.
A wealthy victim of the swindle sued the banks, claiming Bank of LaPlace had an obligation to uncover Mr. Martin's fraud. And he said First National, Bank of LaPlace's bank, was responsible for making sure the bank investigated Mr. Martin.
The jury bought the argument, awarding the customer $4.5 million.
ABA deputy general counsel Michael Crotty said he wants to nip this legal theory in the bud. "That's why we are in this case," he said. "We don't want it to spread."
Mary Beth Arceneaux, general counsel to the Louisiana Bankers Association, said the decision could lead banks to run credit and criminal background checks on all prospective checking account customers.
"If a bank is going to be liable from criminal enterprises of its customers, then the bank out of self-protection is going to have to take steps to ensure that it doesn't allow people with criminal tendencies to have checking accounts," Ms. Arceneaux said.
Compliance with the decision, if legal, would cost banks a fortune, placing the future health of the industry in doubt. Banks that do survive would become the "guarantors of the honesty and integrity of their customers," the groups said, making them a prime lawsuit target for anyone whose deal goes sour.
"Ultimately, the swindler - such as Martin in this case - is the only person to benefit, with no counterbalancing public policy being served," the groups wrote.
The court heard oral arguments on April 4. A decision is not expected for several months.