According to Trinity's Second Amended Complaint in the below captioned New York lawsuit, Advance Funding, Dan Cevallos and Monica L. Ray induced Trinity to wire $552,000 by fraudulently misrepresenting that 2008 lottery winner) Ruben Martinez had given the assignment (of his lottery payment rights), when Martinez claims he had not [ Download 652780_2020_First_Trinity_Life_Ins_v_First_Trinity_Life_Ins_EXHIBIT_S__9 ], and by fraudulently misrepresenting they had paid Martinez (for his lottery payment rights), when they had not. Because he was never paid, Martinez challenged the assignment and Trinity has been left with nothing but a $552,000 loss". Trinity, a life insurance and final expense insurer based in Tulsa Oklahoma, subsequently commenced the legal action in New York
TRINITY LIFE INSURANCE COMPANY, Plaintiff v ADVANCE FUNDING LLC, Dan Cevallos, Monica L. Ray and Citibank, N.A., Defendants. Supreme Court of New York New York County No. 652780/2020
Ruben Martinez, the lottery winner
Ruben Martinez, a Bronx New York resident, spent $2 on a Win $2,000 A Week for Life instant ticket in September 2007, and won "a minimum of $2 million, paid to him after taxes. He was scheduled to receive $16,771 per quarter. Martinez nearly lost out on his millions. After learning of his winnings, Martinez told reporters that the time that he bought his winning ticket more than seven months earlier, but never checked to see if he had won. But on April Fool's Day 2008, Martinez he discovered the ticket in his coat pocket and decided to check it, only to find out that he had been carrying around a $2 million ticket for more than half a year. When he went to tell his family, they didn't believe me at first because it was April Fools. [Source: Queens Chronicle April 17, 2008]
The Purported Lottery Payment Factoring Transaction
In August 2016, Martinez entered into an agreement with defendant Advanced Funding (“AF’) in which he agreed to assign 32 months of prize payments totaling over $800,000 in exchange for a lump sum payment of $465,000. AF then assigned its right to the money to plaintiff in exchange for a
payment in excess of $500,000. In connection with Martinez’s assignment, a petition was brought in Schenectady County New York approving the transfer. However, Martinez later moved (via a new attorney) to strike the assignment and disavow an affidavit he signed in which he agreed to the transaction. He later withdrew the order to show cause in exchange for an increased lump sum payment. Download 652780_2020_First_Trinity_Life_Ins_v_First_Trinity_Life_Ins_EXHIBIT_S__9 Then Martinez brought another application seeking to stop any more payments by the state’s Lottery Commission because Advance Funding allegedly did not make the additional payments promised to him in the agreement.
Smacks of the Alcantara case. In ADVANCE FUNDING LLC, Petitioner, For Judicial Approval of a Transfer Agreement with JEREMY ALCANTARA. In accordance with New York General Obligations Law § 5-1701 et seq., v JEREMY ALCANTARA, METROPOLITAN LIFE INSURANCE GROUP, and METLIFE TOWER RESOURCES GROUP, INC. Index 20842/2014E, a Bronx Supreme Court Approved Structured Settlement Transfer, Payment Rights Transferred to Buyer's Assignee, But the Buyer Did Not Comply with Order. Alcantara sued and was successful. See my May 23, 2020 blog Orders Vacated in Bronx Structured Settlement Cash Now Scam by Convicted Felon | Bad News For Investors
Further Background on Dan Cevallos
How is Recidivist Dan Cevallos of Advance Funding Not in Jail? February 29, 2020
Plaintiff Trinity brought this case because it claims it paid a substantial amount of money to AF for the rights to Martinez’s lottery prize and the assignment in of payment rights in question due to AF’s alleged failure to pay Martinez additional monies. Trinity alleged that Citibank assisted Advance Funding with the fraud by allowing them to use multiple bank accounts without signature cards, permitting defendants to transfer money and helping them complete a fraudulent wire transfer to show Martinez was paid for the assignment of his lottery winnings.
Citibank moved to dismiss on the ground that it cannot be held liable for letting AF be a Citibank customer. It argued that it had no actual knowledge of AF’s fraud and that the sole basis for plaintiff’s claims against Citibank is that AF had accounts with Citibank and completed high dollar transactions. Citibank argues that a bank does not owe a duty to non-customers to protect them from fraud perpetrated by a bank customer. It also contends that plaintiff did not adequately plead that Citibank had actual knowledge of the fraud—a requirement for a cause for action for aiding and abetting fraud
According to published court records, Trinity alleged that Defendants Advance Funding LLC (“Advance Funding”), Dan Cevallos (“Cevallos”) and Monica L. Ray (“Ray”) participated in a transaction pursuant to which Advance Funding purchased an assignment of the lottery winnings of Ruben Martinez, and then sold that assignment to Trinity for $552,000.
In opposition, plaintiff alleged that Citibank played a key role in the fraud by housing numerous accounts for AF and the co-conspirators. Plaintiff maintained that AF completed many transactions through Citibank accounts to launder money acquired in their scheme. It observes that millions of dollars were transferred each month. Plaintiff argues that it can state a cause of action for aiding and abetting fraud by pointing to circumstantial evidence because direct evidence of actual knowledge is exclusively within the bank’s possession. It asserts that actual knowledge is not required and that only conscious avoidance is required. Plaintiff emphasized that Citibank failed to obtain signature cards, account opening documentation, corporate charters and by-laws among its lack of due diligence. Plaintiff questioned how Citibank did not know that transfers for millions of dollars were part of a money laundering scheme and points to the names of the various corporate entities used by AF
In reply, Citibank argued that the value of the transactions cannot constitute actual knowledge of fraud. It also insisted that actual knowledge is required despite plaintiff’s effort to change the elements of its cause of action.
Elements of an Aiding and Abetting Fraud case
A plaintiff alleging an aiding-and-abetting fraud claim must allege the existence of the underlying fraud, actual knowledge, and substantial assistance. This Court has stated that actual knowledge need only be pleaded generally, cognizant, particularly at the pre-discovery stage, that a plaintiff lacks access to the very discovery materials which would illuminate a defendant's state of mind. Participants in a fraud do not affirmatively declare to the world that they are engaged in the perpetration of a fraud. The Court of Appeals has stated that an intent to commit fraud is to be divined from surrounding circumstances. This is not, as defendant argues, constructive knowledge, but actual knowledge of the fraud as discerned from the surrounding circumstances” (Oster v Kirschner, 77 AD3d 51, 55-56, 905 NYS2d 69 [1st Dept 2010. Here, the Court find that plaintiff’s pleading fails to state a cause of action for aiding and abetting fraud against Citibank. As an initial matter, plaintiff did not adequately plead the “actual knowledge” element of this cause of action. Although plaintiff may rely on the surrounding circumstances, the “circumstances” detailed simply show a bank providing accounts for various customers. This Court declines to impose, as plaintiff seems to argue, a duty to investigate a customer simply because many high value transactions are completed at the bank.
A bank need not expend significant resources to explore the reasons for every transaction. Of course, in retrospect (and with the knowledge that AF purportedly engaged in a fraudulent scheme), it may be easy to see fraud at every turn. But having a bank account and doing a lot of transactions does not suggest actual knowledge of fraud. Moreover, plaintiff did not adequately plead that Citibank provided substantial assistance. “Substantial assistance exists where (1) a defendant affirmatively assists, helps conceal, or by virtue of failing to act when required to do so enables the fraud to proceed, and (2) the actions of the aider/abettor proximately caused the harm on which the primary liability is predicated” Stanfield Offshore Leveraged Assets, Ltd. v Metro. Life Ins. Co., 64 AD3d 472, 476, 883 NYS2d 486 [1st Dept 2009]. Plaintiff did not adequately plead how Citibank did anything to affirmatively assist, help conceal or do anything to help the fraud other than that the fraudsters used Citibank accounts.
Under plaintiff’s theory, every bank provides substantial assistance for a fraudulent scheme merely by letting a customer open and use a bank account. That would make a bank essentially a co-conspirator in countless financial misdeeds. There would be no reason to let anyone open a bank account if liability could arise under those circumstances. That, allegedly, Citibank could not locate signature cards or account opening documents is irrelevant. It does not show that Citibank had actual knowledge or provided substantial assistance to the fraudulent scheme. Moreover, it is critical to contemplate the cause action for aiding and abetting fraud as a whole. Such a claim is an assertion that a party actually helped advance a fraudulent scheme. In Oster, cited above, the First Department found that plaintiffs had stated a cause of action for aiding and abetting fraud where a defendant law firm drafted documents for the fraudsters and knew about their criminal background. And those documents contained multiple misrepresentations, including the criminal histories of key players and how the investment scheme would work (id. at 54). In other words, the fraudulent scheme in Oster relied, in part, on certain documents draft by defendants used to induce investors to invest their money. There are no allegations in the instant case that Citibank did anything like drafting documents used to perpetrate a fraud. Rather, the purported fraudsters merely used bank accounts at Citibank. Such conclusory allegations cannot support a claim for aiding and abetting fraud (McBride v KPMG Intern., 135 AD3d 576, 578, 24 NYS3d 257 [1st Dept 2016]).
Trinity alleged in its Memorandum of Law in opposition to Citibank's motion to dismiss, that the fraud perpetrated by Advanced Funding, Cevallos and Ray is part of their broader Ponzi scheme. Advance Funding, Cevallos and Ray fraudulently induced purported “assignments” by multiple lotter winners of their lottery winnings and then flipped them to third parties without ever paying for the initial assignment. Or they promised to “invest” the winnings for the lottery winner and promised 10% returns, but then simply misappropriated the money. Advance Funding, Cevallos and Mo Ray’s wrongdoing is now the subject of a number of litigations. See, e.g., Diego v. Advance Funding LLC, Index No. 25376/2020E (New York Supreme Court, Bronx County).
Trinity alleged "that Citibank played a key role in this wrongdoing in that Citibank continued to house numerous accounts for Advance Funding, Cevallos, and their associates and affiliates. Advance Funding, Cevallos, Ray, and their associates made an inordinate number of transfers through these accounts to launder money in furtherance of their Ponzi scheme. Each month - for a period of several years -- Advance Funding, Cevallos, Ray, and their associates would transfer millions of dollars to countless parties - most notably their own associates and affiliates, including Mercedes Cevallos, who upon information and belief is Cevallos’ wife or sister, and their affiliates such as Majestic Funding LLC and Northeastern Capital Funding LLC. Put simply, Citibank was the mechanism through which Advance Funding, Cevallos and Ray perpetrated their fraud. What is more, Citibank assisted Defendants’ specific fraud with respect to Trinity. Defendants induced Trinity’s payment of $552,000 for the assignment of Martinez’s lottery winnings by providing Trinity with a Citibank on-line confirmation of a $335,000 payment to Martinez which in fact never occurred. Memorandum of Law Ibid.
Trinity asserted that "Citibank’s primary, if not exclusive argument is that housing accounts through which a fraud is perpetrated, is not enough to hold a bank liable where then bank does not have actual knowledge of the alleged wrongdoing. But New York courts have repeatedly held that in light of the fact that evidence of a banking institution’s knowledge of a fraud is almost exclusively in the possession of the bank, a plaintiff can allege circumstantial evidence to demonstrate actual knowledge of the fraud at issue. See Oster v. Kirschner, 77 A.D.3d 51, 55-56 (1st Dep’t 2010) (“This Court has stated that actual knowledge need only be pleaded generally, cognizant, particularly at the pre-discovery stage, that a plaintiff lacks access to the very discovery materials which would illuminate a defendant’s state of mind”); DDJ Management, LLC v. Thone Group, LLC, 78 A.D.3d 442, 443 (1st Dep’t 2010). Further, actual knowledge is not required; “conscious avoidance” of the revenant facts is sufficient. See In re Refco Securities Lit., 759 F. Supp.2d 301, 334 (S.D.N.Y. 2010) (bank liable “when it can almost be said that the defendant actually knew, because he or she suspected a fact and realized its probability, but refrained from confirming it in order later to be able to deny knowledge.”); Fraternity Fund Ltd. v. Beacon Hill Asset Management, 479 F.Supp.2d 349, 368 (S.D.N.Y. 2007)".
Trinity alleged that "Citibank admittedly failed to obtain signature cards, account opening documentation, corporate charters and by-laws, corporate authorizations, or any other account opening documentation and verification for any of the accounts in question. See SAC ¶ 42, Marlow Affirmation, Ex. A. Thus, Citibank over a period of several years did absolutely nothing to verify the identity, signature, or overall legitimacy of the individuals and corporate entities which opened and were clearly actively using its numerous accounts - to facilitate a multi-million dollar fraud. Notably, Cevallos is a convicted felon who served 18 months in prison for wire fraud and was barred from FINRA for executing unauthorized trades and issuing falsified order tickets and trade. But Citibank either failed to learn or turned a blind eye to these facts because Citibank failed to obtain any account opening documentation in connection with Cevallos and Advance Funding’s numerous accounts at Citibank. This is indicative of actual knowledge or at least conscious avoidance". Ibid.
Second, "Citibank ignored clear indications that these numerous transfers for millions of dollars were being perpetrated for fraudulent, if not criminal, money laundering purposes. As alleged, and as Citibank’s own bank statements show, many of these transfers were to entities that blatantly sound like part of a money laundering scheme, such as “Majestic Car Wash LLC,” “Auto Detailing Plus 5,” “Bonavenia Pizza,” “Cool Cars Inc,” “Clear Rite Pools and Spas,” and “One Trick Pony LLC.” These entities clearly had nothing to do with the structured settlement business Advance Funding was purporting to run. Rather, they are the epitome, if not a typecast, of money laundering entities. But despite the fact that the names of these entities made it blatantly obvious what Advance Funding, Cevallos and Ray were doing, Citibank turned a blind eye and continued to enable them". Ibid.
Third, "Citibank enabled Advance Funding, Cevallos and Ray to use its own(sic) line banking system to fraudulently misrepresent to Trinity that Advance Funding had paid Martinez $335,000, when it had not. Advance Funding, Cevallos and Ray provided Trinity with a Fraudulent Wire Transfer Confirmation purporting to bear Citibank’s name and logo and purporting to be generated from Citibank’s on-line banking system, which suggests Cevallos wired Martinez $335,000. But in fact, no such wire ever occurred. Thus, in addition to assisting Advance Funding, Cevallos and Ray’s fraud through its numerous accounts (for which Citibank required absolutely no account opening documentation), Citibank also assisted their fraud through Citibank’s online banking system" Ibid.
In sum, "Citibank clearly had knowledge of Advance Funding, Cevallos and Ray’s fraud, or at the least, the circumstances alleged in the Second Amended Complaint create a clear inference of Citibank’s knowledge or conscious avoidance of knowledge of their actions. As argued below, numerous courts have held that such “conscious avoidance” is sufficient. Further, Citibank substantially assisted in Advance Funding, Cevallos and Ray’s fraud. Citibank provided the accounts through which their fraud was perpetrated, the online banking system through which the Fraudulent Wire Transfer Confirmation which induced Trinity’s $552,000 payment was sent, and the account to which Trinity wired the $552,000 payment. "But for Citibank’s role", Trinty argued, "the fraud perpetrated against Trinity would never have happened. Under the law, Citibank is thus liable for aiding and abetting that fraud"
Court Rules in Favor of Citibank
The Court granted the motion to dismiss by Citibank, N.A. and the claim against it severed and dismissed, while claims against the remaining Defendants continue.