Securities Brokerage Firm Owes No Duty to Non-Customers in Ponzi Scheme Case, Says New Jersey Appeals Court
In a case of first impression, the New Jersey Appellate Division affirmed the dismissal of negligence claims brought against securities brokerage firm Merrill Lynch, finding that Merrill Lynch owed no duty of care to third parties who claimed the company should have policed its customer's account for fraud. Frederick vs. Smith, et als. , Superior Court of New Jersey, Appellate Division, Docket A-1620-09T2 (November 9, 2010). In this case the plaintiffs alleged that defendant Maxwell Baldwin Smith (Smith) convinced them to invest in Healthcare Financial Partnership (HFP), a fictitious entity. As part of the fraud, Smith instructed plaintiffs to convey the invested funds to an account that he maintained with Merrill Lynch. Plaintiffs were not Merrill Lynch clients, yet Merrill Lynch accepted payment directly from the plaintiffs and the funds were deposited into Smith's account. In support of their negligence claims, plaintiffs alleged that Smith convinced t...