Bookmark this page on your mobile

QR Code image

What is this?

Daily Court Reporter - News Ponzi scheme victims cannot sue brokers who sent funds to perpetrator


Ponzi scheme victims cannot sue brokers who sent funds to perpetrator

Dan Trevas, Supreme Court of Ohio

Ohio law does not allow victims of an alleged Dayton Ponzi scheme to seek financial recovery from brokers that unknowingly purchased fraudulent investments from the scam perpetrator at the direction of the victims, the Ohio Supreme Court ruled recently.

Ohio residents Cynthia Boyd and Thomas Flanders filed a federal lawsuit to hold two-out-of-state investment firms jointly and severally liable for their financial losses in a Ponzi scheme that sent Dayton area investor William Apostelos to prison. As part of their federal lawsuit, the Sixth Circuit U.S. Court of Appeals asked the Ohio Supreme Court to clarify whether the Ohio Securities Act allows certain security owners to sue their brokers for purchasing illegal securities even if the firms were unaware of the Ponzi scheme and were not participants in it.

Writing for the unanimous Supreme Court, Justice Judith L. French wrote that Ohio law imposes liability on people and businesses that have played a role selling illegal securities. Whether Kingdom Trust Company or PENSCO Trust Company colluded with Apostelos or his companies in the sale of illegal securities is something the victims would have to prove in federal court for their case to move forward, the justices concluded.

Investors Seek Fleeced Funds

Boyd and Flanders are part of a class-action lawsuit seeking repayment of the investment funds lost to Apostelos and his companies — Midwest Green Resources and WMA Enterprises. Apostelos allegedly urged the investors to open self-directed individual retirement accounts (IRAs) to invest in securities offered by Midwest Green and WMA. Boyd opened an account with Kingdom Trust and Flanders with PENSCO.

Once the IRA accounts were opened, Apostelos asked the investors to ask the trust companies to invest in Apostelos-directed securities or give him the ability to invest the money in their IRA trusts for them.

When the Ponzi scheme unraveled, Boyd and Flanders sought to hold the trust companies liable under the Ohio Securities Act. Their complaint does not allege that Kingdom Trust or PENSCO had any role in the scheme aside from purchasing the unlawful securities at their direction, nor do they allege the companies knew Apostelos was perpetrating a fraud.

Federal Court Raises Questions

The companies asked the federal district court to dismiss the cases against them, which the court agreed to do. The district court found, absent any claim that the trust companies were providing anything but routine banking activities, they can’t be held liable for the transactions.

The victims appealed the decision to the U.S. Sixth Circuit, which noted that the Ohio Supreme Court has never addressed the issue and certified to the Supreme Court the question whether the law applies to the custodian of a self-directed IRA. Self-directed IRAs are less costly and more risky to investors because the trust companies do not independently evaluate the securities their customers ask them to purchase.

R.C. 1707.43 states that “[t]he person making such sale or contract for sale, and every person that has participated in or aided the seller in any way in making such sale or contract for sale, are jointly and severally liable to the purchaser ... for the full amount paid by the purchaser and for all taxable court costs.”

The opinion stated that liability is imposed on three types of participants: the person making the sale; everyone who participated in the sale; and everyone who has “aided the seller in any way in making such sale or contract for sale.” The law does not apply to those whose only involvement is purchasing the illegal securities.

‘Purchase,’ ‘Sale’ Differ in Ohio Law

The Court explained the legislature treats “purchase” and “sale” as two separate actions under the securities act. The companies argued their only role was to purchase investments. Boyd and Flanders argued the law broadly covers those who aided “the seller in any way,” which includes the purchases by the trust companies even if they were not involved in the sale or did not induce the sale.

The opinion stated that in other court cases, investing companies have been held liable for being actively involved in the sale by setting up investor meetings or acting as the financial adviser for the investment. But in cases where the financial institution did not aid or participate in the sale, the courts ruled the companies complied with the securities act.

The Court concluded that the law on its face does not allow lawsuits against the companies without alleging they worked in concert with the perpetrator. However, the Court did not rule on whether these or other IRA custodians could be held liable for their actions.

“Nothing in our holding today would insulate from liability a self-directed IRA custodian who colludes with the seller in an unlawful sale of securities or actively participates or aids in the sale of illegal securities,” Justice French wrote.

She noted the Court will leave it to the Sixth Circuit to decide whether there are reasons why the federal court ought to let the case go further against the trust companies.

2017-1336. Boyd v. Kingdom Trust Co., Slip Opinion No. 2018-Ohio-3156.

The opinion can be found online at:

Please note: Opinion summaries are prepared by the Office of Public Information for the general public and news media. Opinion summaries are not prepared for every opinion, but only for noteworthy cases. Opinion summaries are not to be considered as official headnotes or syllabi of court opinions. The full text of this and other court opinions are available online.

Date Published: August 24, 2018


Supreme Court of Ohio


Montgomery County Clerk of Commission retiring after 30 years of dedicated service

Montgomery County Clerk of Commission, Gayle Ingram, has retired after a 30-year career in public service. Ingram was appointed Clerk of Commission in 2010 after serving as Manager of Commission Services and Deputy Clerk for the Montgomery County Board of County Commissioners. She began her career in public service back in 1979 with the Miami Valley Regional Planning Commission and went on to serve in roles with New Futures for Dayton Area Youth, Inc. and the Office of Family and Children First.

University of Dayton football opened preseason camp Sunday

University of Dayton head football coach Rick Chamberlin and his staff welcomed 114 players back to campus Sunday, August 5 as the Flyers prepare for the 2018 football season. UD opens the season at home vs, Robert Morris on Sept. 1.

Annual 2018: Why women leave the law—and what we can do about it

The issue of women leaving the practice of law at what should be the height of their careers, and what can be done about it was the focus of one of ABA President Hilarie Bass’ initiatives. At the ABA Annual Meeting in Chicago, the “Long-Term Careers for Women in Law: What’s Pushing Women Out and What Can We Do to Keep Them in the Profession?” program laid out what a year’s worth of scientific research has revealed about the dilemma.

Report: Despite evolving technology, Ohio still a manufacturing powerhouse

Manufacturing continues to be a significant sector for Ohio - including Franklin County, according to a new report from the Ohio Manufacturers' Association.

Chinese national living in Massachusetts pleaded guilty to distributing opioids and other drugs that were shipped from China to the U.S. and ultimately to Ohio

A Chinese national who had been living in Massachusetts pleaded guilty to distributing opioids and other drugs that were shipped from China to the United States and ultimately to Ohio.

Supreme Court of Ohio suspends lawyer for profanity-laced abuse of paralegal

A Cleveland lawyer’s paralegal repeatedly recorded conversations of her boss berating her physical appearance and dress, and calling her a “ho,” “dirtbag,” and other obscenities. The lawyer’s explanation for his behavior was that he learned the lingo from rappers and hip-hop artists he represents as an entertainment lawyer, and he thought he was being funny.

Ponzi scheme victims cannot sue brokers who sent funds to perpetrator

Ohio law does not allow victims of an alleged Dayton Ponzi scheme to seek financial recovery from brokers that unknowingly purchased fraudulent investments from the scam perpetrator at the direction of the victims, the Ohio Supreme Court ruled recently.

A year after fatal State Fair ride accident, legislation still under discussion

As Ohio fair season continues throughout the summer and early fall, lawmakers in the Ohio House of Representatives have unfinished business relating to a bill that aims to beef up amusement ride safety, in the opinion of one of their own.

Report shows that stricter land regulations contribute to higher home prices

With stricter land-use regulations, homeowners can expect higher home values and strong job growth, according to a new report.

Bill aimed to protect people's due process

Upon return from summer recess, lawmakers seated for a committee in the Ohio House of Representatives may consider a piece of legislation meant to correct officially a public record.

Twelve charged in moving company scams

Law enforcement asks potential additional victims to call or email hotline

Bill launched by Attorney General’s CyberOhio Initiative signed into law

Ohio Attorney General Mike DeWine today released the following statement regarding Senate Bill 220, the Data Protection Act sponsored by State Senators Bob Hackett (R-London) and Kevin Bacon (R-Westerville) being signed into law:

Supreme Court of Ohio dismisses violations against attorney who represented man he never met

The Ohio Supreme Court recently dismissed rule violation charges against a Cleveland attorney who filed and lost the criminal conviction appeal of man he never met or spoke to until after the case ended.

Therapy dog’s ‘pawsitive’ influence on drug court participants noticeable

Facing a judge can be intimidating. But in Summit County, there’s a new probation officer who provides some hand holding, at least with his paws.

August is national immunization month

August is National Immunization Month and Public Health – Dayton & Montgomery County is reminding parents to have their school-age children vaccinated.

Dayton athletics hosts YMCA Olympics

The University of Dayton partnered with the YMCA to host the twelfth annual YMCA Olympics.

Final defendants sentenced in pharmacy robberies case

The final two of eight defendants were sentenced in U.S. District Court today for their roles in pharmacy robberies in Fairfield, Middletown, Franklin, Hamilton, Westerville, Trotwood, Dayton, Oakwood, Kettering, Beavercreek, Moraine, Vandalia, Union Township and Cincinnati.

Fiona the Hippo book launch party

The Cincinnati Zoo & Botanical Garden is thrilled to invite children of all ages to the launch party of the latest book about its most famous resident, Fiona the hippo, on August 7, 2018. Published by Zonderkidz, the children’s division of Zondervan, Fiona the Hippo features charming artwork from New York Times bestselling illustrator and Cincinnati native, Richard Cowdrey.

Mid-Atlantic Forest Fire Compact wins National Smokey Bear award

The Mid-Atlantic Interstate Forest Fire Protection Compact’s (MAIFFPC) Fire Prevention Committee was recently presented with the Golden Smokey Award, according to the Ohio Department of Natural Resources (ODNR). Ohio’s representative on the committee, Aaron Kloss of Centerburg in Knox County, accepted the honor on behalf of the ODNR Division of Forestry. The presentation ceremony took place at Vinton Furnace State Forest on Wednesday in conjunction with the Northeast-Midwest State Foresters Alliance summer meeting.

Montgomery County innovative program receives prestigious state award

Montgomery County’s “Trucks and Tomatoes” Job Training and Urban Garden Enhancement Project is the recipient of the 2018 President’s Award for Innovative Practices by the Ohio Conference on Community Development.