Burr & Forman

04.29.2016   |   Blog Articles, Tennessee, Tennessee Business Litigation, Tennessee Court of Appeals

TN COA Tosses Fraud & Securities Claims Over “Crazy” Scam

Tennessee fraudulent misrepresentation claims – and “investment contract” claims under the State’s Blue Sky Law – fail the “reasonable reliance” requirement, where the plaintiff himself asserts it’s a fraud because nobody would believe such a thing.

In a case the Court of Appeals charitably called “astonishing,” a lawyer and his successful businessman friend and client paid large amounts of cash over time to a promoter running a “Black Money” scam that also borrowed elements from the “Nigerian Prince” script. The scammers obtained money from both Lambert and Fitzgerald, purportedly to defray the up-front costs required “to obtain certain paperwork including a diplomatic license, powers of attorney, and an antiterrorism certificate before the money [six containers of $25 million cash each] could be moved from customs to a bank, cleaned [of a mysterious film that had been applied at its source in South Africa] and ultimately distributed.” And, naturally, the victims were to receive a share vastly disproportionate to their “investment.” “Both intentional and negligent misrepresentation require that the Plaintiff has reasonably relied on the promises of the Defendant. The same is true, as shown above, under the Securities Act.” Op. at 38 (quoting trial court opinion).

At trial, Mr. Lambert’s case was built on the premise that Mr. Fitzgerald must be committing fraud because no one could believe the promises made by Mr. Brindley. This Court agrees. The promises of fantastic returns for the investments, the use of cash only, the consistent and long term failure to keep any promises made by Brindley and the very idea that someone named Ebenezer Bonaparte would, for unexplained reasons, ship $150,000,000.00 of literally dirty cash from South Africa to London and then agree to turn that over to Mr. Brindley all scream fraud. This Court cannot believe that Mr. Fitzgerald believed or continues to believe that the money even exists. It is more than suspicious that large sums of cash have allegedly been transferred to various parties to do legitimate business with no receipt or paper trail existing. Fitzgerald claims he believes the money still exists and that he will get at least $25,000.000.00 [sic] from this deal. This Court neither believes the money exists or that Fitzgerald believes that. The whole scheme is, for lack of a better term, crazy.

Op. at 42-43 (quoting trial court opinion). Both the trial and appeals courts noted that Tennessee’s Securities Act expressly excludes currency. See Tenn. Code Ann. § 48-1-102(17)(B). More importantly, though, the Court of Appeals also held that the Securities Act requires reasonable reliance – at least where the “security” involved is an alleged “investment contract.” “The Trial Court found that the test set out in King v. Pope, [91 S.W.3d 314, 316 (Tenn. 2002)] contains an element of reasonable reliance. We agree.” Op. at 44. The case is Estate of George Lambert v. Fitzgerald, No. E2015-00905-COA-R3-CV (Tenn. App., Knoxville, April 28, 2016)(Swiney, Susano & Frierson, JJ.) Thomas K. Potter, III (tpotter@burr.com) is a partner in the Securities Litigation Practice Group at Burr & Forman, LLP. Tom is licensed in Tennessee, Texas and Louisiana. He has over 30 years’ experience representing financial institutions in litigation, regulatory and compliance matters. See attorney profile. © 2016 by Thomas K. Potter, III (all rights reserved).

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