Second Circuit upholds dismissal of claims against FDIC as bank receiver in crypto partnership case

On February 10, the U.S. Court of Appeals for the 2nd Circuit affirmed a judgment from the SDNY, holding that the FDIC, as receiver for a failed bank, was not liable for alleged fraud against investors in a cryptocurrency partnership. The case centered on a partnership that collected more than $33 million from investors, promising returns from a proprietary algorithmic cryptocurrency trading strategy. The complaint alleged that the entire investment scheme was a fraud, and that insiders allegedly diverted the funds to themselves, with only a handful of transfers to a cryptocurrency exchange over two years. The SDNY had previously adopted a state court’s dismissal of claims against the FDIC after lifting a stay to allow the plaintiff, an assignee of over 70 investors, to pursue post-judgment remedies or appeal.

On appeal, the 2nd Circuit found that banks are not obliged to protect non-customers from intentional torts by their customers, except in cases involving fiduciary accounts. The court further found the plaintiff failed to show that the account at issue was a fiduciary account or that a written fiduciary agreement existed, as required by the FDI Act. Consequently, the court concluded the FDIC had no liability and affirmed the district court’s dismissal.