I have reviewed the myriad of ways in which parties can be held liable for the fraudulent conduct committed by others. See Imposing Responsibility for the Fraud of Others—Let me Count the Ways. Among the most prominent legal theories is the cause of action known as “aiding and abetting fraud.”
Aiding and abetting claims can be particularly challenging to allege and prove. I explained some of the more demanding principles, for example, in Fraud and Aiding and Abetting Claims Against Lender Fail. The New York, Appellate Division, First Department can, however, be particularly accommodating when it comes to alleging such claims. See First Department Very Lenient in Sustaining Allegations Against Bank for Aiding and Abetting Fraud of its Customer.
The First Department continued that path in the recent decision of Vision Biobanc Holdings LLC v Taller, 2026 NY Slip Op 03901(1st Dep’t June 18, 2026).
In Taller, it was alleged that false factual statements were contained in a Private Placement Memorandum allegedly inducing investors to invest in the company issuing the PPM. Talller’s procedural posture was a bit unusual, and the Court’s decision is not enlightening as to how it got that way. The unusual part is that the same entity that issued the PPM was actually the plaintiff apparently suing on behalf of the affected investors. There appears to be no assertion of the in pari delicto defense.
In any event, the First Department addressed the claim of aiding and abetting fraud, ultimately affirming the lower court’s denial of defendants’ motion to dismiss that claim. Along the way, the Court endorsed a rather lenient review of the allegations.
At issue on the appeal was the actions of a former director and cofounder (defendant Lessen) of the plaintiff entity and his role in what was alleged to be three distinct false factual statements in the PPM: (1) that plaintiff had a board of directors in place that would provide oversight and that initially consisted of certain named individuals; (2) that plaintiff had an audit committee (composed of certain named individuals); and (3) that plaintiff had retained “one of the big four auditing firms” — namely, PricewaterhouseCoopers.
False Factual Statements
As I have explained often, fraud must be based on false factual statements rather than promises or predictions and the like. The Court in Taller first ruled that plaintiff had sufficiently alleged that the above statements in the PPM were false:
The [statements] are not forward-looking statements covered by the PPM’s disclaimer, as they are styled as statements of present fact. The amended complaint alleged that Silver, Birnholz, and Barron were not aware that they had been named to the board (let alone the audit committee) and never participated in a board meeting, and that there was no functioning board or audit committee at the time of the January 2020 PPM, as corroborated by the revision in the November 2020 PPM that the board had not yet been “activat[ed].” It further alleged that plaintiff had not engaged an auditor (let alone a big four auditor) at the time of the January 2020 PPM and that its financial statements were never audited, as corroborated by the revision in the August 2020 PPM that plaintiff was still “in the process” of engaging an auditor.
Knowledge and Substantial Assistance of the Fraud
The First Department then focused on that element of the aiding and abetting of fraud claim regarding defendant’s knowledge of the fraud, allowing the allegations to be based at least in part upon information and belief and by imposing inferences:
Plaintiff also sufficiently alleged that Lessen had actual knowledge that these statements were false — notwithstanding that some (but not all) of these allegations were made “[u]pon information and belief” (see Board of Mgrs. of 45 E. 22nd St. Condominium v 45 E. 22nd St. Prop. LLC, 246 AD3d 655, 656 [1st Dept 2026]). The allegations regarding Lessen’s positions as plaintiff’s cofounder, CFO, COO, board member, and audit committee member (which are supported by Lessen’s own allegations in a separate action), are sufficient to raise an inference that Lessen knew the true facts regarding the membership and functioning of plaintiff’s board and its committees. None of the circumstances cited by Lessen are sufficient to conclusively refute plaintiff’s allegations of actual knowledge or to conclusively establish that Lessen justifiably believed the subject statements to be true.
Next, the First Department found the allegation of “substantial assistance” to be sufficient even though it was not alleged that Lessen had actually written the allegedly false statements:
Plaintiff sufficiently alleged that Lessen substantially assisted in the publication of the allegedly false statements. Although not the primary author of the January 2020 PPM, plaintiff’s allegations regarding Lessen’s positions with plaintiff, including his role in developing marketing materials, as well as specific allegations that Lessen had “input into the PPM,” are sufficient to raise an inference that Lessen at least approved the publication of these statements in the PPM.
Inferences of Underlying Elements
The First Department then approved of the allegations pertaining the underlying elements of the fraud claim (upon which the aiding and abetting claim was based) regarding justifiable reliance and loss causation damages, again permitting inferences to fill in the gaps of the pleading:
Plaintiff also sufficiently alleged that investors justifiably relied on the statements in the January 2020 PPM when they decided to purchase plaintiff’s securities between the issuance of the January 2020 PPM and the issuance of the August and November 2020 PPMs, which corrected the allegedly false statements therein.
We also find that plaintiff sufficiently alleged loss causation, notwithstanding that the actual losses did not materialize immediately when the allegedly false statements were made but manifested after Taller’s later misconduct. Plaintiff’s allegations were sufficient to permit an inference that the allegedly false statements enabled such misconduct insofar as they masked the fact that Taller’s authority at plaintiff was essentially unchecked by the normal mechanisms of corporate governance. Plaintiff’s allegations thus permit an inference that it was foreseeable that plaintiff’s investors would suffer losses as a result of relying on the alleged misrepresentations (see MBIA Ins. Corp. v Countrywide Home Loans, Inc., 87 AD3d 287, 296 [1st Dept 2011]).
Commentary
There are various legal methods by which individuals can be held accountable for the fraud actually perpetrated by others. Aiding and abetting fraud is a common cause of action by which such liability can be imposed. While that claim has its challenges, as shown by the First Department’s decision in Taller, the courts can be particularly forgiving at the pleadings stage of the case.