Minnesota Bankruptcy Case: Creditor Knowledge of Stock Market Risk Does Not Moot Justifiable Reliance on Debtor Misrepresentations
The following is a summary of a Minnesota bankruptcy case or a case relevant to Minnesota bankruptcy law.
Minnesota Bankruptcy Case:
Islamov v. Ungar (In re Ungar), 429 B.R. 668 (B.A.P. 8th Cir. (Neb.) 5/21/10) (Schermer, J.).
Creditor Knowledge of Stock Market Risk Does Not Moot Justifiable Reliance on Debtor Misrepresentations
The Eighth Circuit BAP affirms the bankruptcy court’s order holding the debt nondischargeable and entering a money judgment where the creditor justifiably relied on the debtor’s false reports of her success investing his money in the stock market. The debtor day-traded stocks and convinced the creditor to let her invest his money (and funds from his friends and relatives). She sent him statements falsely reporting profits and account balances, and he continued to invest based on these false reports. In fact, she spent the money on herself or lost it in the stock market. The bankruptcy court held the debt nondischargeable for fraud under §523(a)(2)(A) and entered a money judgment. On appeal, the debtor argued that the creditor could not have justifiably relied on her misrepresentations because he was aware of the risks of investing in the stock market. Noting the minimal standard of justifiable reliance established by the Supreme Court, the BAP agrees with the bankruptcy court that the creditor had no duty to investigate and did justifiably rely on the debtor’s false account statements. The debtor also questioned the court’s ability to enter a money judgment when the creditor asked only for a judgment of non-dischargeability, but the BAP holds that the bankruptcy court had jurisdiction to enter judgment, especially since the debtor litigated the amount of the judgment at trial.
Credit: The preceding was a summary of a case relevant to Minnesota bankruptcy law. The case summary was prepared by the U.S. Bankruptcy Court through Judge Robert J. Kressel & attorney Faye Knowles.