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19 U. Mass. L. Rev. 2 (2024)

handle is hein.journals/sonengrs19 and id is 1 raw text is: r'UMass Law Review Failing to Learn the Lessons of Madoff: Problems with Applying Iqbal to Fraud Claims Howard Gutman and Chris Garino 19 U. MASS. L. REV. 2 ABSTRACT The Iqbal standard requires all civil actions filed in federal courts to provide detailed proof at the pleading stage for the claim to proceed. Under this standard, cases are adjudicated without the aid of discovery or deposition of witnesses. Cases are decided at the pleading stage based on the documents and statements provided by the one accused of fraud. The tools to uncover deception are not available at this stage. This article argues that the Iqbal pleading standard fails to allow civil courts to adequately detect and adjudicate fraud claims. This article explores fraudulent financial schemes, the Iqbal standard, the standard of plausibility, and the requirement of proof at the pleading stage. This article then analyzes the problems presented by Iqbal when applied to cases of financial fraud. Finally, this article discusses how, rather than learning from the mistakes of the SEC in the Madoff investigation, our civil court system created a framework for adjudication of fraud cases that generates the same risk for misevaluation as was present during the Madoff investigation. This risk for misevaluation is still present because of the courts' typical process of accepting the words of those accused of fraud, rewarding the falsification of records, misplacing its assessment of credibility, and making determinations based on limited records. Given the problems associated with adjudicating fraud claims under the Iqbal standard, a review of the Iqbal standard is essential to provide victims of fraud with proper recourse and justice. AUTHORS NOTE Howard Gutman, J.D., University of Michigan, B.A., Drew University. The author is an attorney who handles fraud and commercial litigation. Chris Garino, J.D., Elisabeth Haub School of Law, B.A., Rider University. Co-author is a law school graduate who has worked in commercial litigation, not-for-profit corporate compliance, international diplomacy, and alternative dispute resolution. The authors would like to thank Oleksandr Kodolov for his valuable assistance in editing and formatting early versions of the article. Mr. Garino would also like to acknowledge Ms. Nida Jamshed, Esq., for her unending support throughout this process. Her dedication to the law and passion for justice is a wellspring of inspiration. 2

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