Quote from: JoelKatz on November 13, 2012, 12:13:13 PM

Quote from: Namworld on November 13, 2012, 11:54:10 AM

(Note that I did not deposit anything with Starfish. But I did have a deposit in his other operation (fund), but the mere fact it was a fund would place me under your joint venture example where risk is shared. However he added the claim that "Contributed capital is backed by my personal funds." and defaulted on it without personally going bankrupt. One could have assumed he was borrowing investment capital by backing it with his personal assets, which turns it into a loan more than an actual fund/investment vehicle, but he did not back it as promised when the situation required so. Which you seem to have agreed to already.)

That claim was based on his false belief that his business model was fundamentally sound and that he was diversified against Pirate exposure. It's certainly enforceable against those who have no culpability in that mistake. But it's not fully enforceable against people who shared that mistaken belief and jointly acted to cause the harm. Both Patrick and his investors made the same mistake and it caused precisely the same loss in precisely the same way.

To give a somewhat silly analogy, say some people believe that if you give money to the poor, God will repay you tenfold. If someone borrows money to give to the poor expecting to pay it back from God's bounty, they are totally stuck if the bounty fails to materialize. It's all on them. But if they jointly develop a loan scheme with someone else who shares this belief, and borrow from them in the mutual expectation that the bounty will materialize, it would clearly be inequitable to hold the borrower 100% responsible for the amount borrowed because the mistaken belief that caused the loss was shared by both sides equally. This is so even if one person says, "I'm sure I can pay you back from my money", so long as that assurance flows directly from the shared, mistaken belief.

That's precisely what happened here. Both sides were equally culpable in their mistaken belief that Patrick's business model was sound and that his loan portfolio was largely free of correlated risk. Everything they said to each other reinforced and flowed from that shared mistake belief. The damages flowed directly from that mistaken belief.

You admitted a bank would rarely be at common fault, yet you know just as much by depositing at a bank that the deposits will be lent afterwards and you're just as much led to believe its loaning behavior is sound. Yet depositors are not sharing the risk. Your analogies/examples always show an example where the investment is disclosed, while Patrick Harnett acted as a bank, being the financial service provider selecting who to loan to. Those benefiting from those loans made the actual investments (and lied to Patrick). The depositor is yet not at fault for the bank mismanagement.

The depositors were not investing in the bank itself such as would be the case if they became shareholders. (In which point they would be equally liable to a loss from the unsound business such as in your example.) They merely deposited with Patrick Harnett providing a financial service:

Depositor > Patrick (bank) > Lendee > Investment or Personal Purchase

I claim your proposed scenario cannot apply on behalf that it was not an investment but a deposit. Patrick was providing a financial service and was not directly making an investment or disclosing the lendees and the specific reason they are taking a loan just like a bank. The wording strongly suggest that he works as a bank and that he takes the responsibility to loaning cash to sound requests and doing proper investigation. Now the bank needs to default, Patrick voided part of the deposits but did not default himself personally, despite that he was acting as the bank entity (which has to default), directly and personally pocketing any profit.