All items from The Ponzi Blog

Insurance Coverage for Ponzi Scheme Losses?

Posted by Kathy Bazoian Phelps

   It sounds like a good idea: Insure against losses from investing in a Ponzi scheme. Insurance policies, including homeowner’s policies, can provide coverage from losses from fraud, embezzlement or forgery. But does it work to provide compensation for losses in a Ponzi scheme?

   Last year, the Second Circuit affirmed a district court’s dismissal of a Madoff customer’s complaint against a homeowners policy, but not for the reasons you might expect. Horowitz v. American International Group, Inc., 498 Fed. App’x 51 (2d Cir. 2012).

   Horowitz purchased a homeowner’s insurance policy from AIG with a Fraud Safeguard endorsement providing for up to $30,000 in coverage for losses resulting from fraud, embezzlement or forgery. Horowitz had invested a total of $4,327,230.55 with Madoff and had withdrawn $4,553,000, leaving a balance that Horowitz believed to be more than $8.5 million of expected profits.



From The Ponzi Blog
Posted 1 week 5 days ago

"Ponzi Schemes Explained" on The Not So Legal Show

Posted by Kathy Bazoian Phelps

The Not So Legal Show is fun, funny, and informative. Producer Stephanie Cohen recently interviewed me about Ponzi schemes. To view the show, click here, and let me know what you think.



From The Ponzi Blog
Posted 2 weeks 2 days ago

Two Ponzi Presentations This Month

Posted by Kathy Bazoian Phelps

   I'm looking forward to my two presentations this month. At the California Bankurptcy Forum in San Diego, May 17-19, I'm on a panel that's presenting Beverly Hills Cop - Issues in Parallel Criminal, Bankruptcy, Forfeiture Proceedings. For more information, click here. Then, on May 29, I'm giving a presentation for the Los Angeles Chapter of the Association of Certified Fraud Examiners on Ponzi Schemes: A Fraud Examiner's Role. For more information on this one, click here. I hope to see you at one or both of these.



From The Ponzi Blog
Posted 2 weeks 3 days ago

April 2013 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

   April was a remarkably busy month for Ponzi scheme news, especially in India. Here is a summary of stories that were reported this month. Be sure to read the international news, because Ponzi schemes are not just limited to the U.S. Please feel free to post comments about these or other Ponzi schemes that I may have missed. And please remember that I am just relaying what’s in the news, not writing or verifying it.

   Gary Thomas Armitage, 62, was sentenced to 10 years in connection with a plea agreement regarding a $250 million real estate and investment Ponzi scheme that defrauded about 2,000 investors. Armitage’s co-defendant, James Stanley Koenig, is currently standing trial. Another co-defendant, Jeffrey A. Guidi, previously entered into a plea deal in which he agreed to testify against the other two defendants and to pay $293,619 in restitution.



From The Ponzi Blog
Posted 2 weeks 5 days ago

Announcing: "The Depths of Deepening Insolvency"

Posted by Kathy Bazoian Phelps

   I am pleased to announce that the American Bankruptcy Institute has published The Depths of Deepening Insolvency: Damage Exposure for Officers, Directors and Others, which I co-wrote with Prof. Jack Williams. The 178 page book is written from both the plaintiffs’ and defendants’ perspectives. It offers a historical analysis of the doctrine, its significance in calculating damages in a variety of liability scenarios, the interplay of the doctrine with fiduciary duties, and potential defenses that may be asserted to deepening insolvency allegations, as well as a state-by-state list of significant case law on this issue. It is available from the ABI bookstore. The table of contents is available here. A peek inside is available here.



From The Ponzi Blog
Posted 3 weeks 5 days ago

Should All Ponzi Scheme Investors Be Treated Equal?

Posted by Kathy Bazoian Phelps

   Everyone loses in a Ponzi scheme. The question is – who loses how much? There is certainly no right that "All investors shall be treated equally." The Second Circuit has just spoken on this issue in a decision that is likely to be often cited in the battles among trustees or receivers and different constituencies of investors.

   The Second Circuit affirmed a distribution plan that treated all of the investors the same in CFTC v. Walsh, 2013 U.S. App. LEXIS 6801 (2d Cir. April 3, 2013). Disputes among different groups of defrauded investors arose in the nearly $1 billion Ponzi scheme case of Westridge Capital Management Inc., which was run by Stephen Walsh and Paul Greenwood.



From The Ponzi Blog
Posted 4 weeks 5 days ago

Please Take Subpoenas Seriously: A Recent Sanction Ruling in a Ponzi Scheme Case

Posted by Kathy Bazoian Phelps

   The Moss Adams accounting firm was sanctioned for not complying with a bankruptcy trustee’s subpoena for documents related to Frederick Darren Berg’s Meridian Mortgage $100 million real estate investment Ponzi scheme. The court ruled that Moss Adams did not fully comply with a 2010 subpoena and must compensate the trustee for the costs of the legal battle to get the information. A copy of the court’s unpublished decision is here.



From The Ponzi Blog
Posted 4 weeks 6 days ago

State Restitution Funds to Ponzi Scheme Victims: A Good Idea?

Posted by Kathy Bazoian Phelps

   Should a state provide funding to reimburse victims of Ponzi schemes? Is it possible for states to promulgate fair and comprehensive laws in this regard? Does funding at the state level to reimburse victims give those victims a disincentive from exercising caution and avoiding the frauds in the first place? These are difficult questions that a few states have already decided and others may join. Laws are on the books in Indiana and Montana, and New Hampshire is thinking about it.

Indiana



From The Ponzi Blog
Posted 6 weeks 2 days ago

March 2013 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

March continued the trend of way too many breaking news stories in Ponzi scheme cases. Here is the summary of the stories that were reported this month. Please feel free to post comments about these or other Ponzi schemes that I may have missed. And please remember that I am just relaying what’s in the news, not writing or verifying it.

Brett Amendola, 38, of Virginia, was sentenced to 84 months in prison in connection with his $5 million Ponzi scheme involving the purported purchase of a golf course that defrauded more than a dozen victims. Amendola had persuaded investors to provide short-term funding that would be held in escrow to fulfill a requirement by his lender. The money was to be returned to investors with interest in a matter of days. Amendola impersonated an attorney that supposedly controlled the escrow account and lead investors to believe that they were wiring money into an escrow account, but they were in fact wiring money into accounts controlled by Amendola. Jerry J. Mckerac, 61, was also charged in connection with the scheme for similarly impersonating the escrow attorney.



From The Ponzi Blog
Posted 7 weeks 1 hour ago

Adding Insult to Injury: Ponzi Schemer Defrauds Government Employees, Then Victims Sue Government

Posted by Kathy Bazoian Phelps

When the Ponzi schemer defrauds employees of government agencies such as the FBI, you would expect a powerful government response of outrage, retribution, punishment and compensation. The Ponzi scheme of Kenneth Wayne McLeod, however, has seen a very different outcome. The government is now the subject of a $120 million lawsuit brought against it by McLeod’s victims.

McLeod’s victims were largely the employees of law enforcement agencies, including the FBI, DEA ICE, NSA, NCIS, and ATF.

In their lawsuit, the government employees claim that their own agencies were negligent in failing to protect them from McLeod and his scheme. The claim arises because the government agencies actually hired McLeod to give their employees investment and retirement savings advice. McLeod took full advantage of these opportunities to promote his fraud. His particular vehicle was the FEBG Bond fund, which allegedly offered 8%-10% tax-free returns. There are over one hundred plaintiffs in the suit, several of whom claim that they invested over $1 million dollars with McLeod.



From The Ponzi Blog
Posted 10 weeks 5 hours ago