All items from The Ponzi Blog

Posted by Kathy Bazoian Phelps
    The roundup of Ponzi scheme news posted here each month highlights how pervasive Ponzi schemes have become and the enormous loss that are suffered by victims.
    It is not the investors’ fault that they get enticed to part with their retirement savings or other hard-earned assets. Still, investors can and should do more to protect themselves. They can arm themselves with specific techniques and question to ask in fighting against the lure of the perpetrators’ convincing sales pitches and promises. It takes more than mere trust to properly and fully vet an investment opportunity.



Posted 1 week 2 days ago

Posted by Kathy Bazoian Phelps
    Can different but related account holders offset losses in one account against gains in another account? Can a husband and wife with separate accounts offset losses in one account against gains in the other? When there is a family trust, can the trustee and beneficiary offset gains in the trust account with losses in the trustee’s personal account?
    These questions can arise when a Ponzi scheme has ended up in an insolvency proceeding and the trustee or receiver is suing the net winner account holder for the return of the net winnings in the one account on a fraudulent transfer theory.
    The ways that multiple accounts may be set up for individuals investing in a Ponzi scheme case are endless: husband and wife jointly; husband and wife with separate accounts; their family trust; an individual and his wholly owned LLC or corporation; a partnership and its individual partners; and so on.



Posted 1 week 3 days ago

Posted by Kathy Bazoian Phelps
    Below is a summary of the activity reported for July 2014. The reported stories reflect: 10 guilty pleas or convictions in pending cases; over 20 years of newly imposed sentences for people involved in Ponzi schemes; at least 8 newly discovered schemes allegedly involving over $440 million and over 25,000 victims; and an average age of approximately 51 for the alleged Ponzi schemers in the stories reported. 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.



Posted 2 weeks 6 days ago

Posted by Kathy Bazoian Phelps
    The intersection of bankruptcy and forfeiture proceedings can lead to considerable fighting over the assets that were once in the possession and control of the perpetrator. The recent filing of a motion to approve a settlement in the hard fought battle over forfeited assets in connection with the Scott Rothstein case is, therefore, welcome news.
    Litigation between the bankruptcy estate of Scott Rothstein’s law firm, Rothstein Rosenfeldt Adler, and the United States government regarding forfeiture and restitution issues has been ongoing for years. Protracted litigation resulted in an Eleventh Circuit decision in U.S. v. Rothstein Rosenfeldt Adler, P.A. (In re Rothstein Rosenfeldt Adler, P.A.), 717 F.3d 1205 (11th Cir. 2013), which then led to even further litigation. The fight over the forfeited assets in Rothstein has been lengthy and extremely costly.



Posted 4 weeks 2 days ago

Posted by Kathy Bazoian Phelps

     Bankruptcy trustees often sue to avoid and recover fraudulent transfers pursuant to the provisions of the Bankruptcy Code. These are often referred to as “clawback” actions. Transfers of property of a debtor may be avoided pursuant to section 548 and may be recovered from the initial transferee pursuant to section 550(a)(1) or from subsequent transferees pursuant to section 550(a)(2).

     In the Bernard Madoff Ponzi scheme case, the Trustee sued overseas feeder funds that had withdrawn funds from the Madoff scheme (the initial transferees). The Trustee also sued the customers and managers of the feeder funds who were transferred funds from those feeder funds (the subsequent transferees). At first glance, the Trustee’s claims appear to be consistent with the provisions of the Bankruptcy Code.



Posted 4 weeks 6 days ago

Posted by Kathy Bazoian Phelps
    Thomas J. Petters’ $3.65 billion Ponzi scheme has raised all kinds of interesting legal issues, the most recent of which involves the interplay between Thomas Petters’ individual receivership estate and the bankruptcy of Petters’ companies. David Kelley was first appointed as the receiver for Thomas Petters, and then became the Chapter 11 trustee for the Petters’ companies after he filed a bankruptcy petition for those entities.
    Kelley settled fraudulent transfer claims against VICIS Capital MasterFund and then allocated the settlement proceeds between the bankruptcy estate and the receivership estate. The district court approved the settlement in the receivership case with no objections made. The bankruptcy court also approved the settlement, but over the objection of a few creditors in the bankruptcy case. The objecting creditors appealed the bankruptcy court ruling, which was recently affirmed on appeal. Ritchie Capital Management, LLC v. Kelley, 2014 U.S. Dist. LEXIS 79815 (D. Minn. June 12, 2014).



Posted 5 weeks 2 days ago

Posted by Kathy Bazoian Phelps
     Below is a summary of the activity reported for June 2014. The reported stories reflect: 7 guilty pleas or convictions in pending cases; over 139 years of newly imposed sentences for individuals involved in Ponzi schemes; at least 8 newly discovered schemes allegedly involving over $147 million; and an average age of approximately 52 for the alleged Ponzi schemers in the stories reported. 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.



Posted 7 weeks 2 days ago

Posted by Kathy Bazoian Phelps
     Deepening insolvency is alive and well, at least in the Eastern District of New York. That court recently found that deepening insolvency is an appropriate measure of damages resulting from a breach of fiduciary duty claim. Federal Nat’l Mtge. Assoc. v. Olympia Mortgage Corp., 2014 U.S. Dist. LEXIS 79479 (E.D.N.Y. June 10, 2014).
     Olympia Mortgage moved for entry of judgment on its claims for breach of fiduciary duty, among others, against Avruhum Donner, who was the former president and a principal shareholder of Olympia. The court found that, “Donner owed a fiduciary duty to Olympia, that he breached that duty, not only by causing the fraudulent transfers to be made, but also by engaging in various schemes to disguise Olympia's financial condition, and that, as a result of this breach, Olympia incurred damages in the form of increased indebtedness to Fannie Mae, among others.”



Posted 9 weeks 13 hours ago

Posted by Kathy Bazoian Phelps
     The Eleventh Circuit issued an opinion this week that has to make receivers happy. See Wiand v. Lee, 2014 U.S. App. LEXIS 10154 (11th Cir. Jun. 2, 2014). Fraudulent transfer claims are most often the bread and butter of a receivership estate in a Ponzi scheme case. But two hurdles often encountered by receivers in the “clawback” battles are:
1. Does the receiver have standing to bring fraudulent transfer claims?
2. Can the receiver recover prejudgment interest if successful on those claims?
The Eleventh Circuit has now addressed both questions.
Standing



Posted 10 weeks 5 days ago

Posted by Kathy Bazoian Phelps 
     In a very short and summary opinion, the Second Circuit concluded that nothing in a recent Supreme Court decision gave it any reason to revisit its prior ruling that SLUSA bars state law class action claims against banks in connection with the Bernard Madoff scheme. In re Herald, Primeo, and Thema, 2014 U.S. App. LEXIS 9871 (2d Cir. May 28, 2014).
     As discussed previously in this blog, the Supreme Court in Chadbourne & Park LLP v. Troice, 134 S. Ct. 1058 (2014), declined to bar certain class action claims in the Stanford Financial Ponzi scheme case on the grounds that: (1) the certificates of deposits sold were not “covered securities”; and (2) the fraud was not “in connection with the purchase or sale of a covered security.”



Posted 11 weeks 1 day ago