All items from The Ponzi Blog

Posted by Kathy Bazoian Phelps

     Below is a summary of the activity reported for March 2014. The reported stories reflect: 18 guilty pleas or convictions in pending cases; about 60 years of newly imposed sentences for Ponzi schemers; 9 newly discovered schemes involving over 1,000 victims and over $207 million; and an average age of 53.3 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.

     Russell Adler, 52, a former law partner in Scott Rothstein’s firm, Rothstein Rosenfeldt Adler, was charged with conspiring to violate federal campaign contribution laws. Adler allegedly helped orchestrate contributions from the firm’s employees and attorneys to John McCain’s 2008 presidential campaign and Charlie Crist’s run for the U.S. Senate, which contributions were then reimbursed by the law firm. Adler is expected to plead guilty next month.



Posted 2 weeks 4 days ago

Posted by Kathy Bazoian Phelps

   In a legal environment that seems to be growing increasingly difficult for Ponzi scheme victims to recover their losses, the United States Supreme Court gave a group of defrauded investors some welcome news. The Court issued its decision in Chadbourne & Park LLP v. Troice, 2014 U.S. LEXIS 1644 (Feb. 26, 2014) (attached here) in a 7-2 vote, allowing lawsuits by a class of victims of R. Allen Stanford and Stanford Financial against two law firms, an insurance brokerage firm and a financial services firm to proceed. 

   The case involved an appeal over the issue of whether the Securities Litigation Uniform Standards Act of 1998 (SLUSA) bars the investors' lawsuits which allege that some of the defendants misrepresented that certificates of deposits sold by Stanford were safe investments and that the law firms helped Stanford evade regulatory oversight. 



Posted 6 weeks 5 days ago

Posted by Kathy Bazoian Phelps

     Below is a summary of the activity reported for February 2014. 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.

     Barbra Alexander, 66, of California, was convicted on 28 counts relating to a $6.7 million real estate Ponzi scheme. Alexander is the former producer of the financial talk show “Money Dots.” She operated APS Funding along with Michael Swanson, 65, and Beth Pina, in which about 45 investors placed their money and were promised 12% interest in connection with hard money short term loans for real estate. Swanson and Pina have also been convicted.



Posted 7 weeks 1 day ago

Posted by Kathy Bazoian Phelps

     What “good faith” means when someone accepts payments from a Ponzi scheme perpetrator is not clearly defined anywhere. Good faith becomes relevant when a trustee or receiver sues an investor or other recipient of funds from the Ponzi schemer during the course of the scheme on a fraudulent transfer theory. The transferee’s primary defense is the good faith value defense under Bankruptcy Code section 548(c) or applicable state law.

     The Fourth Circuit recently affirmed a bank’s good faith defense to a trustee’s fraudulent transfer claim in Gold v. First Tennessee Bank, N.A. (In re Taneja), 2014 U.S. App. LEXIS 3279 (4th Cir. Feb. 21, 2014), and in the process, helped move the discussion forward on how to evaluate and prove good faith.



Posted 7 weeks 4 days ago

Investors, trustees, receivers, courts, and even politicians have strong views on whether or not fraudulent transfer claims should be permitted against net winners in Ponzi scheme cases.
 That is the question in the FEBRUARY POLL of The Ponzi Scheme Blog. Cast your vote before the end of the month. And if your answer is not a straight “yes” or “no,” post a comment and let us know what it depends on.



Posted 9 weeks 4 days ago

Posted by Kathy Bazoian Phelps

   Over the past few years, we’ve watched as courts have expanded and retracted the use of the Ponzi scheme presumption. One of the broader expansions of the presumption resulted from a decision in the Thomas Petters Ponzi scheme in Stoebner v. Ritchie Capital Management, L.L.C. (In re Polaroid Corp.), 472 B.R. 22 (Bankr. D. Minn. 2012). An analysis of that decision was reported in this blog in “Is the “Ponzi Scheme Presumption” Expanding into New Territory?



Posted 9 weeks 5 days ago

Posted by Kathy Bazoian Phelps

The Ponzi Scheme Blog’s JANUARY POLL asked how fines should be calculated for financial institutions engaged in wrongful conduct in Ponzi schemes. While much has been written recently about banks being “too big to jail,” they are clearly not too big to fine. But how do government agencies calculate the dollar amount of the fines they impose when a bank fails to comply with existing regulations?

Bank fines and Ponzi schemes are in the news a lot these days. And some of the dollar amounts are extraordinary. In connection with the Bernard Madoff Ponzi scheme, JP Morgan reached agreements with various governmental agencies and others to pay $2.6 billion in fines and settlements to resolve criminal and civil allegations that it failed to stop Madoff’s Ponzi scheme and that it failed to comply with the Bank Secrecy Act. In a deferred prosecution agreement, JPMorgan agreed that it ignored red flags in the Madoff banking arrangement for about 15 years. JPMorgan will pay $1.7 billion to settle the government’s charges, $350 million to the Office of the Comptroller of the Currency, $325 million to the Madoff trustee, and $218 million to settle class action claims.



Posted 10 weeks 6 days ago

Posted by Kathy Bazoian Phelps

     2014 began with a continued, but unfortunate, strong showing of activity in Ponzi scheme cases. Below is a summary of the activity reported for January 2014. 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.

     Juan Jose Alvarez de Lugo, 53, was sentenced to 4 years in prison in connection with a $5 million Ponzi scheme that defrauded at least 22 victims. Alvarez de Lugo built up a real estate business with a sophisticated website and promotional materials and misrepresented that he was working with governmental agencies to buy, rebuild and then sell “social housing projects” to help the poor. He targeted contacts from his home country Venezuela to invest and promised them annual returns of 20%.



Posted 11 weeks 1 day ago

Posted by Kathy Bazoian Phelps

   In Ponzi scheme cases, the issue of trustee standing to bring third party claims can be very challenging. The Supreme Court has made clear that a trustee may pursue the debtor’s claims against third party defendants, but may not pursue creditors’ claims. Caplin v. Marine Midland Grace Trust Co. of N.Y., 406 U.S. 416 (1972). What makes the issue so challenging in Ponzi scheme cases is determining which claims belong to creditors and which belong to the debtor. Does the defrauded victim hold a claim for a particularized injury, or does the trustee hold the claim belonging to the debtor for generalized injury to the debtor as claims are filed against a debtor for victims’ losses in a Ponzi scheme?

   To avoid being thrown out of court on standing issues, trustees and their attorneys often employ a belt and suspenders approach to litigation. Trustees obtain assignments from creditors of their claims so the trustee then owns all possible claims and will be covered under either scenario. The theory is that, after the assignment, Caplin no longer applies because the trustee is pursuing claims that the estate owns, not the creditors’ claims. Pursuant to 11 U.S.C. § 541(a)(7), the estate includes, “Any interest in property that the estate acquires after the commencement of the case.”



Posted 11 weeks 4 days ago

Posted by Kathy Bazoian Phelps

   Consider three recent events in the Bernard Madoff Ponzi scheme case, which demonstrate a certain unevenness and perhaps even inconsistency in the authority vested in the trustees who are administering these types of cases. Trustees act under the authority of the Bankruptcy Code or the Securities Investor Protection Act, as is applicable in the Madoff case, with the objective of maximizing returns for the people who lost money in connection with a Ponzi scheme.

1. The Trustee is in charge on the fraudulent transfer front. 



Posted 12 weeks 5 days ago