November 21, 2013 Articles

Banking on Liability: Claims Against Ponzi Scheme Professionals

The law neither persecutes nor pardons every professional who worked with the Ponzi debtor.

by Gene R. Kohut, Scott A. Wolfson, and Adam L. Kochenderfer

The past decade brought a string of investment Ponzi schemes that left victims scrambling for sources of recovery. Good options are often few and far between. The bankrupt perpetrators are an inadequate source because, by definition, they ran insolvent businesses that were unable to satisfy their creditors' claims. Their employees are often unwitting victims themselves, and the duped investor who received returns but "should have known better" may elicit sympathy despite deliberate ignorance.

These challenges have spurred bankruptcy trustees across the country to pursue claims against banks, attorneys, accountants, and other professionals who provided services to the Ponzi scheme operators. Large, institutional defendants with reams of records showing the day-to-day activity of a Ponzi scheme are obvious targets. The claims against them often sound in tort and include breach of fiduciary duty, negligence, and aiding and abetting fraud. Variations in state law suggest that some trustees may succeed with those claims whereas others do not.

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