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Ponzi Scheme

Silver Law Group lawyers, Scott L. Silver and David C. Silver have both received a Martindale Hubbell® “AV” Preeminent Peer Review Rating™, and were plaintiffs’ counsel to over 400 investors in an case against a large Midwest accounting firm, implicated in a Ponzi scheme. Over a period of 10 years, principals of the accounting firm, formed more than 200 Limited Liability Corporations (LLCs) in Michigan that were used to solicit investments. The Securities Exchange Commission (SEC) investigated the formation of the LLCs and concluded the Offering documents used to solicit investments from the public concealed the fact that the LLCs were a part of a Ponzi scheme.

Two principals of the accounting firm allegedly orchestrated and participated in “dog-and-pony” or “road” shows that targeted investors with “guaranteed high-returns” offered through the illegitimate LLC investments. These Defendants vouched for the legitimacy of the investments with representations of first-hand knowledge of the business operations, as the LLCs’ tax preparer. Defendants concealed the Ponzi scheme from investors by preparing the K-1 for investors who paid taxes on phantom income.

The facts surrounding the Ponzi scheme should serve as a lesson to the investing public. The checks and balances afforded by independent auditors cannot be understated. Investors consider certified public accountants as fiduciaries, acting in the best interest of the client. A review of the SEC investigations uncovered the following investment scam “red flags” for the LLCs investments sold to investors:

  • above market interest rate returns;
  • guarantees of principal;
  • unaudited financial statements;
  • illiquid investments, non-traded securities;

Alleged Misconduct

The Court filings in the Ponzi scheme case alleged the following violations:

  • Fraud;
  • Negligent Misrepresentation;
  • Aiding and Abetting;
  • Conspiracy to Commit Fraud;
  • Fraudulent Inducement of Loan Agreement;
  • Unjust Enrichment;

Outcome of Federal Court Case

The damages sought in the Court case were in excess of $20 million. The Court case resulted in a favorable settlement which is a confidential matter.

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