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Ponzi Scheme – Precious Metals Fraud

Silver Law Group served as Special Litigation Counsel to the Chapter 7 Bankruptcy Trustee for the jointly administered bankruptcy estates of three defunct South Florida brokerage companies. Several principals of the bankrupt entities conspired to operate a Ponzi scheme that ultimately caused over $44 million in damage to unsuspecting precious metals investors.

This litigation arises from Defendants’ role as prime broker and clearing broker – and as a vital promoter and advocate – for the Debtors. Certain, but not all, of the Debtors’ insiders operated a Ponzi scheme through the Debtors in which massive trading losses were camouflaged from customers by the creation of false account statements and misrepresentations about the Debtors’ past financial performance.

During the course of their relationship, Defendants were allegedly on notice of, or should have known of the fraud conducted by the Debtor, Defendants nonetheless continued to provide lucrative prime brokerage and clearing services to the Debtors, which the Debtor needed to perpetuate their fraud. Among other things, the Debtor transferred cash into margin accounts with Defendants, which was an integral facet of the scheme. Absent new infusions of cash, the Debtors’ trading losses would have stopped, the trading accounts would have been closed, and the scheme would have come to an end.

Alleged Misconduct

The Court filings alleged the following:

  • Action to Avoid Preferential Transfers;
  • Action to Avoid and Recover Fraudulent Transfers;
  • Action for Turnover of Property to Estate;
  • Breach of Fiduciary Duties;
  • Unjust Enrichment;
  • Aiding and Abetting Breach of Fiduciary Duties;
  • Aiding and Abetting Conversion;
  • Negligent Retention and Supervision; and
  • Violation of Civil RICO.

Litigation Outcome

The Court case resulted in a favorable settlement which is a confidential matter.

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