Scott Silver
Most people think of Bernie Madoff when they think of Ponzi Schemes. His was the most famous and biggest in history. But in the decade since his scheme was revealed, there have been more than 600 Ponzi schemes, which have not gotten as much attention.
Non Stock Market Correlated Assets
Scott noted that in recent years many investors have sought non-stock market correlated assets, and that Wall Street has tried to replace the commissions it used to earn on stock sales with commissions on investments that are exempt from registration. Non-traditional, unregistered securities may be more likely to be associated with fraud than other securities.
Ponzi schemes can often keep their fraud going until market conditions decline and investors want their principal back. When the schemers don’t have it, the scheme is revealed. As Warren Buffet said “when the tide goes out, we get to see who is swimming naked.”
It is expected that in the next market cycle, multiple Ponzi schemes will be revealed, Scott Silver said in his presentation.
Claims Against Third-Party Professionals In Ponzi Schemes
After a Ponzi scheme is revealed, the SEC will often appoint a receiver, who steps into the shoes of the company and makes a plan to distribute the company’s assets to the victims.
Victims usually suffer significant losses, and the receiver won’t typically recover enough money to make investors whole. What choices do investors have to recover their losses?
Ponzi schemers can’t succeed without the help of third-party professionals, such as commercial banks, lawyers, accountants, and auditors. These third parties may be sued to recover investor losses. The main cause of action against third party professionals is aiding and abetting the fraud, Scott noted.
Commercial banks have certain obligations to know their customer and report suspicious activity. Silver Law Group is involved in a lawsuit against Umpqua Bank regarding the alleged PFI Ponzi scheme. The suit alleges, amongst other things, that Umpqua was willfully ignorant in allowing PFI to comingle accounts and failing to know its customer, PFI founder Ken Casey, who started the Ponzi scheme after being released from prison for fraud.
Scott’s presentation also detailed how claims can be brought against lawyers involved in Ponzi schemes. In the case of Par Funding, an unregistered merchant cash advance investment that’s now in SEC receivership, Silver Law Group is involved in a class action against a law firm that allegedly participated in false marketing material and other allegations.
Auditors and accountants may also be subject of claims if they were willfully ignorant or provided assistance to the scheme.
When the plaintiffs have alleged specific facts demonstrating that the professionals knew about the fraud, that their conduct deviated from standard practice, that they benefitted from the scheme, or if they avoided knowledge of the fraud, courts have typically denied the professionals’ motion to dismiss and can lead to substantial settlements for victims.
Sometimes investments sold by FINRA-registered brokers turn out to be Ponzi schemes. Those investors may be able to bring FINRA arbitration claims to recover their losses.
Scott’s presentation to AAJ concluded with information on how individuals with original information or analysis about a Ponzi scheme can file an SEC whistleblower claim, which can allow them collect a financial award while stopping misconduct that harms investors.
Do You Have Losses From A Ponzi Scheme?
Silver Law Group frequently represents victims of Ponzi schemes and currently represents victims of GPB Capital Holdings, the Woodbridge real estate Ponzi scheme, and other ponzi schemes.
If you invested in a Ponzi scheme, contact Silver Law Group for a confidential consultation. Silver Law Group represents victims of securities and investment fraud cases nationwide to recover losses due to stockbroker misconduct, hedge fund fraud, Ponzi schemes, and other investment-related wrongdoing. We work on a contingency fee basis, meaning you won’t owe us anything unless we are successful. Call us toll free at (800) 975-4345 or email ssilver@silverlaw.com.