by Brian Mahany
Talk about depressing story titles. Sir Allen Stanford was convicted of the second largest Ponzi scheme in American history. In 2012 he was sentenced to 110 years in federal prison, a life sentence. His crime? A Ponzi scheme that caused $7 billion in losses, mostly to American investors.
Suing Stanford to recover one’s losses is probably not a viable option. He will never make it out of prison alive. Hoping to receive court ordered restitution just isn’t an option.
For many victims, all hopes ride on the SEC. Last year the SEC filed suit on behalf of victims. A receiver was appointed in that case and charged with collecting and liquidating all of Stanford’s assets. The proceeds are then to be distributed to his victims. Although that process sounds great on paper, the recovery effort has thus far been a bust. Earlier this month the receiver said it had just $55 million to distribute to victims. That’s less than one penny for every dollar in losses.
In seeking court approval for the payment, the receiver noted, “Many of these people entrusted their entire life savings to the scheme and have received a pittance or nothing at all from it.” Of course, the victims in this case are crying foul. People who lost their life savings are not happy about recovering a penny on the dollar.
Is the receiver doing a bad job? Perhaps. According to published reports, the receiver has submitted $108 million in legal bills! In other words, the receiver spent $108 million to collect just $55 million. Under that scenario, investors would have received far more money if the receiver did nothing.
We have seen this pattern repeat itself frequently. Investors lose their life savings. The government steps in and many investors simply wait and hope and that the government will collect their money. A year or so later, the sad reality hits when the receiver gets paid more than the victims.
Receivers fill a vital role in the enforcement process. Like every profession, some are better than others. We believe most receivers do a credible job collecting assets (although they do seem to get charge an inordinate amount of fees – no private sector lawyer would ever dare charge a client $108 million to collect $55 million).
So why are victims generally dissatisfied? We believe that many victims have unrealistic expectations in the receiver process. They improperly rely on the government or criminal court to collect their money. Let me explain.
Generally, receivers are tasked with marshaling and liquidating the fraudster’s assets. If the money has been spent or is offshore, that task becomes difficult. Often the money is simply gone. Receivers usually don’t go after the third parties who promoted the fraudulent investment or sold it. In other words, they often don’t go after the “deep pockets.”
For example, most people who bought into Madoff’s Ponzi scheme purchased their investment through hedge funds, stockbrokers, financial planners and the like. Often these folks can be held liable for not conducting proper due diligence before recommending the investment. These same folks often have insurance.
A receiver may get you some money but engaging a fraud recovery lawyer is often necessary to recover from all the third parties who may be responsible. We have successfully collected money from insurance agents and accountants who sold phony 419 plans and stockbrokers that sold Madoff investments.
If you lost your money in a Ponzi scheme or any other type of investment scam, give us a call. Most cases can be handled on a contingent fee basis meaning no legal fees are due unless we collect on your behalf. For more information, contact attorney Brian Mahany at firstname.lastname@example.org or by telephone at (414) 704-6731 (direct).
Mahany & Ertl – America’s Fraud Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and coming soon San Francisco, California. Fraud recovery available in many jurisdictions.
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