Frequently Ponzi scheme victims ask us, “Why should we sue our broker?” Often in a Ponzi scheme the court or a regulatory agency like the SEC will try to collect assets on behalf of victims who lost their money. Many clients believe that it is easier to wait for a court appointed receiver to collect their money, or worse, participate in a class action suit. On paper, these remedies seem great. Unfortunately, the recovery is often quite small. Sometimes just pennies on the dollar.
There are exceptions of course. Look at Bernie Madoff. Irving Picard, the court appointed bankruptcy trustee in the Madoff case, was tasked with gathering up Madoff’s assets – boats, houses and cars – and liquidating them. He also brought suit against some of the lucky early investors who got back their money. These suits, called clawback actions, sought to recover the false profits paid to the early investors.
Picard ultimately collected approximately 13 billions dollars or about 76 cents on the dollar. Although it took years of work before Madoff’s victims saw any meaningful money, his efforts were successful.
How Do Receiverships Work?
Receivers are appointed by the court. You don’t hire a receiver, the court does.
Typically the order appointing the receiver directs him or her to seize assets belonging to the debtor and wrongdoer and liquidate them. The monies are then divided equally among the creditors and victims.
The appointment of a Receiver may also be made by a regulatory agency (SEC) or at the request of the Justice Department.
There is nothing that prevents victims from hiring their own lawyer to sue the wrongdoer but if the court has given control of the wrongdoer’s assets, trying to sue the wrongdoer on your own might prove fruitless.
So how can a private lawyer help? There are several answers to that question.
First, receivers typically go after assets belonging to the wrongdoer. They may or may not pursue third parties that facilitated the wrongdoer’s scheme. Common third party actions may include actions against auditors who gave the fraudster a clean bill of health or banks who allowed the fraudster to use their accounts.
Several years ago investors in a Ponzi scheme orchestrated by Scott Rothstein said TD Bank vouched for Rothstein’s legitimacy. Investors were lulled into thinking their money was safe because the bank provided him an air of legitimacy. Jurors believed the claims and ordered the bank to pay $67 million.
Unfortunately, receivers often do not pursue these third party actions meaning investors must do so on their own or through a class action. That is one way we or other asset recovery lawyers can help.
A second place where we can be very effective is if you purchased your investment through a stockbroker, financial professional or registered representative. These folks have an obligation to perform due diligence on the investments they recommend. And they also have an obligation to make sure what they recommend is suitable for their client’s individual needs.
Even if the broker has no assets, the firm that employs him or her can be held responsible.
The lesson is that there is a place for receivers and bankruptcy trustees as well as private lawyers. If you are the victim of a Ponzi scheme, hopefully a court appointed receiver can get back some or all of your money. If you bought the investment through a broker or investment adviser, we can help you bring a claim against the broker and the brokerage firm that employs him. We may also be able to help if a third party facilitated the transaction..
Mahany Law is a full service, national boutique law firm that concentrates in fraud recovery, FINRA arbitrations, stockbroker fraud, Ponzi schemes, investment fraud and professional malpractice. Our asset recovery lawyers can help you get back your hard earned money. Often we can handle your case on a contingent fee basis meaning you don’t pay for legal fees unless we win your case and collect your money.
For more information, visit our investment fraud recovery information page. If you relied on an accountant or audit firm, visit our sister accounting malpractice site. ready to see if you have a case? Contact attorney Brian Mahany online, by email or by phone at (202) 800-9791. Services provided nationwide.