Imagine that your life savings were wiped out by a Ponzi scheme. Almost broke, you decide to sue everyone connected to the loss. The man behind the Ponzi scheme is probably has no money left or on his way to jail. But what about the people who facilitated his crimes? Banks who looked the other way? Lawyers who issued worthless opinion letters? In recent years, suing those folks was difficult. The Supreme Court may have opened the door, even if its just a crack.
To understand this post, a little bit of history is necessary. After the financial crisis of 2007, many Ponzi schemes were exposed. With no new money coming in, the fraudsters behind these schemes simply ran out of money to pay investors leaving the schemes to collapse. Bernie Madoff, Sir Alan Stanford, Nikolai Battoo. Victims flooded the courts with lawsuits hoping to get back their money. In many cases, they found the doors were closed.
In 1995, Congress passed the Private Securities Litigation Reform Act (PSLRA). The stated purpose of the law was to stop vexatious lawsuits and prevent the injury to “the entire US economy.” It sounded good on paper but ask any securities lawyer that represents victims and they will tell you the law was passed to protect big banks and other deep pocket defendants.
What happened next? Plaintiffs ran to state courts. Many states have more liberal laws and are friendly to victims of fraud. Congress stepped in again and passed SLUSA in 1998, the Securities Litigation Uniform Standards Act. Saying that a law creates “uniform standards” certainly seems benign but the wording of the law once again closed the court house doors to thousands of plaintiffs and said most class action cases brought by Ponzi scheme victims could no longer be brought in state court.
Class actions are important in Ponzi scheme cases because most victims can’t afford to take on the deep pocket defendants. Lawyers are reluctant to take on individual cases because the cost of prosecution is often more than the recovery. These case only become economically viable if brought as a class action meaning one lawsuit on behalf of all victims.
The “deep pocket” banks successfully used SLUSA to cut off many claims by Madoff victims but earlier this year a divided Supreme Court gave hope to other Ponzi scheme victims. In a widely watched 7 – 2 decision, a majority of the U.S. Supreme Court ruled that state law claims against two law firms, an insurance brokerage and a financial services company could move forward. (Chadbourne & Park LLC v. Troice)
The victims in the case claimed that certain lawyers, insurance brokers and bankers helped Stanford avoid detection and misrepresented the safety of the certificates of deposit marketed by Stanford.
Sadly, the SEC and Obama administration sided with the law firms and financial firms and not with victims.
Stanford was sentenced to 110 years in prison for his role in the Ponzi scheme. Although victims lost billions, any recovery from Stanford himself is likely to be very modest. Certainly he can never pay restitution even though ordered to do so by the courts. For victims in large Ponzi schemes, the only remedies are often limited to whatever monies court ordered receivers can collect, which is often just pennies on the dollar, and class action recoveries against the people who encouraged, protected, enabled or wrongly profited from the scheme.
The recent ruling from the Supreme Court offers a glimmer of hope, Of course, that case is far from over and the lawyers, banks and insurance companies have not yet been found guilty of any wrongdoing. The court’s ruling simply says the case can proceed.
If you have been the victim of a Ponzi scheme, all hope is not lost. Contact an experienced fraud recovery lawyer to discuss ways in which your money can be recovered. Most cases can be handled on a contingent fee basis meaning no legal fees unless the lawyers win and recovery money on your behalf.
(man in jail cell image courtesy of freedigitalphotos.net)