Investors should exercise caution when investing in something that promises an unbelievable rate of return or is presented as a "sure thing."
Investors could unwittingly fall into a financial nightmare if they innocently invest in what later turns out to be Ponzi scheme. On a national level, almost everyone is now familiar with the multi-billion dollar Ponzi scheme perpetrated by Bernie Madoff. In the Pacific Northwest, Ponzi schemes run by Seattle based money manager Darren Berg and Kirklandbased broker Rhonda Breard have made headlines this past year.
State Court appointed Receivers or Bankruptcy Trustees have been appointed in many Ponzi scheme cases to marshal assets for all potential creditors of the investment company used to perpetrate the Ponzi scheme. This marshalling of assets can include obtaining a return of an innocent investor’s gains on a Ponzi scheme investment under a fraudulent transfer theory.
An investor bears the burden of proof to show that they were an innocent investor to protect their initial principal investment amount. If the investor cannot satisfy that burden, the Receiver/ Trustee could obtain a judgment ordering the return of the initial principal amount. There is a further possibility of accrued interest and attorneys’ fees being awarded to the Receiver / Trustee if the matter is contested. The case law is weighted very heavily in favor of the Receiver/ Trustee in such instances.
AW Attorneys Roger T. Dunaway and Rob Roy Smith recently represented an investor in what turned out be to a Ponzi scheme involving Indonesian oil fields. A court appointed Receiver filed suit against all investors seeking, at a minimum, a return of each investor’s “excess proceeds” plus accrued interest.
The AW client initially invested about $750,000.00 in the oil fields and received investment proceeds of about $800,000.00 over a 2 year period. At a minimum, the AW client was looking at potential exposure in excess of $1,300,000.00 ($800,000.00 excess proceeds plus 4-5 years accrued interest on that amount at 12% per annum). If the client had wanted to fight the claims, the Receiver was prepared to also seek the $750,000.00 initial principal investment amount forcing the investor to prove that they were an innocent investor, thus, bringing the Receiver’s claim to over $2,000,000.00. Counsel was able to quickly resolve this case for $500,000.00 (payable over 5 months) to avoid much higher exposure.