► In This Issue:

• Recovering the Fruits of Ponzi Schemes: The Canadian Experience
• Third Circuit Settles Fraudulent Transfer Burden of Proof Under Pennsylvania UFTA
• The Seventh Circuit Revisits Line Between Inquiry Notice and Equitable Subordination
• SEC v. Miller: Second Circuit Addresses a Temporary Asset Freeze and the “Money Judgment” Exception Under § 362
• Available from the ABI Bookstore—Fraud & Forensics: Piercing Through the Deception in a Commercial Fraud Case

Recovering the Fruits of Ponzi Schemes: The Canadian Experience

Christopher J. Ramsay Clark Wilson LLP Vancouver, B.C., Canada

Alexandra Andrisoi Clark Wilson LLP Vancouver, B.C., Canada

A Ponzi scheme is a fraudulent arrangement where an entity makes payments to investors from monies obtained from later investors, not from profits of any underlying business venture. The scheme is a variation of robbing Peter to pay Paul. Charles Ponzi is regarded as the mastermind of the first such scheme. Ponzi made millions running a postage stamp speculation scheme, using funds from new investors to pay out early takers.

The proposed investment opportunity that forms a Ponzi scheme often seems too good to be true, and it is. While it may be comforting to think that only inexperienced, greedy and naïve individuals are at risk of being duped, research suggests that many factors contribute to the success of Ponzi schemes and even savvy investors can become victims.

The Aftermath of a Ponzi Scheme: Unraveling the Web

There are significant challenges to recovering assets in Ponzi scheme proceedings in Canada. Unsurprisingly, fraudsters typically do not keep diligent records of the source of funds, the trail of transactions, and the ultimate recipients of funds paid out. However, this does not mean that victims can never recover their losses.
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Third Circuit Settles Fraudulent Transfer Burden of Proof Under Pennsylvania UFTA

Prof. Marie T. Reilly Pennsylvania State University State College, Pa.

In Sikirica v. Wettach, the Third Circuit held that a party seeking to avoid a fraudulent transfer under Pennsylvania’s Uniform Fraudulent Transfer Act (PUFTA) bears the burden of persuasion on all elements, including the insolvency of the debtor and the lack of reasonably equivalent value in exchange. When the transfer is from an individual debtor to a tenancy-by-the-entireties account, the debtor receives reasonably equivalent value to the extent that the couple used the transferred assets to pay their reasonable and necessary household expenses. However, a transferee couple must produce some evidence about how they spent the money. If they do not or cannot explain where the money went, the trustee automatically carries the burden of proof on the absence of reasonably equivalent value.
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The Seventh Circuit Revisits Line Between Inquiry Notice and Equitable Subordination

Christopher J. Weema Pugh, Accardo, Haas, Radecker & Carey, LLC New Orleans

In a Jan. 8, 2016, opinion, the U.S. Court of Appeals for the Seventh Circuit reminded secured lenders of their due diligence obligations when choosing to extend credit. In Grede v. Bank of New York Mellon Corp. and Bank of New York (Grede), a panel of the Seventh Circuit held that Bank of New York and its successor, Bank of New York Mellon Corporation, (collectively, the bank) were on inquiry notice of their obligation to investigate the provenance of the collateral used by Sentinel Management Group, Inc. to secure several hundred million dollars in loans made to Sentinel. The bank’s failure to act on that inquiry notice, the court held, was sufficient to deny the bank its secured status. That failure, though, was insufficient in itself to justify any equitable subordination of the bank’s claim.
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SEC v. Miller: Second Circuit Addresses a Temporary Asset Freeze and the “Money Judgment” Exception Under § 362

Daniel Seligman, CFE Columbia Research Corp. Seattle

The legal saga of the Wyly brothers continues.

Born in rural Louisiana during the Great Depression, Samuel Wyly and his older brother Charles, Jr., built a fortune from a computer company and later from steakhouses and Michael’s, an arts-and-crafts retail chain. In 2010, however, the U.S. Securities and Exchange Commission (SEC) brought a civil enforcement action against the Wylys, alleging that they participated in an elaborate international securities fraud scheme. A year later, Charles was killed in an auto accident. In 2014, following a six-week trial, a jury in New York found Samuel Wyly and the estate of Charles liable for multiple claims of securities fraud.
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Available from the ABI Bookstore—Fraud & Forensics: Piercing Through the Deception in a Commercial Fraud Case