Journal Title

DePaul Law Review

Volume

64

Issue

3

First Page

867

Document Type

Article

Publication Information

2015

Abstract

Ponzi schemes and other investment frauds inevitably end up in bankruptcy or receivership, leaving behind numerous victims—many of whom invested their life savings in the scheme without any knowledge of its fraudulent nature. Although trustees and receivers can sometimes recover some of the fraudulently acquired funds from the assets of the perpetrators, in most cases, those assets fall woefully short of the victims’ losses. This leads to fraudulent transfer lawsuits (claw-back actions) against those who are suspected to have profited from the wrongdoing.

A transfer is fraudulent if it was made with the actual intent to defraud, but actual fraud is seldom proven by direct evidence. Generally, to determine whether circumstantial evidence supports an inference of fraud, courts examine certain badges of fraud. While badges of fraud are helpful, the analysis requires individual examination of the specific transaction at issue, the effect of which diminishes the returns to the victims of the fraud because of the substantial costs involved in undertaking such assessments. However, courts nationwide have recognized that simply establishing the existence of a Ponzi scheme is sufficient to prove the perpetrator’s intent to defraud. The presumption provides receivers and trustees with an advantage and shifts the burden of showing the legitimacy of the benefits received to the perpetrator.

Courts define Ponzi schemes differently, which creates uncertainty for receivers and trustees who are now required to take over the fraudulent enterprise and recover assets for the victims of the fraud. Expanding the actual fraud presumption beyond classic Ponzi-scheme cases avoids uncertainty and assists receivers and trustees in achieving a final, equitable distribution of assets. The focus should be whether applying the presumption will maximize the return to creditors and victims of the fraud.

Recommended Citation

David R. Hague, Expanding the Ponzi Scheme Presumption, 64 DᴇPᴀᴜʟ L. Rᴇᴠ. 867 (2015).

Included in

Law Commons

Share

COinS
 
 

To view the content in your browser, please download Adobe Reader or, alternately,
you may Download the file to your hard drive.

NOTE: The latest versions of Adobe Reader do not support viewing PDF files within Firefox on Mac OS and if you are using a modern (Intel) Mac, there is no official plugin for viewing PDF files within the browser window.