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Troubles with Ponzi Scheme Receivers: White Knights, Evil Zombies, and the Flight of Icarus  

Author:  Alex C. Lakatos.; E. Brantley Webb.

Source: Volume 30, Number 03, Spring 2017 , pp.23-32(10)

Journal of Taxation and Regulation of Financial Institutions

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In the wake of Ponzi schemes, federal courts often appoint receivers to recoup stolen money for the benefit of the defrauded investors. A receiver’s primary function is to claw back money that the Ponzi scheme paid to so-called winning investors and others. But the courts should supervise more closely—and in many instances may wish to preclude altogether—receiver actions for negligence or secondary liability, for example, lawsuits alleging that a financial institution aided and abetted the fraudsters. As the authors explain, allowing receivers to bring these secondary liability actions may not best serve the defrauded investors, whose interests may conflict with the receivers’. Moreover, such actions tend to impose undue burdens on defendants, as Ponzi scheme receivers routinely seek special treatment not available to other litigants.

Keywords: receiver, Ponzi scheme, in pari delicto doctrine, clawbacks, secondary liability actions, conflict of interest

Affiliations:  1: Mayer Brown LLP; 2: Mayer Brown LLP.

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