Kathy Bazoian Phelps
Senior Counsel in Ponzi Scheme Litigation
and Bankruptcy Matters

Kathy is a senior business trial attorney with more than 30 years experience prosecuting and defending claims for high net worth clients involved in Ponzi scheme matters and in bankruptcy proceedings. Kathy’s practice includes recovering assets for clients in complex fraud cases under standard fee and alternative fee arrangements. She also handles SEC and CFTC whistleblower claims. Kathy also serves as a mediator in bankruptcy matters, in complex business disputes, and in matters requiring detailed knowledge about fraud or Ponzi schemes.

Kathy’s Clients in Ponzi Scheme Cases and Bankruptcy Matters
Equity Receivers
Bankruptcy Trustees
High Net Worth Investors
Debtors in Bankruptcy
Secured and Unsecured Creditors

Monday, November 19, 2012

The Reach of Receivers in Ponzi Scheme Cases: Where There Is a Will, There Is a Way

Posted by Kathy Bazoian Phelps

One of a receiver’s duties in administering a Ponzi scheme case is to commence appropriate litigation to avoid and recover property that the Ponzi schemer fraudulently transferred to third parties. By law, a receiver generally has the benefit of nationwide service to reach a defendant’s assets that are located in other jurisdictions. See 28 U.S.C. §§ 754 & 1692.

However, to get the benefit of nationwide service under section 754, a receiver faces a difficult hurdle. The receiver must file copies of the receivership complaint and the order of appointment in the district court for each district in which receivership property is located, and this must be done within ten days of the receiver’s appointment.

The statute also states the consequences of missing this short deadline. Section 754 provides, “The failure to file such copies in any district shall divest the receiver of jurisdiction and control over all such property in that district.”

But what happens if the receiver does not know where property is located in the first ten days of the case? Without knowing where the property is located, it is impossible to know where to file the appropriate papers within that very short time period.

One option is to file the necessary papers in all 91 judicial districts within the ten day time limit. While this might be justified in a case of nationwide scope, in most cases it is not.

As a more practical solution to this problem, receivers have sought to amend the order appointing them for the purpose of restarting the clock to give them a new opportunity to file the papers in the relevant jurisdiction. A recent decision confirms that this practice remains acceptable to assist receivers in reaching assets in other jurisdictions. In Miller v. Wulf, 2012 U.S. Dist. LEXIS 164237 (N.D. Utah Nov. 15, 2012) (citing SEC v. Vision Commc’ns, Inc., 74 F.3d 287, 291 (D.C. Cir. 1996)), the court stated, “this technical deficiency may be remedied by reappointing the receiver, which restarts the ten-day period for the receiver’s compliance with § 754.”

While this end run around section 754 is fantastic for receivers in reaching assets in other jurisdictions, it does leave one wondering why section 754 exists at all. The ability of a receiver restart the clock by the entry of either a new appointment order or an amendment to the existing appointment order would seem to make section 754 meaningless.

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