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

Tuesday, October 22, 2013

Ponzi Scheme Cases Can Actually Return 100% to Investors, Plus Some

Posted by Kathy Bazoian Phelps

   When a Ponzi scheme ends up in a bankruptcy or receivership proceeding, we often assume that the defrauded victims won’t fully recoup their losses. And the measurement of losses often only contemplates the net difference between the amount invested less the amount returned to the investor. Expected profits, interest and other damages usually don’t even come into consideration, and any recapture of lost principal is considered a good thing.

   But, once in a while, defrauded victims actually recoup the full amount of their losses. And in very rare circumstances, defrauded victims might even receive a distribution on account of other types of damages associated with the failed investment. This is the situation in the LandAmerica Financial Group, Inc. cases.

   The Liquidation Trustee of LandAmerica 1031 Exchange Services, Inc., Gerard A. McHale, Jr., recently sent a letter to victims, advising them that they would be receiving a 60% distribution on their Class 7 Damages Claims. Those victims have already received 100% of their lost principal claims in the total amount of $250,000,000. An additional $12 million is to be distributed on the Damages Claims. 

   The court had previous considered and established protocols for fixing damages claims filed by victims. The categories of damages sought by victims were for: 1) Professional Fees; (2) Lost or Forfeited Deposits; (3) Deprivation of Tax Benefits; (4) Punitive Damages; (5) Interest; (6) Lost Opportunities and Other Speculative Damages; (7) Exchange Fees Paid to LES; and (8) Other Miscellaneous Damages.

   The court allowed amounts for lost deposits, lost exchange fees and certain miscellaneous damages, but limited professional fees and qualified claims for deprivation of tax benefits. Claims for punitive damages, lost opportunities and speculative damages were disallowed. Pre-petition interest was already paid as a component of earlier distributions to claimants, and post-petition interest was disallowed. 

   The Liquidation Trustee notified approximately 165 damage claimants that they would be receiving a 60% distribution on their damage claims, with the hope of a further distribution upon resolution of the remaining administrative matters in the case.

   This is rare but welcome news in a Ponzi scheme case. 

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