Not every scheme is a Ponzi scheme (new ruling from Judge Jenkins)

Our office is currently defending several cases in which court-appointed Receivers seek to “claw back” money received by our clients, usually years ago and with no notice that the money allegedly came from a fraudulent scheme.

In nearly all of these cases, the Receiver attempts to lessen (or eliminate) its burden of proof by relying on a so-called “Ponzi presumption.”  Under this presumption, Receivers simply allege that (1) the payor was operating a Ponzi scheme at the time the payment was made; and (2) therefore, every payment made by him was made with an intent to defraud creditors.

Ponzi is the new black.  Receivers (and federal agencies like the SEC) are liberal with the “Ponzi” label.  And, frankly, some of our local courts rarely put Receivers to the test.  Is it really a Ponzi scheme, or is the Receiver just calling it that to make his job easier?

Recently, some creditors of an alleged Ponzi scheme operator challenged the application of a “Ponzi” presumption.  Utah federal Judge Bruce Jenkins issued a lengthy opinion, which contains a long discussion of the history of Ponzi schemes and the definition of Ponzi scheme used by each federal circuit.  He concluded that, if the Receiver wanted to claw back funds from these creditors, it would need to prove its case; it couldn’t simply say “Ponzi scheme!” and avoid proving it in the 40 clawback cases it is bringing.

The ruling in SEC v. Management Solutions, Inc., is very interesting:  https://ecf.utd.uscourts.gov/cgi-bin/show_public_doc?211cv1165-1215.