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socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 38878
Experience:  Attorney and Real Estate Broker -- Retired (mostly)
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As investors, we did not know that this was a Ponzi scheme.

Customer Question

As investors, we did not know that this was a Ponzi scheme. Trustees for bankruptcy filed complaint against us for restitution of all money withdrawn for four years prior to admission by Lou Pearlman that he ran a Ponzi scheme. We invested for better than 20 years and saw proof of many legitimate business entities run by him. Does the law allow the trustees to come after us this way and accuse us of knowing it was a Ponzi scheme???
Submitted: 8 years ago.
Category: Bankruptcy Law
Expert:  socrateaser replied 8 years ago.

Knowldge of the scheme is irrelevant to a complaint for restitution based upon unjust enrichment. If a creditor can trace fraudulently approprated assets to a particular recipient, then the court can order that money restored on the theory that the money confirmed an unjust benefit upon the recipient, and it is only fair that the money be returned.


If you received money which was not the product of some profitable investment, but which was instead the product of someone else's deposit based on a misrepresentation of its use, then you are unjustly enriched at the depositor's expense, and you are obligated to return the money.


HOWEVER, if the creditor CANNOT directly trace its deposit to a particular recipient, then the law holds that the creditor is no more than an unsecured creditor as to the money, and is not entitled to restitution. So, if there are lots of intermediate transactions, then it's quite possible that no action for restitution will be possible, and the creditor(s) will just have to wait in line with all the other unsecured creditors to get their money back -- creditors which may include you. And, neither they nor you may ever see that money.


So, all is not lost here. The plaintiff has a pretty heavy burden of proof to meet in order to get a judgment of restitution against you. But, you'll have to defend vigorously.


Good luck.


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