McGuireWoods’ Ponzi Litigation team launched its Ponzi Perspectives blog in early 2021. Since that time, our focus is to track key cases and decisions that have the potential to influence controlling law on Ponzi-related issues. The blog also offers analysis on practical considerations when defending Ponzi litigation. This 2022 mid-year round up summarizes the new cases and opinions analyzed throughout the first half of the year and highlights the trends that may serve as “coming attractions” of what to expect in the latter half of 2022.
2022 Ponzi Litigation Included Significant SEC Enforcement, Facilitation Claims Against Financial Institutions, and Real Estate and Retirement Schemes.
Throughout the first half of the year, McGuireWoods summarized over 17 complaints filed in federal and state courts across the country, including 9 federal district courts and 8 state courts cases.
Case summaries have included significant SEC enforcement actions, which often also spurred civil litigation filed by defrauded investors. Some of the schemes involving SEC litigation so far this year include:
- Freitag, as Receiver for ANI Development, LLC v. Dean Libs, et al.: Scheme stemming from a prior action filed by the SEC, a scheme involving fraudulent liquor license loans that raised $390 million from 435 investors.
- SEC v. David J. Bunevacz et al.: Scheme that tricked investors into believing they were investing in profitable sales of “vape” pens infused with Cannabidiol (“CBD”) when investor funds were being misappropriated for personal gain and used to pay earlier investors.
- SEC v. Minuskin, et al.: Scheme that promoted unregistered promissory note investments and self-directed retirement accounts, and defrauded investors by misappropriating and misusing investor funds.
- Damian, as Receiver of Today’s Growth Consultant, Inc. v. SmithAmundsen, LLC: Scheme stemming from a prior action filed by the SEC, a scheme that raised at least $75 million from more than 750 investors in Ponzi-style payments and was the subject of PLB Investments LLC et al v. Heartland Bank and Trust Co. et al., a related case initiated by various defrauded investors.
In addition to SEC enforcement actions, over half of the new complaints this year included claims of breach of fiduciary duty, aiding and abetting, unjust enrichment, and/or negligence or negligent misrepresentation. Some of the schemes involving these claims have included:
- Oregon JV LLC v. Advanced Investment et al. involved an investor who sued several defendants, including trustees of various trusts and Oregon-based financial intuitions, for unjust enrichment alleging that defendants engaged in a scheme to defraud by misrepresenting the construction status of investment properties.
- yLoft LLC v. Bechtler, Parker, Watts, P.S.C. involved individual and institutional investors who brought a claim for negligent misrepresentation against an accounting firm alleged to have facilitated the sale of unregistered securities.
The frequency of these types of claims highlights that defrauded investors continue to seek redress from those with deep pockets when a scheme collapses (as the wrongdoers are typically insolvent), such as a bank that provided routine banking services to the schemer. For example:
- Tu Le et al. v. Prestige Community Credit Union involved a group of investors who brought claims for aiding and abetting fraud and aiding and abetting breach of fiduciary duty against a credit union that schemers used in connection with their church-based investment scheme propped up by Ponzi-type payments.
Finally, in terms of subject matter trends in 2022, a number of cases involved investors duped with the promise of high returns on a real estate transaction or investment, including schemes involving residential and commercial real estate, oil wells, wedding venues, and fast-food franchises. Further, there were several schemes targeting specific populations of persons, the most vulnerable, the elderly, and/or life insurance proceeds, retirement funds, and other retirement assets.
2022 Ponzi-Related Decisions Offered Insight Into Facilitation Claims and Strategy for Defending Against Them.
As for the decisions tracked by Ponzi Perspectives in 2022, McGuireWoods analyzed PLB Investments LLC et al. v. Heartland Bank and Trust Co. et al., a Ponzi-related opinion from the Northern District of Illinois, which provides guidance to financial institutions defending against Ponzi-related claims.
PLB Investments highlights the importance of challenging the absence of facts to support the element of actual knowledge. While the pleading requirements of actual knowledge—and bad faith in some circumstances—may vary across jurisdictions, it is one of the major lines of defenses for a bank holding a financial relationship with the business operating a Ponzi scheme. Plaintiffs are unlikely to survive a motion to dismiss if they cannot allege sufficiently detailed facts plausibly showing that the bank had actual knowledge of the scheme, beyond mere suspicion of potential wrongdoing, as was the case in PLB Investments.
McGuireWoods looks forward to continuing to document the legal landscape in civil and criminal Ponzi litigation in Ponzi Perspectives throughout the remainder of 2022. As always, if you have any questions about these issues or our blog, please reach out to a member of the Ponzi Litigation team.