Restitution for Ponzi Scheme Victims: The Symbiotic Relationship of Tax and Securities Laws
Steven M. Sheffrin
Tulane University; UC Davis
February 15, 2013
10 Rutgers Bus. L.J. 21 2013
This paper contrasts the restitution processes used by the Securities Investment Protection Corporation ("SIPC") and the Internal Revenue Service ("IRS") to provide restitution to the victims of Ponzi schemes. With its roots in bankruptcy law, the goal of SIPC is to provide reimbursement to victims of Ponzi schemes in an equitable manner, while the IRS is principally concerned with the impact of Ponzi schemes for taxable income. On the surface, the methods used by SIPC and the IRS appears potentially contradictory. Despite these contradictions, these methods are broadly consistent with one another and have a collaborative relationship. Nonetheless, implementation of these policies has proven to be difficult for both the SIPC and the IRS, which is highlighted in this paper. It also provides a welfare framework for evaluating the consequences of alternative restitution strategies.
Number of Pages in PDF File: 36
Keywords: Ponzi schemes, SIPC, taxation and loss
JEL Classification: H2Accepted Paper Series
Date posted: January 16, 2014 ; Last revised: January 29, 2014
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