Restitution for Ponzi Scheme Victims: The Symbiotic Relationship of Tax and Securities Laws

Steven M. Sheffrin

Tulane University

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: H2

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Date posted: January 16, 2014 ; Last revised: January 29, 2014

Suggested Citation

Sheffrin, Steven M., Restitution for Ponzi Scheme Victims: The Symbiotic Relationship of Tax and Securities Laws (February 15, 2013). 10 Rutgers Bus. L.J. 21 2013. Available at SSRN: http://ssrn.com/abstract=2379680

Contact Information

Steven M. Sheffrin (Contact Author)
Tulane University ( email )
New Orleans, LA 70118
United States
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