Allocating Loss in Securities Fraud: Time to Adopt a Uniform Rule for the Special Case of Ponzi Schemes
33 Pages Posted: 2 Aug 2011 Last revised: 28 Oct 2018
Date Written: August 1, 2011
The Global Financial Crisis precipitated a condensing of capital and a fall in global equities markets that resulted not solely in the necessity of government bailouts of the financial industry but also exposed a number of Ponzi schemes that collectively will cost investors tens of billions of dollars. With a new wave of litigation by innocent investors against Ponzi scheme operators just beginning, and likely to take years, it becomes important to clearly identify the methodologies used to value the loss and allocate existing assets among remaining creditors. To that end I offer this article to argue that courts ought to use a comparatively new approach – the loss to the losing victim methodology originally pioneered in criminal law – to determine how equally innocent victims share the losses these schemes precipitated. By standardizing the calculation of loss to investors in both criminal and civil law, the courts will not only make the determination of loss considerably easier, but also more equitable.
Keywords: ponzi, ponzi scheme, secured transaction, bankruptcy, fraud, loss to the losing victim, net investment, division of loss, equity, creditor, secured creditor
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