Restitution for Ponzi Scheme Victims: The Symbiotic Relationship of Tax and Securities Laws
10 Rutgers Bus. L.J. 21 2013
36 Pages Posted: 16 Jan 2014 Last revised: 29 Jan 2014
Date Written: February 15, 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.
Keywords: Ponzi schemes, SIPC, taxation and loss
JEL Classification: H2
Suggested Citation: Suggested Citation