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

Steven M. Sheffrin

Tulane University

Date Written: February 15, 2013

Abstract

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

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: https://ssrn.com/abstract=2379680

Steven M. Sheffrin (Contact Author)

Tulane University ( email )

New Orleans, LA 70118
United States

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