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Univ. of Toledo College of Law

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Friday, January 25, 2013

Stanford Receiver Can Recover Interest Payments for Net Winners

The Texas federal district court that has exclusive jurisdiction over the receivership estate of R. Allen Stanford's Ponzi scheme recently held that the receiver could avoid interest payments made to those investors who received payments in excess of their principal investment ("Net Winners"). 

In Janvey v. Alguire (N.D. Tax. Jan. 22, 2013) (Download Janvey.012213[1]), the court first held that, as a matter of law, Stanford operated a Ponzi scheme, based on the declarations of an expert.  Next, the court addressed the issue of whether the Net Winners provided value for their interest payments.  The court acknowledged that, although courts almost universally hold that the transfer of "false profits" from a Ponzi scheme is not made in exchange for value, courts are split where the investor receives payments in the form of interest on the principal.  After reviewing the case law, the court sides with those courts that choose not to enforce investment contracts with a Ponzi scheme.  Accordingly, the Net Winners failed to provide value in exchange for the interest they received.  Noting that for victims of a Ponzi scheme, "everyone is a loser," the court decided that "avoiding the interest payments is the most equitable and just solution to a difficult problem."

The court found that the order "involves a controlling question as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation."  Therefore, he certified the order for interlocutory appeal.

 

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