Sheffrin on Ponzi Schemes

Steven M. Sheffrin has posted Restitution for Ponzi Scheme Victims: The Symbiotic Relationship of Tax and Securities Laws on SSRN with the following 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 bedifficult for both the SIPC and the IRS, which is highlight of this paper. It also provides a welfare framework for evaluating the consequences of alternative restitution strategies.