An example is in the case of In re Slatkin, 525 F. 3d 805 (9th cir. 2008). After filing for Chapter 7 relief, the Debtor was charged with crimes in connection with an alleged Ponzi scheme. Pursuant to a plea agreement, he subsequently pled guilty to the charges and was sentenced to prison.
In the plea agreement, he admitted that he operated a Ponzi scheme over a lengthy period. In a fraudulent transfer action, the Trustee sought to avoid transfers from the Debtor to investors, to the extent they exceeded the amount invested (“false profits”). The Bankruptcy Court granted summary judgment to the Trustee, finding that the Debtor’s guilty plea and plea agreement conclusively established that the Debtor had operated a Ponzi scheme from which the actual intent to defraud his creditors would be imputed. The District Court affirmed. Further appeal was taken to the Ninth Circuit.
The Circuit Court also affirmed, finding that once the existence of a Ponzi scheme is established, payments received by investors as purported profits are deemed fraudulent transfers as a matter of law. The Circuit Court further noted that the Debtor was not a “stockbroker” under the Code and, therefore, the Trustee was not barred by section 546(e). The Court also rejected the investors’ argument that the plea agreement should not have been admitted because it was hearsay. The Court found it to be admissible under Federal Rule of Evidence 807. The admissions in the pleas agreement were more probative on issues of Debtor’s intent to defraud than any other evidence the Trustee could procure. The interest of justice would be best served by its admission as evidence. Further, the plea agreement had the equivalent circumstantial guaranties of trustworthiness as a statement covered by Rules 803 or 804.
If you have questions about Ponzi Schemes in Bankruptcy you should seek legal counsel regarding your rights.
For more information about Bankruptcy and Ponzi Schemes – contact Cynthia Remboldt, at the Remboldt Law Firm at 404-348-4081. FREE consultations can be scheduled by calling 404-348-4081. Evening and Weekend hours are available to meet with an attorney. If bankruptcy turns out to be the best way to move forward considering your alternatives, goals and financial challenges, payment plans are available if you need them.