FROM THE - JOURNALS of Monte Friesner – Criminal & Intelligence Analyst and Consulaire for WANTED SA ~ Contributed & Written by Kenneth Rijock
THE LONG REACH OF CLAWBACK SUITS FROM PONZI SCHEMEs
How can a tax attorney who performed
professional services for an investment fund be forced by a court to
return her fees ? When the fund invested in something that turned out to
be a Ponzi scheme,
and a court-appointed trustee, accumulating assets to pay victims goes
after the fund, in a claw back suit, and the fund goes after its tax
attorney for her fees, since they came from profits paid by the Ponzi scheme to the fund.
This is the case in a suit filed by a fund that accepted profits from Scott Rothstein's billion dollar scheme,
that involved investing in the proceeds of lawsuit settlements that
were later found to be nonexistent, and created by Rothstein to defraud.
Far fetched, you think ? Here's the
problem; any individual or entity who earned money, due to "profits "
received, directly or indirectly, from a Ponzi scheme, can be compelled
by a civil court of competent jurisdiction, to return funds received.
Unjust, you say ? I agree, because it imposes a duty upon recipients,
who have fairly provided goods or services, to disgorge that money, when
the money comes from a Ponzi scheme.
How did the tax attorney know that the
money she was paid came from Ponzi profits ? She was the tax adviser,
and knew about the stream of income.
It is a valuable lesson on knowing your
client, whether you are a professional or a bank. How well do you know
your client's business ? Are there any red flags, or things that seems
inconsistent with the trade or business that he is engaged in ? Does he
seem to be diligently at work ? Do you know your client's client (KYCC) ?
Whilst I do not agree that a
professional, or a bank should be compelled to return fees paid for with
Ponzi scheme proceeds, some of the recipients on Ponzi money are guilty
of willful blindness.
Always check out your client thoroughly, and update your due diligence periodically, lest you get burned.
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