Ponzi Scheme Financial Fraud Litigation

Co-lead Class Counsel in a national class action involving a Ponzi scheme against, among others, Bankers Trust Company, Merrill Lynch, and Wells Fargo Bank. Many cases in which a person is injured from a catastrophic accident, medical malpractice, product defect, or has a birth defect as a result thereof, end up settling with the defendant or the defendant’s insurer purchasing a “Structured Settlement.” The Structured Settlement provides regular monthly payments over time instead of a lump sum to the victim and is considered a zero risk investment by many investment advisors. The payments are usually designed to cover the medical and care-giving needs of the victim and are usually the only source of medical care and coverage available to the victim. Through a series of questionable financial transactions, bundles of Structured Settlements were sold, resold, and resold again, and each time were backed by less and less secure investments, until they finally became worthless. At that time, letters went out to the beneficiaries stating that all payments to the victims would cease because the Structured Settlements were no longer “funded." When a former client of FBB&C received such a letter, FBB&C sprung into action. The final holders of the Structured Settlements were insolvent and numerous individual lawsuits were being filed. FBB&C took charge, filing a class action and arranging for a co-lead counsel agreement with other firms. By utilizing a cooperative approach with co-counsel, FBB&C was able to leverage the combined talents of the plaintiffs’ attorneys and present an efficient and united front against the financial institutions that breached their fiduciary duty to the beneficiaries, resulting in a settlement that recovered nearly all of the lost funds.

A national class action against, among others, Union Bank of Switzerland and Smith Barney & Company. Here, when the real estate market was heating up, unscrupulous Ponzi schemers took advantage of a loophole in IRC §1031(g) that allowed unregulated “facilitators” to act as Qualified Intermediaries. In this role, they hold a real property seller’s sale proceeds after the sale for use in a subsequent real property purchase, thereby avoiding capital gains on the increased value of the property sold. These unregulated facilitators received the financial backing of major banking and investment institutions that lent an aura of legitimacy and conveyed the appearance that these institutions were protecting the seller’s funds. In fact, the facilitator was operating a Ponzi scheme, using the sellers’ proceeds to fund a lavish lifestyle and for risky investments. When the Ponzi scheme collapsed, investors not only lost their proceeds from their sales, but also faced substantial tax liability for failing to complete a subsequent purchase timely and avoid capital gains. FBB&C was again co-lead counsel in a settlement that resulted in recovery of nearly a hundred million dollars.

A national class action against, among others…

Class action on behalf of insureds, business owners, who were induced to purchase fraudulent liability insurance policies.

In a trial run of “Cap and Trade,” around 2000, California created a pollution “bubble” in the South Coast, capping all large polluters at their current levels and requiring a staged reduction in emissions over time. The polluters were allotted certain pollution “credits” known as “RTCs” (Reclaim Trading Credits), which were registered with, and could be bought and sold via, an “exchange” set up by the California EPA. A Ponzi schemer established EonXchange and ACE, soliciting investors for bridge and mezzanine financing for escrowed trades of RTCs. When the Ponzi scheme fell apart, the schemer had no funds and the Ponzi entities were bankrupt. Because the “exchange” was under the jurisdiction of the EPA, rather than an financial regulatory agency, the investors had no ability to recover their funds. FBB&C represented the major investors and brought suit against a national bank that had acted as the escrow agent for the fraudulent RTC trades. The lawsuit alleged agency, aiding and abetting, conspiracy, and direct fraud and negligence claims against the bank. After opposing four Motions for Summary Judgment, and on the eve of trial, FBB&C recovered nearly 80% of the investors’ lost funds in a confidential settlement.