In re Canyon Systems Corp. , 343 B.R. 615 (2006)

Can a trustee in bankruptcy recover damages from those who profited from an insolvent pyramid scheme?

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No, the bankruptcy trustee cannot recover damages under state law against those who profited from an unlawful pyramid scheme, but it can void fraudulent transfers of pyramid scheme profits. Canyon sold gold coins to investors. They paid 70% of the cash investment back to the investor in gold coins, and paid another 70% when the investor reach the bottom of a customer list. The company also paid commissions and bonuses to sale people who induced others to invest money with the company. The company depended on a continued flow of new customers to maintain the guise of a legitimate enterprise, and the bankruptcy court concluded that it was an unlawful pyramid scheme. The bankruptcy court voided the transactions between the company and customers as fraudulent, and allowed the trustee to recover the money for the benefit of the company's creditor- other investors. However, the trustee did not have standing to pursue damages claims against those who made money from the scheme...

The full case is also available online at: http://www.mlmlegal.com/legal-cases/InReCanyonSystemsCorp.php

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Published In: Bankruptcy Updates, MLM / Direct Sales Updates, MLM Consulting / Network Marketing Updates

Reference Info:Federal, 6th Circuit, Ohio | United States

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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