McGuireWoods’ Ponzi Litigation team launched its Ponzi Perspectives blog in early 2021. Since that time, we’ve posted detailed case alerts of Ponzi-related complaints filed throughout the country and posted key decisions that have the potential to influence controlling law on Ponzi-related issues involving financial institutions. This 2022 year-end round up summarizes the cases and opinions analyzed throughout the year and highlights anticipated trends for 2023.

2022 Ponzi Litigation Included Significant SEC Enforcement, Facilitation Claims Against Financial Institutions, and Real Estate and Retirement Schemes.

In Ponzi Perspectives’ sophomore year, McGuireWoods summarized over 33 complaints filed in federal and state courts across the country, including 12 federal district courts and 10 state courts. Ponzi litigation has not let up and we expect enforcement to continue on an upward trend as investors chase higher rates.

Case summaries have included significant SEC enforcement actions, which often also spurred civil litigation filed by defrauded investors. Some of the schemes resulting in SEC litigation include:

• SEC v. Fernandez, et al.: Scheme run through purported “financial growth” and “foreign exchange (‘forex’) trading expert” companies that promised to pay investors guaranteed returns by trading in the forex markets, but used investor funds to make Ponzi-like payments and to cover personal expenses.
• SEC v. Lam, et al.: Scheme that purported to use investor funds to day-trade securities that raised over $2 million from defrauded investors.  
• SEC v. David J. Bunevacz et al.: Scheme that tricked investors into believing they were investing in profitable sales of “vape” pens infused with Cannabidiol (“CBD”) when investor funds were being misappropriated for personal gain and used to pay earlier investors.
• SEC v. Minuskin, et al.: Scheme that promoted unregistered promissory note investments and self-directed retirement accounts, and defrauded investors by misappropriating and misusing investor funds.
• Freitag, as Receiver for ANI Development, LLC v. Dean Libs, et al.: Scheme stemming from a prior action filed by the SEC, involving fraudulent liquor license loans that raised $390 million from 435 investors.
• Damian, as Receiver of Today’s Growth Consultant, Inc. v. SmithAmundsen, LLC and Damian as Receiver of Today’s Growth Consultant, Inc. v. Core Financial Outsourcing of Chicago, LLC: Scheme stemming from a prior action filed by the SEC, involving $75 million from more than 750 investors, which was also the subject of PLB Investments LLC et al v. Heartland Bank and Trust Co. et al., a related case initiated by various defrauded investors.

In addition to SEC enforcement actions, over half of the new complaints this year included claims of breach of fiduciary duty, aiding and abetting, unjust enrichment, and/or negligence or negligent misrepresentation.  Some of the schemes involving these claims have included:

• Capital Providers of Cambridge Sarano, LLC, et al. v. Robl, et al. and Investors in Friends of Production Capital LLC v. Friends of Production Capital LLC involved a group of investors who sued several defendants for unjust enrichment, alleging that defendants ran a scheme to defraud investors in the course of contracting with a production studio providing visual effects on motion pictures.
• Karvounides, et al. v. Antonas, et al. involved a group of investors who sued several defendants for losses arising from an alleged Ponzi scheme run through a purported hedge fund.
• Oregon JV LLC v. Advanced Investment et al. involved an investor who sued several defendants, including trustees of various trusts and Oregon-based financial intuitions, for unjust enrichment alleging that defendants engaged in a scheme to defraud by misrepresenting the construction status of investment properties.
• yLoft LLC v. Bechtler, Parker, Watts, P.S.C. involved individual and institutional investors who brought a claim for negligent misrepresentation against an accounting firm alleged to have facilitated the sale of unregistered securities.

Finally, in terms of subject matter trends, we saw a growing number of cases involving cryptocurrency as predicted in our 2021 Year-End Roundup, including schemes run through purported Bitcoin mining companies and schemes run through digital assets like blockchains.

Other subject matter trends seen in 2022 include a number of cases involving the film industry, including schemes run through purported production companies providing visual effects on motion pictures, and schemes involving real estate transactions or investments ranging from rental properties, home construction properties, wedding venues, and fast-food franchises.

Further, there were several schemes targeting specific populations of persons, the most vulnerable, the elderly, and/or life insurance proceeds, retirement funds, and other retirement assets.

2022 Ponzi-Related Decisions Offered Insight Into Facilitation Claims and Strategy for Defending Against Them.

As for the decisions tracked by Ponzi Perspectives in 2022, McGuireWoods analyzed PLB Investments LLC et al. v. Heartland Bank and Trust Co. et al., a Ponzi-related opinion from the Northern District of Illinois, which highlights the importance of challenging the absence of facts to support the element of actual knowledge. While the pleading requirements of actual knowledge—and bad faith in some circumstances—may vary across jurisdictions, it is one of the major lines of defenses for a bank holding a financial relationship with the business operating a Ponzi scheme.  Plaintiffs are unlikely to survive a motion to dismiss if they cannot allege sufficiently detailed facts plausibly showing that the bank had actual knowledge of the scheme, beyond mere suspicion of potential wrongdoing or irregular account activity, as was the case in PLB Investments. Ponzi Perspectives has continued to track litigation related to this case throughout 2022.