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 2023 year-end round up summarizes the cases and opinions analyzed throughout the year and highlights anticipated trends for 2024.

Government Enforcement Against Those Engaged in Ponzi Schemes Continues to Play a Significant Role in Ponzi Litigation

Throughout 2023, Ponzi Perspectives summarized nearly 50 complaints filed in federal and state courts across the country brought against the individuals committing investor fraud and the companies used to perpetrate their schemes.  In line with the trends predicted in McGuireWoods’ 2023 Midyear Roundup, government enforcement actions have continued to account for a significant proportion of lawsuits filed against Ponzi schemers, as well as prompting receivers appointed over the schemers’ assets and victims of fraud to pursue private actions.

Over a third of cases in 2023 were brought by the Securities Enforcement Commission, with additional enforcement actions brought by other government agencies, including as the Commodity Futures Trading Commission, which is charged with regulating certain types of investment vehicles.  In addition to the cases highlighted in the Midyear Roundup, cases filed in 2023 reflect the continued emphasis on government enforcement against those engaged in investment fraud, including:

• SEC v. Conn, Jr. involved a defendant charged with aiding and abetting a close friend who misrepresented himself as an investment adviser to collect investment funds but, in reality, used victims’ investments to fund his lifestyle, support his accounting business, and fund a failed real estate project, amongst other improper uses. 
• SEC v. Kubler involved an alleged multi-million-dollar Ponzi scheme in which investments were purportedly associated with commercial real estate, but the SEC alleged that defendants fraudulently misappropriated 96% of investor funds by paying back earlier investors, funneling funds to other shell companies, and paying back personal debt obligations.
• SEC v. Feloni involved a scheme which deceived approximately 180 retail investors who invested in the purported development of a smartphone application, but funds were instead used to pay defendants’ unrelated personal expenses.
• SEC v. Aras Investment Business Group involved a scheme targeting the Mexican American community to invest in real estate and Mexican mining operations.
• Commodity Futures Trading Commission v. Young involved an action by the Commodity Futures Trading Commission (“CFTC”) based on defendants’ fraudulent solicitation of investments and misrepresentations that they would teach investors how to trade, marketing themselves as skilled traders during the classes despite the fact that the Illinois Secretary of State Securities Department had forbidden defendants from engaging in securities transactions due to his history of defrauding investors.
• SEC v. Agridime LLC involved a scheme run through investments in the purchase, care, and processing of cattle, which allegedly defrauded over 2,100 investors when the funds were used to pay back earlier investors.

Receivers, who are appointed by a court upon motion typically made by a government agency in this context, have likewise focused attention on seeking recoupment of investors’ funds lost in the wake of a Ponzi scheme.  Notably, receivers brought several actions in 2023 seeking to recover assets which were fraudulently transferred by schemers to evade the receivers’ control and/or funds paid to “net winner” investors who should not benefit from other investors’ losses:

• Conlan v. Roach:  Receiver, appointed in 2019 in a related SEC action, filed suit against defendant property purchaser in Colorado federal court to recover misappropriated investor money and property transferred by the SEC defendant and his wife—in violation of a September 2023 asset freeze order in the SEC action.
• Dottore v. SDR Realty:  Receiver, appointed in response to prior litigation filed by the State of Ohio Department of Commerce, filed suit against Ponzi scheme “net winner” investors who received fictitious profits to the detriment of other defrauded investors.
• Hafen v. Guyon:  Receiver, appointed in a related action brought by the CFTC and Utah Division of Securities, filed suit against the schemers’ attorney and other fictitious investors, alleging that the schemers’ attorney, his family members, and other relatives of the schemers knowingly and actively participated in, and ultimately benefitted from, the fraudulent silver resale business.

In addition to SEC enforcement actions, complaints this year overwhelmingly include claims of breach of fiduciary duty, breach of contract, unjust enrichment, breach of the duty of good faith and fair dealing, and/or negligence or negligent misrepresentation—all common claims brought against financial institutions by defrauded investors.  Some of the schemes involving these claims include:

• Wells, et al. v. Edisto River Investors, LLC, et al. involved investors who brought a claim of breach of contract against the schemers for losses arising from an alleged Ponzi scheme in which individuals were solicited to invest in commercial real estate ventures that were either failing or nonexistent.
• Tell v. Modica Microindustries, Inc. involved investors who sued a construction company for unjust enrichment, breach of contract, and breach of the duty of good faith and fair dealing, alleging that defendants solicited funds to construct modular homes made from cargo shipping containers, but used the proceeds to fund other projects as part of a Ponzi scheme.
• American Eagle Oil & Gas Co., et al. v. Navarro Prod. Co., et al. Involved investors who brought claims for breach of fiduciary duty and negligent misrepresentation against the defendant schemers for losses arising from an alleged Ponzi scheme run through investments purportedly associated with oil and gas leases where schemers fraudulently misrepresented amounts of oil production to continuously solicit investor funds, and ultimately steal the funds.
• Sunrise NPL, LLC v. Easy Financial, LLC, et al. involved investors who brought a claim for fraud, negligence, aiding and abetting fraud, and unjust enrichment against the schemers and title company for losses arising from an alleged Ponzi scheme involving the sale of mortgage loans.
• Legum v. Garfinkel, et al. involved investors who brought a claim of common law fraud against defendant schemers for losses arising from an alleged Ponzi scheme run through purported investment entities where defendants promised to use investor money to purchase receivables, but instead used it to fund gambling habits and lavish lifestyles and make Ponzi payments to earlier investors.

2023 Subject Matter Trends in Ponzi-Litigation Include Cryptocurrency, the Film Industry, Real Estate Transactions, and Retirement Assets.

As predicted in last year’s roundup, 2023 has seen a growing number of cases involving cryptocurrency, including schemes run though cryptocurrency exchange, FTX, Bitcoin mining companies, artificial intelligence, tokens, and digital assets like blockchains.

The film industry is another growing subject matter trend–one that we’ve tracked on the blog since 2021. Examples of these schemes include those run through companies purporting to finance the acquisition of content rights from streaming platforms.

Additionally, there were several schemes involving affinity fraud, a type of fraud targeting members of identifiable groups, such as the elderly, religious persons, or ethnic communities. Some of the schemes involving affinity fraud have impacted the Mexican American community, the Orthodox Jewish community, the Egyptian Coptic Christian community, the elderly, and parishioners, among others.