The Securities and Exchange Commission, Federal Trade Commission, and Commodities Futures Trading Commission often seek appointment of receivers in civil enforcement actions, including in actions alleging operation of Ponzi-like investment schemes. Receivers are generally tasked with taking over entities used to perpetrate schemes, conducting forensic accountings, reporting their findings to the appointing court, and recovering funds, where possible, for distribution to defrauded investors. In the recent decisions described below, the Seventh and Ninth Circuit Courts of Appeal address three key issues that arise in federal equity receiverships -- the impact of a claims bar date, distribution priority between investors and creditors, and the limits on a receiver’s ability to recover from third parties who file bankruptcy.

CFTC v. Lake Shore Asset Management

In a recent decision by Judge Richard Posner, the Seventh Circuit Court of Appeals addressed two important issues that arise in many federal equity receiverships – allowance of late-filed claims and priority in distribution between investors and creditors.

In CFTC v. Lake Shore Asset Management Ltd., et al., 646 F.3d 401 (7th Cir. 2011), the court first addressed the appropriate standard for determining whether a late-filed claim should be allowed. Notice of the deadline to submit claims had been mailed to the investor, an Andorran bank, and the bank had failed to submit a claim. The district court disallowed the claim and the bank appealed.

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