McGuireWoods’ Ponzi Litigation team launched its Ponzi Perspectives blog in early 2021. Throughout the past four years, we’ve tracked and posted case alerts on Ponzi-related complaints filed in federal and state courts throughout the country, analyzed key decisions that have the potential to influence controlling law, and posted practical considerations for financial institutions to consider when facing claims from defrauded investors or court appointed receivers and trustees.  This 2024 year-end round up summarizes the cases and opinions analyzed throughout the year and highlights anticipated trends for 2025.

In line with the trends predicted in the previous Year End Roundup, Ponzi litigation continues to grow, and we expect this upward trend to continue. In 2024, we summarized nearly 50 complaints filed in federal and state courts across the country, including in 15 federal district courts and 20 state courts.  Given the proliferation of alternative investments, Ponzi schemes continue to grow, including in cryptocurrency, clean energy tax credits, currency trading, and a multitude of other non-traditional investments.  That said, the classic “promised return” schemes involving promissory notes remain and continue to be a source of litigation. 

Government Enforcement Against Schemers Continues to Play a Significant Role in Ponzi Litigation, Often Spurring Civil Litigation.

As predicted, government enforcement actions, particularly those brought by the Securities and Exchange Commission, continue to account for a significant portion of lawsuits filed against Ponzi schemers, often spurring private actions filed by defrauded investors and receivers appointed over the schemers’ assets. The SEC’s Enforcement Results for Fiscal Year 2024 highlights Ponzi schemes as a major source of fraud involving billion dollar schemes with thousands of victims. Additional enforcement actions were brought by other government agencies, including the Commodity Futures Trading Commission, which regulates the U.S. derivatives markets, which includes futures, swaps, and certain kinds of options.

Some of the schemes resulting in government enforcement actions from 2024 include:

  • SEC v. Kralik, et al. involved an alleged real estate investment Ponzi scheme where defendants used investor funds to pay earlier investors and for personal use instead of providing profits derived from renovating or renting the properties as promised.
  • SEC v. Lee, et al. involved an alleged global, crypto asset-related, multi-level marketing Ponzi scheme run through a series of projects referred to collectively as HyperFund, a project dedicated to creating a decentralized finance ecosystem for crypto asset market participants.
  • SEC v. Mendia-Alcaraz, et al. involved an alleged private index fund investment scheme run through the sale of unregistered securities by the schemer’s wholly owned private equity firm where the schemers falsely guaranteed investors the full return of their capital, plus dividend returns between 12% and 36.88%.
  • SEC v. Sanchez, et al. involved an alleged multi-million-dollar Ponzi scheme targeting the Latin American community to invest in the crypto asset, CryptoFX, and foreign-exchange markets.

Receivers and Trustees Continue to Seek Recoupment for Defrauded Investors.

After a Ponzi scheme collapses, defrauded investors often file suit against schemer companies in an attempt to recoup their investments. Because these schemer companies often have no assets of their own, courts appoint receivers or trustees to marshal any remaining assets to satisfy judgments for creditors. Notably, several cases in 2024 were brought by receivers and trustees seeking recoupment for defrauded investors, often from “net winner” investors:

  • In Dottore v. FC Real Estate Development Co., a court-appointed receiver filed four separate lawsuits against Ponzi scheme “net winner” investors, all of whom allegedly received fictitious profits to the detriment of other defrauded investors, did not give value in exchange for what they received from the receivership entities, and did not invest in good faith in the Ponzi scheme. 
  • In Hafen v. Ault, et al., a court-appointed receiver filed two lawsuits against “net winners” who received fictitious profits from the “Silver Pool Ponzi Scheme.” The schemers promised significant returns through purchasing, storing, and selling physical silver for investment but instead misappropriated funds to make payments to other investors. The receiver alleges that defendants received payments greater than their investments with the scheme.
  • In Fielder v. Bullock, a trustee filed suit against a defendant schemer for losses arising from an alleged Ponzi scheme run through Natural State Alternative Fund, LLC, which purported to be a well-established and successful oil and gas operations in Texas, when in reality the schemers mixed investor funds in numerous unrelated-companies, made Ponzi-payments to investors without their knowledge, and lied about using investor proceeds to invest in legitimate oil and gas wells and projects.

Ponzi-Related Decisions Offered Insight Into Defenses Against Aiding and Abetting Claims.

As for the decisions tracked by Ponzi Perspectives in 2024, McGuireWoods analyzed O’Dell v. Berkshire Bank, a Ponzi-related opinion from the Northern District of New York, which dismissed a claim—with prejudice—of a bank aiding and abetting a Ponzi scheme.

O’Dell is a classic Ponzi case in which defrauded investors brought a putative class action against the fraudster’s bank after the scheme collapsed, knowing the fraudster filed for bankruptcy and was therefore unlikely to provide full restitution. Plaintiff alleged a single claim of aiding and abetting fraud in violation of New York State law. The bank moved to dismiss on the basis that Plaintiff’s complaint failed to state a plausible claim under the stringent pleading requirements of Rule 9(b), and the Northern District of New York agreed, dismissing the case with prejudice.

The O’Dell decision demonstrates that plaintiffs alleging aiding-and-abetting fraud claims against banks cannot succeed by alleging general compliance processes and procedures should have—or must have—led to the bank acquiring actual knowledge of a fraudster’s scheme. Rather, the allegations in a complaint must provide a strong inference that banks actually knew of the conduct rather than circumstances indicating that the bank should have known to survive dismissal. Further, the district court joins the majority view in holding that routine banking services simply do not rise to the level of substantial assistance required to plead an aiding and abetting claim.

Kelley v. BMO Harris Bank Nat’l Ass’n, is another influential case from 2024 in which the Eighth Circuit reversed the trial court to enter judgment in favor of the bank, holding that the in pari delicto defense barred the bankruptcy trustee’s claims.  Kelley, 2024 WL 4158179, No. 23-2551 (8th Cir. Sept. 12, 2024). The trustee brought a claim for aiding and abetting breach of fiduciary duty against the bank, alleging that employees of the bank’s predecessor-in-interest knew about the Ponzi scheme, ignored money‑laundering alerts, and allowed the company to overdraft more money than permitted under bank policy.

The trial court held that the in pari delicto defense—a bar to recovery when the plaintiff’s fault is no less than that of the defendant—was unavailable because the company had previously been placed in receivership before filing for bankruptcy, and the Minnesota Supreme Court has held that receivers are “not bound by the fraudulent acts of a former officer of the corporation itself” and therefore may bring litigation “even though the defense set up might be valid as against the corporation itself.” Id. at p. 6.  The jury then found the bank liable and awarded more than $550 million in compensatory and punitive damages.

However, the Eighth Circuit reversed on appeal, holding that the bankruptcy trustee stood in the shoes of the debtor, including with respect to the in pari delicto defense. In its reasoning, the court provided that the debtor’s misconduct is imputed to the trustee because, innocent as he may be, he acts as the debtor’s representative, and even if the allegations against the bank were true, the company itself was “created solely to operate the Ponzi scheme,” and the bank “cannot be more culpable than the entity that orchestrated the scheme.”  Id. at p. 10.  The Eighth Circuit opted not to remand, instead directing the trial court to enter judgment in favor of the bank.  The Kelley decision offers another viable dismissal argument for banks defending against claims brought by trustees.

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McGuireWoods looks forward to continuing to document the legal landscape in civil and criminal Ponzi litigation in Ponzi Perspectives throughout this year.  We expect the trends to continue and are focused on the fast-changing regulatory environment.  It is an open question if the SEC will remain active in pursuing actions.  State agencies may take the lead or, alternatively, we will see more plaintiff initiated litigation.  As always, if you have any questions about these issues or our blog, please reach out to a member of the Ponzi Litigation team.