The Reach of Receivers in Ponzi Scheme Cases: Where There Is a Will, There Is a Way

One of a receiver's duties in administering a Ponzi scheme case is to commence appropriate litigation to avoid and recover property that the Ponzi schemer fraudulently transferred to third parties. By law, a receiver generally has the benefit of nationwide service to reach a defendant's assets that are located in other jurisdictions. See 28 U.S.C. §§ 754 & 1692.

However, to get the benefit of nationwide service under section 754, a receiver faces a difficult hurdle. The receiver must file copies of the receivership complaint and the order of appointment in the district court for each district in which receivership property is located, and this must be done within ten days of the receiver's appointment.

The statute also states the consequences of missing this short deadline. Section 754 provides, "The failure to file such copies in any district shall divest the receiver of jurisdiction and control over all such property in that district."

But what happens if the receiver does not know where property is located in the first ten days of the case? Without knowing where the property is located, it is impossible to know where to file the appropriate papers within that very short time period.

One option is to file the necessary papers in all 91 judicial districts within the ten day time limit. While this might be justified in a case of nationwide scope, in most cases it is not.

As a more practical solution to this problem, receivers have sought to amend the order appointing them for the purpose of restarting the clock to give them a new opportunity to file the papers in the relevant jurisdiction. A recent decision confirms that this practice remains acceptable to assist receivers in reaching assets in other jurisdictions. In Miller v. Wulf, 2012 U.S. Dist. LEXIS 164237 (N.D. Utah Nov. 15, 2012) (citing SEC v. Vision Commc'ns, Inc., 74 F.3d 287, 291 (D.C. Cir. 1996)), the court stated, "this technical deficiency may be remedied by reappointing the receiver, which restarts the ten-day period for the receiver's compliance with § 754."

While this end run around section 754 is fantastic for receivers in reaching assets in other jurisdictions, it does leave one wondering why section 754 exists at all. The ability of a receiver restart the clock by the entry of either a new appointment order or an amendment to the existing appointment order would seem to make section 754 meaningless.

Lexis.com subscribers can access enhanced versions of the opinions cited in this article:

28 U.S.C. § 754

28 U.S.C. § 1692

Miller v. Wulf, 2012 U.S. Dist. LEXIS 164237 (N.D. Utah Nov. 15, 2012)

SEC v. Vision Commc'ns, Inc., 74 F.3d 287 (D.C. Cir. 1996)

Read additional articles at The Ponzi Scheme Blog

Kathy Bazoian Phelps is the co-author of The Ponzi Book: A Legal Resource for Unraveling Ponzi Schemes  (LexisNexis 2012), along with Hon. Steven Rhodes.  The Ponzi Book, recently reviewed by Commercial Crime International, is available for purchase at www.lexisnexis.com/ponzibook, and more information about the book can be found at www.theponzibook.com.

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