11/26/2012 11:55:53 AM EST
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
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.
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
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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