The following is a fictitious scenario:
Patrick lived back in the days when he was a greedy associate. Despite public displays of good acts, Patrick chipped away his character, billing for all his fees secretly, little-by-little, over time to do favors for clients in exchange for billable hours. He used his law firm and clients' investors' resources to file lawsuits for clients' employees, officers, directors, working on personal injury, family, and other personal matters unrelated to clients' investors' interests and unconnected to the firm's concentration on technology and life sciences. People just did not know which "clients" paid his invoices. Patrick commented on blogs for notoriety. On the attorneys who no longer represented a prominent financier and philanthropist charged with fraud centered on an $8 billion investment scheme, when the attorneys did not have assurance he had money to pay: Obviously attorneys would like to get paid, and that's how we eat and feed our families.
If only fiction did not intersect with reality, but in this world, the seemingly giving may also be "Ponzi" schemers. The Securities and Exchange Commission (SEC) filed a securities fraud action against Stanford International Bank, Ltd. on February 16, 2009 for an alleged multi-billion dollar Ponzi scheme. The SEC argues the Stanford companies sold certificates of deposit issued to innocent investors by "promising above-market returns and falsely assuring investors that the CDs were backed by safe, liquid investments." The proceeds of new CD sales were applied to payments on previous CDs. The issuers lacked actual funds to cover liabilities it incurred.
The district court appointed a receiver and issued an injunction freezing investment accounts at investment firms. The receiver named the account owners as relief defendants, but did not allege wrongdoing. A relief defendant is a "nominal defendant [who] has no ownership interest in the property that is the subject of litigation but may be joined in the lawsuit to aid the recovery of relief." If the relief defendant "(1) has received ill-gotten funds, and (2) does not have a legitimate claim to those funds," the relief defendant may be subject to equitable disgorgement of the ill-gotten funds.
On November 13, 2009, the Court of Appeals for the Fifth Circuit ruled that the appointed receiver lacked authority to "claw back" principal and interest proceeds distributed to innocent investors/creditors. They have a legitimate ownership interest in the proceeds held in the accounts.
Bankruptcy is a complicated process, and it is important to discuss case decision precedents with an ethical bankruptcy attorney.
