Husch Blackwell Secures Appellate Win in Dispute over Ponzi Recoveries
19 Agosto 2024 - 8:00AM
Business Wire
The Fourth Circuit upheld the receiver’s plan to distribute
funds to investors defrauded in a $550 million Ponzi scheme.
Husch Blackwell prevailed in the U.S. Court of Appeals for the
Fourth Circuit on behalf of Gregory S. Milligan, the
court-appointed receiver, in a dispute with two investor groups who
challenged how the receiver’s distribution plan allocated recovered
funds among claimants.
The distribution plan came on the heels of one of the largest
securities fraud recovery projects in U.S. history following the
successful prosecution of defendants Kevin B. Merrill, Jay B.
Ledford, and Cameron R. Jezierski by the U.S. government. From 2013
to 2018, Merrill, his co-conspirators, and their affiliated
entities took in more than $394 million from more than 230
individual investors to purportedly purchase consumer debt
portfolios. They returned some $248 million to investors, churning
the monies in Ponzi-like fashion while claiming the returns were
the result of debt portfolio collections and sales. The majority of
investors—at least 160—lost 50 percent or more of their principal
investment with 74 investors losing 100 percent of their
investment.
The recovery of the stolen money began in earnest in September
2018, when Milligan, Executive Vice President with Harney Partners,
was appointed receiver by the U.S. District Court at the request of
the Securities and Exchange Commission. Milligan tapped Husch
Blackwell’s Insolvency & Corporate Bankruptcy team to assist in
the recovery operation.
“Too often, in a Ponzi situation there is little or nothing to
recover for the benefit of defrauded parties. The money is simply
gone,” said Milligan. “Fortunately for the victims here, the
perpetrators were fond of luxury goods—including 11 real estate
assets located across the country, 34 vehicles, and an interest in
an aircraft, as well as millions of dollars of fine art, watches,
and other jewelry—that formed the basis of a massive recovery
operation. The varied skill sets—including investigative,
forensics, transactional and litigation—and the deep pool of
resources brought to bear by Husch Blackwell were integral to the
recovery and made for a very smooth, efficient process.”
In support of the recovery, the Husch Blackwell team, led by
partners Lynn Butler, Buffey Klein, and Jameson Watts, organized
and operated the claims process involving nearly 300 claims,
handled the legal complexities of marketing and liquidating the
receivership estate’s assets, pursued litigation against third
parties, and developed the distribution plan for the recovered
assets.
The plan implemented a methodology intended to provide the
highest level of recoveries equitably and efficiently across all
categories of defrauded investors. This involved utilizing a
version of the “rising tide” method for distributing recoveries,
whereby distributions are made first to investors that experienced
the largest percentage losses such that no investor recovers less
than a threshold percentage of its principal. The plan set that
threshold at 48.86 percent and implemented calculations that
deducted certain pre-receivership account withdrawals and
distributions and that contained a collateral offset provision that
counted all payments from collateral sources as withdrawals.
That plan was approved by the district court in November 2022,
prompting lawsuits from two investor groups who objected to the
plan’s distribution methodology. Milligan then turned to the Husch
Blackwell team to handle the resulting litigation. The district
court overruled plaintiff objections, and the plaintiffs appealed
to the Fourth Circuit, which consolidated the appeals and then
affirmed the lower court’s decision.
“This matter allowed our firm to really flex its muscles due to
the breadth and depth of skill required to pursue such a large
recovery across multiple asset classes, dealing with numerous
corporate entities, and then litigating the resulting plan,” said
Butler. “This was the largest such recovery we have handled, and I
couldn’t be prouder of the way our team responded across all areas
of practice, including bankruptcy, litigation and corporate, with a
special shout-out to appellate specialist Danny Solomon for his
work on the briefing and handling of the oral argument. Ultimately,
we are pleased that all of this work yielded a significant recovery
for the victims.”
By some accounts, the investment fraud perpetrated by Merrill
and his co-conspirators places among the largest 20 such schemes in
U.S. history. Recovery estimates vary, but a typical recovery in
the Ponzi setting rarely exceeds 30 percent. The Husch
Blackwell-led process has allowed Milligan in his role as receiver
to return nearly 50 percent of the victims’ invested capital.
The Husch Blackwell team led by Butler, Klein, and Watts
included Ryan Burgett, Lauren Hayes, Danny Solomon, Dieter Juedes,
and Brian Waagner.
About Husch Blackwell
Husch Blackwell is an industry-focused law firm with 20-plus
offices across the United States, including its virtual office, The
Link. The firm represents clients around the world in major
industries including energy and natural resources; financial
services and capital markets; food systems; healthcare, life
sciences and education; real estate, development and construction;
and technology, manufacturing and transportation. For more
information, visit huschblackwell.com.
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Mike Lavieri PR Manager 816-983-8667
mike.lavieri@huschblackwell.com