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Gregory Tendrich, PA Gregory Tendrich, PA

Sarasota Ponzi Scheme’s Victims May Recover Interest

When a Ponzi scheme collapses, the repercussions can last for years as investors seek to recover the money they lost. One of the largest Ponzi schemes in Florida history involved the late Arthur Nadel, dubbed a “Mini-Madoff” in the press after his $168 million Ponzi scheme collapsed in 2009. Nadel ran a Sarasota-based hedge fund which made false representations to investor about the size and profitability of his trading operations. Although Nadel actually did invest some of his clients’ money, most of it went to pay off older investors to create the illusion of profitability—the classic definition of a Ponzi scheme.

In January 2009, the U.S. Securities and Exchange Commission moved against Nadel, freezing his assets and appointing a receiver. Three months later, the U.S. Attorney’s office in Manhattan indicted Nadel on 15 counts of securities fraud and related charges. Nadel pleaded guilty to all counts in 2010 and received a 14-year prison sentence. He only served a couple of years before dying in prison in 2012.

The sentencing judge also ordered Nadel to pay nearly $175 million in restitution to his victims. Burton Wiand, the receiver named following the SEC’s asset freeze, is responsible for recovering as much money as possible on behalf of the victims.

Wiand v. Lee

Under Florida law, the receiver can seek to “clawback” false profits earned by the early investors in Nadel’s Ponzi scheme. Those false profits are considered “fraudulent transfers” and the recipients have no legal right to keep them. For example, in 2010 Wiand filed a clawback action against a trust that earned about $935,000 more than was “invested” with Nadel. The court ordered the trust to return this money to the receiver.

One legal question raised by Wiand’s actions was whether or not the investors who had to return funds should also pay interest. This is not a minor issue. In the case above, Wiand asked for prejudgment interest of $437,000 on top of the $935,000 in restitution.

The trial court denied Wiand any prejudgment interest, but the U.S. 11th Circuit Court of Appeals in Atlanta reversed that decision in June 2014, holding Florida law allows such interest as part of the “pecuniary damages” recoverable by a victim. In these cases, a court must “determine whether equitable considerations justify denial or reduction of prejudgment interest to the Receiver.”

Following the 11th Circuit’s decision, on June 23 of this year, a federal judge in Tampa ordered another target of Wiand’s clawback efforts to pay nearly $18,000 in prejudgment interest. This was actually less then what Wiand requested, but the judge said a reduction was justified because the target was not directly culpable in Nadel’s illegal activities. If you believe you have been a victim of such a Ponzi scheme or other scam and need legal advice on how to seek to recover your money back, contact Florida securities fraud attorney Gregory Tendrich, P.A.

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