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Old 04-29-2021, 09:58 AM   #21
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Bottom line, the OP invested $200k and at the end it was worth $60k (assuming 80% loss on the $300k)... so economically the OP had a $140k loss rather than a profit. What happened in between doesn't matter.

Actually the OP is even worse off economically since he had to pay taxes on the $100k gain but that is a side issue.

I think it is a strong argument either way, but if the sale and reinvestment occurred at about the same time it makes the argument stronger. ETA: OP later wrote that it was a week.

It seems like the trustee either doesn't have all the facts or is just trying to rattle the OPs cage in the hopes of recovering some money.

Time for the OP to hire a lawyer.
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Old 04-29-2021, 10:01 AM   #22
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Originally Posted by jazz4cash View Post
Yeah. The OP leaves a lot of open issues so it’s tough to offer helpful responses. To be fair I missed many details that were provided. If I got this right you booked a 50% LT gain of $100k over 5 yrs. You swapped that out for an 80% loss of (.8*300k=) $240k that you cannot deduct. Losing 80% in such a short period sounds like speculation to say the least. Is there a class action?


Thanks for the thoughts so far everyone. This has been a very sad, scary and difficult few years as the courts attempt to settle this mess.


Yes this has a lot of moving pieces so sorry for confusing.

I booked a 100k gain over 5 years.

I then swapped that money out and invested instead (using non comingled funds) through an IRA account I had for about the same $$ amt. (This happened in a week of one another.)

And yes, I can’t deduct the loss for tax purposes since it happened in IRA. This was the worst of both worlds.

They have appointed a court receiver who has hired a law firm to track down this part of the funds money for investors. They have tracked down and paid out about 20% of the investment (through other avenues already) and are only expecting 5-10% more at best by these remaining types of claw backs.

The key killer for me was that they are treating these as separate accounts even though they said they would group gains and losses by “taxpayer Id”. I would think my IRA and my taxable accounts have same taxpayer Id (SSN) but they are saying otherwise. !!
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Old 04-29-2021, 10:02 AM   #23
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The only sensible reading I have is that the OP invested $200K into a fund that turned out to be a Ponzi scheme in a taxable account, sold that taxable investment for a $100K gain at some point, then invested $300K into the same Ponzi fund inside their IRA with existing IRA monies. Then the fund crashed 80%.

I think it is like the Madoff case, where they're trying to get money back from those who benefitted from the Ponzi scheme (wittingly or unwittingly) for those who lost out (wittingly or unwittingly).

In the OP's case, he benefitted in his taxable account and lost out in his IRA. So what he probably can do is work with them to let them claw back some of his $100K gains and then *also* have a claim in his IRA against that same lawsuit / fund / situation. So his taxable account which unwittingly gained will have to give back, but his IRA which unwittingly suffered will get some of the benefit.

Since it was a Ponzi scheme, it'll likely be an overall loss, and since his investment in his IRA was the larger amount, he'll not have the benefit of a capital loss write off. And finally, any monies returned to injured investors (such as OP's IRA) will probably be later in time. Which is all rotten. But, whatever recovery his IRA will make will hopefully soften the blow somewhat.
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Old 04-29-2021, 10:03 AM   #24
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You don't need SGOTI. You need a lawyer knowledgeable in bankruptcy law and a CPA knowledgeable in the tax aspects. These costs are typical investing tuition payments that we all have made from time to time. As a % of the money involved they are not big.
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Old 04-29-2021, 10:06 AM   #25
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Originally Posted by Retireby45ish View Post
A few years ago before finding this board I invested in a fund that did lending to small businesses.

Long and sad story short it went south after a few years of nice returns. it was a 900M fund that turned into a Ponzi scheme by the greedy founder.

My question is a bit complex.

I had invested taxable funds. Let’s call the amt 200k to make the math easy.

I then withdrew those funds and deposited the same amount through an IRA. So withdrew 300k (100k gain after 5 years) and put in 300k of different IRA money account I had. These were not same funds but I did the swap at the same time.

So now, a month later, the fund goes under and loses like 80%. They are trying to get more back for investors.

So now I get a letter saying “hey you banked a 100k profit so we want 50% of that back if you pay us in 30 days or else we will litigate for the full amt”. They said they treat IRA and my other account as separate entities (which is insane) so they do not offset even though they said tax id numbers would be used to aggregate those with multiple accounts.

What should I do?
I worry that paying an attorney to fight it might cost me enough where it’s worth just sending in 50k. I might ask for 25k settlement instead to see if they come down. But I doubt it.
Anyone know any lawyer that might give me some thoughts?

Thanks in advance for any help.

Lesson on diversification learned. This has been the saddest financial decision of my life. I didn’t get to write off losses in IRA and I paid taxes on all gains.
Who was the letter from? Was this from a bankruptcy trustee liquidating the trust assets to repay investors who lost money in the scheme?

I am not a lawyer but If this is a "claw back" demand, and you do not respond, then they will likely sue you to get the money back to distribute to those who lost everything in the scheme. Quite honestly, there may have been no profit and you simply got paid out of other investors' money, which you were not entitled to (Ponzi). I think you may need a securities lawyer to discuss your options here.

Your OP on the "swap" was confusing but I am assuming you meant that you invested two lots of money in the scheme. The first one was for $200K from a taxable a/c, on which you made a 100K net "profit". You then closed out that "investment", and then put in 300K "investment" back in the same Ponzi scheme but this time with IRA funds, and lost 80% of this money?

Yes, this is why the bankruptcy trustee is considering this as two separate "investments", one in which you made a 100K "gain", and the other in which you "lost" 160K (80% "loss" on 200K). S/he is now trying to claw back a portion of the "gain", even though you technically also "lost" money in the scheme.
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Old 04-29-2021, 10:12 AM   #26
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I suspect lawyerly bluster: shaking the tree to get the easy fruit that pays up hoping to avoid a fight.

Too quote my Dad when I got sucked into a corporate nonprofit fraud battle a few years ago: Time to lawyer up, son. Lawyer up QUICK!
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Old 04-29-2021, 10:13 AM   #27
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... The key killer for me was that they are treating these as separate accounts even though they said they would group gains and losses by “taxpayer Id”. I would think my IRA and my taxable accounts have same taxpayer Id (SSN) but they are saying otherwise. !!
Your taxable account and IRA would indeed both have the same taxpayer identification number, in the case of individuals your SSN.

You could easily prove that by looking at the TINs on the 1099-B where the sale and gain were reported and the TIN on your IRA account. If they are the same SS then it is the same TIN.

Did they explain why they are saying otherwise? I could see if one account had your spouse's TIN and another had your TIN that they might make such a claim but then just providing the first page of a joint return would prove that you are one economic unit.
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Old 04-29-2021, 10:16 AM   #28
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I suspect lawyerly bluster: shaking the tree to get the easy fruit that pays up hoping to avoid a fight.

Too quote my Dad when I got sucked into a corporate nonprofit fraud battle a few years ago: Time to lawyer up, son. Lawyer up QUICK!
+1
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Old 04-29-2021, 10:17 AM   #29
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This is correct. I had an existing IRA account money that I used to buy it at the same time that I sold the taxable account. It wasn’t the same money I took out.

I did so because the tax treatment on the gains was taxed as ordinary income so I wanted to make it more
Tax efficient…hence the IrA holding it rather than regular taxable cash.


Still confused. How do you transfer proceeds from a non-IRA account into an IRA account? Doesn’t make sense.
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Old 04-29-2021, 10:21 AM   #30
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He didn't. He sold the fund in his taxable account for $300k and then within a week used $300k of cash that was sitting in his IRA to buy $300k of the same fund.

He described it poorly in the OP.
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Old 04-29-2021, 10:29 AM   #31
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If I read it correctly, I'd be asking an attorney instead of SGOTI and divulge everything especially clawing back 50% instead of 100% of gains.
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Old 04-29-2021, 10:29 AM   #32
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I can't find the previous post I made but this appears to be a claw back attempt by a bankruptcy trustee on behalf of all the investors who lost money in the scheme.

The way I read OP was that s/he invested 200K in a Ponzi scheme from funds in a taxable a/c, made a 100K "profit", withdrew the entire 300K funds from the scheme, then immediately re-invested the 300K back into the scheme, but from funds in an IRA. Out of this 300K, s/he lost 80% or $240K.

Thus, s/he both made and lost money in the scheme, hence the demand for half his or her "winnings" back. I'm just speculating here.

OP needs to consult a securities' lawyer to help him / her here. I am no lawyer but my understanding is the trust bankruptcy lawyer will sue if s/he does not hear back in response to the demand letter.
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Old 04-29-2021, 10:34 AM   #33
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OP this isn't right. Don't be afraid to throw an attorney into this. I got into a suit against my former employer for their lack of fiduciary responsibility and it's working. I've collected 10k and expected a second more significant settlement. PM me if you want the nameof legal firm whose representing me.
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Old 04-29-2021, 10:40 AM   #34
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OP this isn't right. Don't be afraid to throw an attorney into this. ...
+1
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Old 04-29-2021, 10:45 AM   #35
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If I read it correctly, I'd be asking an attorney instead of SGOTI...
And many of the SGOTIs have been suggesting that too

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...I would get a lawyer...
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Originally Posted by pb4uski View Post
.... Time for the OP to hire a lawyer.
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Originally Posted by OldShooter View Post
...You need a lawyer...
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Originally Posted by Keim View Post
.... Time to lawyer up, son. Lawyer up QUICK!
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Old 04-29-2021, 10:53 AM   #36
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And many of the SGOTIs have been suggesting that too
Yes. I should have read the entire thread instead of just the 1st 15. We're a smart group
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Old 04-29-2021, 10:57 AM   #37
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I agree that an attorney might be in order.

That being said, I wonder: They are treating the 2 accounts as separate and they are asking for 50K back on his gain. I wonder how he gets in line for collecting some percentage of the 240K he lost in the IRA? (300K X 80% loss) reimbursement. This seems to me to be an important part of the discussion.
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Old 04-29-2021, 11:00 AM   #38
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Crazy, crazy situation! Horrible to find yourself duped by a pyramid scheme. And then dealing with claw backs. What do do other than hire an accountant and a lawyer to advise me through this mess?
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Old 04-29-2021, 11:03 AM   #39
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I suspect lawyerly bluster: shaking the tree to get the easy fruit that pays up hoping to avoid a fight.

Too quote my Dad when I got sucked into a corporate nonprofit fraud battle a few years ago: Time to lawyer up, son. Lawyer up QUICK!
Only argument I would put out there that until the OP is actually SERVED (meaning being sued) they I wouldn't pay for an attorney outside of initial consultation. A demand letter is just that...a letter.
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Old 04-29-2021, 11:08 AM   #40
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He didn't. He sold the fund in his taxable account for $300k and then within a week used $300k of cash that was sitting in his IRA to buy $300k of the same fund.

He described it poorly in the OP.
I sure didn’t get that. Thanks for the clarification.

As others have said, time for a lawyer. However, I just don’t see how they could support the $100K. Yes, he moved his investment from a taxable situation to a IRA, but he did not divest himself from the fund. I’d argue that there is nothing there to be clawed back. He lost most of his investment and is no better off than anyone else in the fund and should be treated accordingly. It doesn’t seem to be a stretch to say that it was in essence, the same money. Had he only bought $200K of the fund in his IRA, then I think the argument would be different.
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