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Old 04-29-2021, 12:31 PM   #61
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Originally Posted by RunningBum View Post
He clearly is better off.
OP invested $500K total.
$200K in taxable, got $300K back.
$300K in IRA, got $60K back.
$360K back on $500K, (loss of $140K) so he lost 28%.
Most people lost 80%.
This is why he may not win this battle, but I'm not familiar with clawbacks, so I'd be consulting a lawyer, now or later.

No, that's bad math. See my earlier response. There's no possible way you can call this a loss of $290K. You seem to be forgetting that you put $200K up initially, and the first sale was $300K. I'd treat it as 2 separate transactions because it's two different types of accounts, but if you want to meld them, you invested $200K, and now you have $60K. If you have to send them $50K, then your loss is $190K.

Yes it certainly stings but your numbers are the correct ones.
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Old 04-29-2021, 12:34 PM   #62
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Originally Posted by Sunset View Post
If I read OP's post correctly, OP put 200K into investment, then cashed out $300K and put back in $300K into the investment.

.
I don't think so Sunset. When OP sold the fund from his brokerage account he incurred a $100k gain which would have been subject to CG tax. Later when he bought the same fund in his TIRA, that was a totally separate event not impacting the $100k at all. He had a gain in his brokerage account and a loss in his TIRA, but they don't directly net IMHO.

Now, if the folks handling the disposition of the defunct fund decide the rules should be that OP should be considered as a whole and the gains and losses should net, despite the number and type of accounts involved, that is likely spelled out in the methodology they're using to handle this case.

My guess anyway........ What a mess these things can be!
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Old 04-29-2021, 12:44 PM   #63
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Investment nightmare

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The OPís explanation makes sense to me and I feel for him. I have some experience with a similar situation in a case where a public company went bankrupt and the attorney for the trustee clawed back legitimate payments made to vendors in the 90 days prior to the bankruptcy.

From that I learned that the attorney firm representing the bankruptcy trustee has the right to sue for what they ask for, but also they will negotiate. Hire an attorney to represent you in that negotiation. You have a legitimate reason to negotiate because of your second investment with the IRA. Hopefully your attorney can negotiate the $50,000 down to $25,000 or so, but still be prepared to write a big check. Sorry for your loss.

Thank you. I will try to negotiate as you say without getting lawyer involved. As someone said an email
With everything laid out is my next step after talking to the lawyer on the phone (if possible I donít want to put things in print yet).

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Yikes. I am sorry you are going through this I know it must be a huge ball of anxiety and frustration. Some of my prior posts were insensitive to what you must be feeling right now. The initial description seemed a bit casual and even now the term ponzi is being thrown around but itís not clear to me if the activity is illegal or just reckless. In any event it sounds like you have received $60k to offset your IRA losses but they only want to clawback $50k which actually sounds not so bad. Clearly the investment did not go from $300k to $60k in 30 days if those are the right numbers. The $300k was overvalued so the $100k gain was not real. Talk to a lawyer.

Thanks for that. I have a new appreciation for things that go badly for people, and how helpless you can feel. Stories of Ponzi, theft, scams, cheaters, etc all make me sick to my stomach now.

There are several other terrible pieces to this tale. hell letís get all the sad facts out on the tableÖ

1. I recommended the fund to several family members who also lost a lot. I feel guilt for this.

2. At one point, a year before it went under, the fund raised the minimum investment to 500k and said anyone who didnít have that amount invested would be sent their investment back. I guess they were hitting a cap on number of investors or something. I called and got the ceo to agree to make an acceptation since I invested early on (<30M AUM).

3. The only teeny tiny bright note, there was a period between when I sent in the IRA $ and I received my redemption (few weeks) where I was at risk of losing both accounts if theyíd frozen the fund when they realized the scheme. I missed this happening by about 4 weeks!

Despite all this Iíve overcome some. Iíve learned so much from this board and I have basically gone with the 3 fund portfolio over the last few years. Itís set back my retirement plans but I am still aiming for 45. This probably set me back 3-4 years total but I tell myself you canít think like that and to be grateful for all that has gone for you and that you have worked hard for.

Thanks to everyone on here once again.
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Old 04-29-2021, 01:08 PM   #64
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Forget about the $300k swaperoni in the middle. That is just an unnecessary distraction.

He put in $200k and ended up getting $60k back, so he has an economic loss of $140k.
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Old 04-29-2021, 01:18 PM   #65
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Forget about the $300k swaperoni in the middle. That is just an unnecessary distraction.

He put in $200k and ended up getting $60k back, so he has an economic loss of $140k.
No, he put in 300K the second time and got 60K back.

His loss is actually to be seen in the whole context to calculate his net percentage loss. While he admittedly lost 240K (80%) of his second round of "investments" of 300K, that is NOT his net loss. His net loss is offset by the 50% "gain" he initially saw (100K gain on a 200K initial investment), which likely led him to believe that this was a an absolutely wonderful deal, and to do the whole swap-a-roo, in order to save on taxes on future gains.

His NET LOSS is 140/500 (-240K loss in the second round + 100K gain in the first round) or 28% of his "investments" whereas anyone who "invested" after him lost 80% of their "investments", no doubt partly because their monies were used to pay the OP's & other prior investors' nice "profits" in the first round of "investment".

This is why the bankruptcy trustee is coming after him. While he did lose money, he was paid out "gains" by other investors, and hence "owes" that money back to them.

The trustee will want to make sure the net losses are evenly distributed among all participants, including older investors who likely pocketed nice gains.

I hate being negative but I have a nagging feeling this will not end well for the OP, and I hope I am very very wrong. I think he will be forced to bear a 38% net loss (190/500) by being made to fork over half his initial "gains". The silver lining is that even so, his losses are still far better at 38% than the 80% that all his fellow investors have had to bear.
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Old 04-29-2021, 01:21 PM   #66
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Originally Posted by pb4uski View Post
Forget about the $300k swaperoni in the middle. That is just an unnecessary distraction.

He put in $200k and ended up getting $60k back, so he has an economic loss of $140k.
To the loss add taxes paid on the $100k gain, and a claim for $50K, and it looks like heís lost the entire initial investment.

If the loss in the IRA is technically the result of fraud, and not investment loss, it should be deductible. The $50k clawback might also be deductible.

I suspect an attorney at this stage will be good money going after bad, with little hope for an improved outcome. That new money might be better spent on a tax expert.
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Old 04-29-2021, 01:34 PM   #67
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No, he put in 300K the second time and got 60K back.....
NO! His cash flows were: -$200k, +$300k, -$300k, +$60k for a net loss of $140k.

And the +$300km -$300k cash flows in the middle were within a week of each other and net to zero.
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Old 04-29-2021, 01:37 PM   #68
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Forget about the $300k swaperoni in the middle. That is just an unnecessary distraction.

He put in $200k and ended up getting $60k back, so he has an economic loss of $140k.
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NO! His cash flows were: -$200k, +$300k, -$300k, +$60k for a net loss of $140k.

And the +$300km -$300k cash flows were within a week of each other.
NO, what? What exactly are you disagreeing with so empathetically? I said he put in 300K the SECOND TIME and laid out the entire transactions in my previous posts.

All in all, his net losses were 140K + taxes paid on the initial capital gains of 100K. In effect, his net loss is "only" 28% + taxes paid.

It becomes 38% + taxes paid if he is forced to return 50K in clawback. This is why I kept saying that he should get half his capital gains taxes back, since he's giving half his "gains" back.

Again, the silver lining in all of this is that OP eats a 38% loss + "only" 1/2 the capital gains taxes paid, in comparison to those poor souls who lost 80% of their monies in this rip off scheme.
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Old 04-29-2021, 01:39 PM   #69
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Forget about the $300k swaperoni in the middle. That is just an unnecessary distraction.

He put in $200k and ended up getting $60k back, so he has an economic loss of $140k.
That’s how I see it.

The mere fact that people on this board are arguing it just shows why a lawyer is needed.

For tax law, he had a taxable event. I don’t know that tax law is relevant to this situation, or for that matter, what law would prevail. Logic is that he started with $200 and ended up with $60 less the capital gains tax he paid in order to recharacterize his holding of the funds from his taxable account to his IRA.

Now I admit, that the argument that he started with $500 has merit, but that’s for the other side to argue. If there weren’t two sides, no one would need a judge.
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Old 04-29-2021, 01:39 PM   #70
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To the loss add taxes paid on the $100k gain, and a claim for $50K, and it looks like he’s lost the entire initial investment.

If the loss in the IRA is technically the result of fraud, and not investment loss, it should be deductible. The $50k clawback might also be deductible.

I suspect an attorney at this stage will be good money going after bad, with little hope for an improved outcome. That new money might be better spent on a tax expert.
Agree on the first part that the tax on the $100k tax gain is also part of his economic loss but I didn't want to confuse things with that nuance given so many posters were confused by the very basics of the situation.

I think he should prevail on the clawback if he gets a good lawyer.

I never knew that fraud losses in an IRA would be deductible but it lookike they are. https://www.irahelp.com/sites/defaul...APRIL.pdf?a=46
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Old 04-29-2021, 01:43 PM   #71
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Thatís how I see it.

The mere fact that people on this board are arguing it just shows why a lawyer is needed.

For tax law, he had a taxable event. I donít know that tax law is relevant to this situation, or for that matter, what law would prevail. Logic is that he started with $200 and ended up with $60 less the capital gains tax he paid in order to recharacterize his holding of the funds from his taxable account to his IRA.

Now I admit, that the argument that he started with $500 has merit, but thatís for the other side to argue. If there werenít two sides, no one would need a judge.
Between the snipet from a WSJ article that I posted in post #14 of this thread and the OP's statement that the materials that the trustee has sent him that they would be based on TIN it would seem to me that the view that he started with $500k is nonsense.
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Old 04-29-2021, 01:47 PM   #72
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He clearly is better off.
OP invested $500K total.
$200K in taxable, got $300K back.
$300K in IRA, got $60K back.
$360K back on $500K, (loss of $140K) so he lost 28%.
Most people lost 80%.
This is why he may not win this battle, but I'm not familiar with clawbacks, so I'd be consulting a lawyer, now or later.

No, that's bad math. See my earlier response. There's no possible way you can call this a loss of $290K. You seem to be forgetting that you put $200K up initially, and the first sale was $300K. I'd treat it as 2 separate transactions because it's two different types of accounts, but if you want to meld them, you invested $200K, and now you have $60K. If you have to send them $50K, then your loss is $190K.
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Yes it certainly stings but your numbers are the correct ones.
No, the are not. Here are his cash flows:

Day 1: -$200k
In the middle: +$300k, -$300k
Lastly: +$60k

Economic loss is $140k... $200k invested less $60k received.
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Old 04-29-2021, 01:47 PM   #73
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Two mistakes. The first one was the initial investment. The second was coming to an internet forum seeking advice on how to deal with it. Greed is not always good. The first rule of investing is avoid the big mistakes. Sorry to be harsh but if I were in this situation I would be ill. Now spend a few bucks and get some real professional advice and move on.
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Old 04-29-2021, 01:50 PM   #74
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NO, what? What exactly are you disagreeing with so empathetically? ...
That he had $500k invested. He only had $200k invested.

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.... Per your OP numbers, your investment wasn't 600K. You only invested 500K (the 200K in taxable, and then the 300K in IRA). Do you have a CPA to help you figure out if you can get some of the capital gain taxes you paid on the 100K "gain" from this scheme? You sound very stressed, and need a 2nd pair of eyes in your corner - preferably those eyes belong to a securities lawyer. Hang in there.
And for the record, I am a retired CPA... 17 years with two of the Big 4 firms.
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Old 04-29-2021, 01:56 PM   #75
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Agree on the first part that the tax on the $100k tax gain is also part of his economic loss but I dodn't want to confuse things with that nuamce given so many posters were confused by the very basics of the situation.

I think he should prevail on the clawback if he gets a good lawyer.

I never knew that fraud losses in an IRA would be deductible but it lookike they are. https://www.irahelp.com/sites/defaul...APRIL.pdf?a=46
I agree this thread is confusing, especially with so many people jumping to conclusions early on. We also donít know how the trustee sees the two transactions - separate or combined. This is critical.

As for an attorney, I guess the question is how much it will cost. If the upside case is to reduce clawback from $50k to $25k, how much of the $25k gain will be spent on attorney fees.
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Old 04-29-2021, 01:59 PM   #76
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Two mistakes. The first one was the initial investment. The second was coming to an internet forum seeking advice on how to deal with it. Greed is not always good. The first rule of investing is avoid the big mistakes. Sorry to be harsh but if I were in this situation I would be ill. Now spend a few bucks and get some real professional advice and move on.

Thanks.

Fwiw the confusion on % loss seems to be how we define the investment. As the OP I think of it as never having had more than 300k there invested so itís a harsher loss % as the loss % on 300k is way bigger than those who are saying itís on $500k. Itís all mechanics.

Well at least I spurred some discussion. Hopefully my misfortune is a learning opportunity for those who look for diversification but take on these oftentimes invisible tail risks. Iím sure this wasnít the riskiest thing in the world but I got burned. In fact the reason I invested was it returned about 10% annually with very little volatility since they lended to a huge number of individuals and institutions. 900M fund, so not some fly by night operation.
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Old 04-29-2021, 02:11 PM   #77
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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.
About 20 years ago, a guy at work told me of an investment like the above. The return was something like 10%/year, and the nature of the business was making short-term loans to businesses that had good account receivables, but needed access to cash now. Low, low risk he said. Also said he already received some good dividends, hence was looking to put more money in.

Sounded too good to be true, so I did not join in. Some time later, read about it being a Ponzi scheme. I did not ask the guy how much money he lost.
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Old 04-29-2021, 02:12 PM   #78
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Thanks.

Fwiw the confusion on % loss seems to be how we define the investment. As the OP I think of it as never having had more than 300k there invested so it’s a harsher loss % as the loss % on 300k is way bigger than those who are saying it’s on $500k. It’s all mechanics.

Well at least I spurred some discussion. Hopefully my misfortune is a learning opportunity for those who look for diversification but take on these oftentimes invisible tail risks. I’m sure this wasn’t the riskiest thing in the world but I got burned. In fact the reason I invested was it returned about 10% annually with very little volatility since they lended to a huge number of individuals and institutions. 900M fund, so not some fly by night operation.
Yeah. I get it. I really don't handle raw deals very well. I saw your situation and reacted with my old street upbringing. I'm sure I've lost more in opportunity costs related to my relatively conservative approach. Anyway, good luck and all the best.
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Old 04-29-2021, 02:16 PM   #79
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Yeah. I get it. I really don't handle raw deals very well. I saw your situation and reacted with my old street upbringing. I'm sure I've lost more opportunity costs related to my relatively conservative approach. Anyway, good luck and I hope it works out .

And we havenít even discussed the opportunity cost that was lost as well. If Iíd had that money in the market the 200k would have been something north of 450k by now by my approximation. Ew.
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Old 04-29-2021, 02:22 PM   #80
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No, the are not. Here are his cash flows:

Day 1: -$200k
In the middle: +$300k, -$300k
Lastly: +$60k

Economic loss is $140k... $200k invested less $60k received.
Wait RB clearly says he lost 140,.. is it the method you disagree with?
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