Investment nightmare

[Safire]

losing 80% term is confusing did the fund go to zero, he indicated he got paid 60K. the exact term he used was they returned to him.the fact he paid taxes on it means nothing in the grand scheme of things.

No one "paid" him 60K. He invested 300K in the IRA into the scheme and the value of the "investment" tanked 80%, so he lost 240K of a 300K investment, leaving him with only 60K as "proceeds" from the "investment"

The fact he paid taxes on gains do matter because if he "returns" half his "gains" back to the trustee, then he should be entitled to half his capital gains taxes back. He really needs to talk to both a CPA and a securities lawyer

 

[Retireby45ish]

No one "paid" him 60K. He invested 300K in the IRA into the scheme and the value of the "investment" tanked 80%, so he lost 240K of a 300K investment, leaving him with only 60K as "proceeds" from the "investment"

The fact he paid taxes on gains do matter because if he "returns" half his "gains" back to the trustee, then he should be entitled to half his capital gains taxes back. He really needs to talk to both a CPA and a securities lawyer

OP here again.

Correct as stated above.

My CPA did say that if I pay back some portion (50k) I can get the capital gains taxes back on that portion as these will lesson my gains.

He is not a lawyer so can’t advise me on whether to settle or lawyer up and fight it. But writing off some of it lessons the blow if I choose to go that route.

And yes, the receivers lawyers sent letters to anyone who had “gains” to claw some back. It’s in the “tens of millions of dollars” that fall into this boat per their letters.

Thanks again for all the insight and words of wisdom.

 

[ivinsfan]

No one "paid" him 60K. He invested 300K in the IRA into the scheme and the value of the "investment" tanked 80%, so he lost 240K of a 300K investment, leaving him with only 60K as "proceeds" from the "investment"

The fact he paid taxes on gains do matter because if he "returns" half his "gains" back to the trustee, then he should be entitled to half his capital gains taxes back. He really needs to talk to both a CPA and a securities lawyer

He clearly say they "returned" 60K of his money, I don't know what that means and I don't see how you do. OP doesnt use the words proceeds.

 

[ivinsfan]

OP here again.

Correct as stated above.

My CPA did say that if I pay back some portion (50k) I can get the capital gains taxes back on that portion as these will lesson my gains.

He is not a lawyer so can’t advise me on whether to settle or lawyer up and fight it. But writing off some of it lessons the blow if I choose to go that route.

And yes, the receivers lawyers sent letters to anyone who had “gains” to claw some back. It’s in the “tens of millions of dollars” that fall into this boat per their letters.

Thanks again for all the insight and words of wisdom.

So what do you mean when you say they "returned" 60K, having said that you should get a lawyer try to clarify things before you see them, because they charge by the minute.

 

[sengsational]

I think you should not get a lawyer.

I'd write a letter myself stating the facts of the case, the two account numbers, the dates of the transactions. Then demand all of this is treated as a unit with the threat of taking it to the presiding judge if they don't comply. I don't see how they can justify severing the two accounts, and one must presume a reasonable judge would also wonder the same thing.

As an aside, The OP said that they were trying to get more for those that got ripped off, and this demand received is exact that.

 

[Retireby45ish]

So what do you mean when you say they "returned" 60K,

Sorry for the confusion. I’ve learned to do a better job of really explaining things correctly the first time

By returned 60k I mean that I only got 60k back from the 300k I put in. The rest (240k) was a loss.

They may return a few k more over time as they liquidate things and claw back further. But I would guess it will be tiny amounts.

 

[jazz4cash]

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 it’s 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.

 

[JRon]

The OP’s 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.

 

[ivinsfan]

Sorry for the confusion. I’ve learned to do a better job of really explaining things correctly the first time

By returned 60k I mean that I only got 60k back from the 300k I put in. The rest (240k) was a loss.

They may return a few k more over time as they liquidate things and claw back further. But I would guess it will be tiny amounts.

Are you getting a check from someone saying RE45 here is a settlement check from XYZ investments ripping you off and tying it to your account number....Did the fund in question get liquidated to zero at it's implosion?

 

[RunningBum]

He lost most of his investment and is no better off than anyone else in the fund and should be treated accordingly.

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.

IRA
They have returned 20% of 300k to me. 60k. So a loss of 240k in IRA. I only expect a few % more if anything. A lot has gone to lawyers and others as they dissolve the funds holdings.

Non IRA
I have a gain of 100k on the 200k investment. They want 50% of this back now.

So looking at a total loss of 290k on a 300k investment if I pay them back(I think of it as one investment that I simply swapped at one point to a more tax efficient means). Some might say a loss on 600k since it was separate. But at any one time I only had 300k in as I didn’t want to risk too much in this one fund. At the time the 300k was about 20% of my NW.

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.

 

[ivinsfan]

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.

 

[youbet]

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!

 

[Retireby45ish]

The OP’s 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 don’t want to put things in print yet).

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 it’s 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 let’s get all the sad facts out on the table…

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 didn’t 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 they’d frozen the fund when they realized the scheme. I missed this happening by about 4 weeks!

Despite all this I’ve overcome some. I’ve learned so much from this board and I have basically gone with the 3 fund portfolio over the last few years. It’s 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 can’t 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.

 

[pb4uski]

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.

 

[Safire]

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.

 

[MichaelB]

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 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.

 

[pb4uski]

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.

 

[Safire]

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! 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.

 

[Jerry1]

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.

 

[pb4uski]

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/default/files/newsletters/7815/0100-2009-APRIL.pdf?a=46

 

[pb4uski]

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.

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.

 

[pb4uski]

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.

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.

 

[foxfirev5]

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.

 

[pb4uski]

NO, what? What exactly are you disagreeing with so empathetically? ...

That he had $500k invested. He only had $200k invested.

.... 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.

 

[MichaelB]

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/default/files/newsletters/7815/0100-2009-APRIL.pdf?a=46

I agree this thread is confusing, especially with so many people jumping to conclusions early on. We also don’t 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.