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Ponzi - Avoidable Transactions Statute
Old 11-26-2021, 05:39 AM   #1
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Ponzi - Avoidable Transactions Statute

Hi All

We just received a crazy letter; icing on the cake of what has been a difficult process of dealing with the estate of my deceased dear dad. Here is the short version:

My dad invested in a real estate project that turned out to be a ponzi scheme. He passed before it was uncovered which allowed us to get all his principal back. A year later we heard the news and sighed in relief. We didn't think much more of it.

Fast forward to today - A letter arrives from appointed attorney representing the unsecured creditors trying to recover their investment. It is addressed to my fathers Trust which held all the assets and is asking for over 50K to be returned because it was over & above the original investment. Basically they are asking for all the interest he collected on his notes to be paid back.

The Trust has distributed all the money in his estate already and there is only about 5K remaining that we kept there in case of contingencies. Not nearly enough to cover their demand which apparently is exactly as the law states - they can legally go after these "avoidable transactions".

I am an executor on the trust but another brother is the one who put his social security number down when we set it up upon my fathers passing. His name is mentioned in the letter. He is the only one mentioned.

Trying to claw-back the estate distributions from the other beneficiaries (7 in total, one of which has passed and one is homeless) would be virtually impossible.

And this is just the last of the issues to arise in what has already been a painful, family splitting experience.

Has anyone dealt with anything like this? Who would ultimately be liable to repay the money? Any thoughts, ideas, suggestions would be more than welcome.

Thanks!
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Old 11-26-2021, 06:58 AM   #2
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I would consult with a lawyer. My guess is they would have to go after each of the beneficiaries rather than the executor (unless you were aware of the problem before you disbursed). But I would want a lawyer experienced with such issues to advise. Of course, if you learn that you as the executor are on the hook it might be cheaper to cough up the $50K than fight.
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Old 11-26-2021, 07:15 AM   #3
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"American Greed" has probably covered dozens of Ponzi scheme cases, which isn't the basis for a legal opinion (i.e., see a lawyer), but it sets expectations for what happened before. For the person holding the accounts, they go after not just the money but cars and valuable possessions bought with that money. Investors who participated and got out... they go after the money they pulled out. Maybe that's for larger Ponzi schemes where the FBI gets involved, so small ones might be a different story.

But in your situation, I would expect attempts to claw back money from everyone who inherited. I don't know if they spread that equally (about $6k each), or if they go after the few richest in the bunch for the full $50k. That would be worth discussing with a lawyer.
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Old 11-26-2021, 07:44 AM   #4
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IANAL but I tried reading a little on this problem. Oh boy, this heads into tough, complicated legal territory.

You need a lawyer to at least get advice. You have $5k left in the trust. This is a trust issue. Tap those fees to pay for solid legal advice.
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Old 11-26-2021, 07:50 AM   #5
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I am not a lawyer. Any chance they are looking for max they can get with that demand letter, but will take the easy way out by accepting whatever is left in the Estate?
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Old 11-26-2021, 07:57 AM   #6
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I think someone else ran into this here but I can't find the thread with a quick search.
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Old 11-26-2021, 02:50 PM   #7
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I agree with the others - for this you need a lawyer who can practice in the jurisdiction where the estate was administered.

State and local laws (not to mention common practices) vary so widely that it is impossible for anyone here to offer meaningful advice other than "Get thee a lawyer. Pronto."
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Old 11-26-2021, 03:28 PM   #8
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You need to speak with a qualified attorney of your own, but you can get the lay of the land by Googling the proceedings in the Bernie Madoff case. If I recall correctly, the court ruled that earlier investors, who had received their principal back and a return on their investment, were required to pay back any money received in excess of their principal into a trust for the benefit of those later investors who were left holding the bag.
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Old 11-26-2021, 04:13 PM   #9
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Originally Posted by Gumby View Post
You need to speak with a qualified attorney of your own, but you can get the lay of the land by Googling the proceedings in the Bernie Madoff case. If I recall correctly, the court ruled that earlier investors, who had received their principal back and a return on their investment, were required to pay back any money received in excess of their principal into a trust for the benefit of those later investors who were left holding the bag.
It sounds like OP has researched and accepted that fact.

The heartburn is clawing back from the many beneficiaries, and how does legal liability fall upon the trust, executor, guy who used his social security number, and the other beneficiaries. At that, I say "Get a lawyer."
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Old 11-26-2021, 04:18 PM   #10
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Quote:
Originally Posted by Walt34 View Post
... State and local laws (not to mention common practices) vary so widely that it is impossible for anyone here to offer meaningful advice other than "Get thee a lawyer. Pronto."
+1

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Originally Posted by VungTau View Post
.... I am an executor on the trust but another brother is the one who put his social security number down when we set it up upon my fathers passing. ...
Another reason for the lawyer, a couple of maybe screwy things here. First, trusts don't have executors, they have trustees and the trust document specifies what the trustees may and may not do. There will also be language concerting resignation of a trustee, which your lawyer may want you to do. Second, I'm pretty sure that irrev trusts are supposed to have their own TINs. If that's the case, there will be some document correcting to do.

The letter is almost certainly trying to find and pick the low-hanging fruit. I'd stay quiet until instructed otherwise by said lawyer.
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Old 11-26-2021, 08:58 PM   #11
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I think someone else ran into this here but I can't find the thread with a quick search.
I think this may be the one you're thinking of: https://www.early-retirement.org/for...re-109066.html
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Old 11-26-2021, 09:22 PM   #12
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+1



The letter is almost certainly trying to find and pick the low-hanging fruit. I'd stay quiet until instructed otherwise by said lawyer.
+1 Right on OldShooter! Do some research. Consult an attorney. But don't make any contact with the folks who sent the letter. IMO, If you ever actually have to return some money, there will be court orders instructing you to do so, not just a letter from an attorney representing the unsecured creditors.
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Old 11-26-2021, 09:25 PM   #13
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Absolutely.

If you get a demand from a lawyer, have your lawyer get back to them.

Otherwise, stay out of it.
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Old 11-27-2021, 07:37 AM   #14
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Thanks for all the thoughts, IMO's and generally good ideas, helps a lot!
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Old 11-27-2021, 07:54 AM   #15
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I would ghost them for a while and see if they follow up. It's probably a fishing expedition to see if they can send out some letters and get some suckers to voluntariy give them money. If they file suit, then you will have plenty of time to respond.

Old Shooter is right... trusts have trustees. not executors and the trust should have applied for and received a TIN rather than use your BIL's TIN.

What is confusing is that in the OP you state that he passed before it was discovered and that you received "all of his principal back"... but the attorney is requesting $50k over and above what your father invested. Is the $50k right?

Do you have any records on what your father invested? Or that he actually received more thanhe invested? Was any income or gains shown on his tax returns? Do you have statements or other information on what he invested and what he received?

I'm just wondering if the $50k the laywer claims in excess of what was invested is real or not and what your records show.
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Old 11-27-2021, 08:19 AM   #16
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....

What is confusing is that in the OP you state that he passed before it was discovered and that you received "all of his principal back"... but the attorney is requesting $50k over and above what your father invested. Is the $50k right?

Do you have any records on what your father invested? Or that he actually received more than he invested? Was any income or gains shown on his tax returns? Do you have statements or other information on what he invested and what he received?

I'm just wondering if the $50k the laywer claims in excess of what was invested is real or not and what your records show.
Agreed. First and simple thing that you should be able to do without/before paying a lawyer is to get those numbers. Was there really $50K over/above the principal.

And then ignore them, until you feel they aren't going away. Then you need a lawyer. And don't communicate in any way w/o the advice of a lawyer (and tell your brother the same!), you/he might inadvertently say something to hurt your case.

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Old 11-27-2021, 09:06 AM   #17
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This is exactly how the lawyers for the Madoff victims have been able to recoup something like 80 percent of some victims original investment.

Jeffry Picower's estate agreed to hand back $7.2 Billion. Others much smaller amounts.
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Old 11-27-2021, 11:39 AM   #18
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Agree to get all ducks in a row and assure numbers are right. Also agree to not talk back to the accusing party. I still think advice from your own lawyer is in order.

Some day, maybe the lawyers on this list can let us know how many times "lawyer letters" are empty threats, or will be absolutely followed up with legal maneuvers or litigation.
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Old 11-27-2021, 12:07 PM   #19
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Under certain circumstances, and depending on the jurisdiction, you cannot support the cause of action unless you have first made demand on the other party.

Even assuming formal demand is not required, if you can get the other side to pay you without doing anything more than writing a letter, that's a big win. Litigation is costly and the general rule in American courts is that each side pays their own legal fees unless there is a specific fee shifting statute.

The fundamental calculation for a plaintiff is (Probability of winning x probable amount of provable damages x probability of collecting from the defendant) - costs of litigation > 0. If not, there is no point in bringing the action. So, you don't bring really weak cases or cases where your damages are not easily provable. Even the best cases probably should be given a 10-20% haircut just to account for things you don't currently know about and ambiguity in the law or the facts that are known. You also need to have a realistic understanding of how much the litigation will cost. Not just in terms of lawyer time, but the costs of expert witnesses if they are necessary to establish liability or damages, and the many other ancillary costs. Most people underestimate the cost of litigation. Finally, there is no point in suing someone if they don't have something you can take if you win (i.e. - they are "uncollectible").

On the other side, the potential defendant needs to perform a similar calculation that weighs the probability of losing on liability, the probability the plaintiff proves his damages, the maximum possible damages and the cost of litigation. There will be some amount less than the full demand that will be worth paying if the probability of stopping the plaintiff on an early dispositive motion is not good and the costs of a trial will be high.

From that, you can guess that the first demand is often just a test of the waters, to see if you'll bite, and that it is usually not an all or nothing proposition. In any event, you should only communicate with the other side through your lawyer, with whom you should speak soon.
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Old 11-27-2021, 12:35 PM   #20
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I see OP uses the words "Trust" and "Estate."

What exactly was this. Was there an estate? Was there a probate proceeding? At least locally, there was a statute of limitations for claims to be made upon the estate after filing . . .

Yes, I would consult an attorney who specializes in this. There may be a cut off, i.e. in that the trusts funds were already distributed prior to any knowledge of this claim . . .
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