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Retireby45ish 04-29-2021 08:48 AM

Investment nightmare
 
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. Letís 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 ďhey 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 amtĒ. 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. Iíve reached out to see why these accounts arenít treated as offsetting since Iím the holder of both. They are clawing back money from me to pay me in my other account. Thought of the 50k Iíll probably get less than a penny of that back on the other IRA side.

What should I do?
I worry that paying an attorney to fight it might cost me enough where itís 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 didnít get to write off losses in IRA and I paid taxes on all gains.

tb001 04-29-2021 08:55 AM

Is your ira invested with the same entity? I don’t understand how you can withdraw $ and they have any recourse at this point?

Retireby45ish 04-29-2021 08:59 AM

Quote:

Originally Posted by tb001 (Post 2599438)
Is your ira invested with the same entity? I donít understand how you can withdraw $ and they have any recourse at this point?


The Ira was invested through a holding company (similar to fidelity) and the regular funds were just wired over normally.

Yes I agree, I donít see how they can come for it, yet they did :(

jazz4cash 04-29-2021 09:03 AM

I donít know but itís very interesting. I donít see how you could put these funds into an IRA. It seems to me you could be liable for a clawback. 50% is probably a decent offer if there is a legitimate case of fraud (e.g. Ponzi) vs. bad investment choices by the founder or bad behavior because itís not necessarily illegal. I donít know but others with better insight will weigh in.

ivinsfan 04-29-2021 09:08 AM

Explain how you put 300K into an IRA...how many years did that take you? ..this makes no sense.


I know you picked a round number for example, but how much money was actually involved.

pb4uski 04-29-2021 09:11 AM

+1 What the OP wrote doesn't make sense... you can't just pop in $300k from taxable account into an IRA... there must be more to the story.

But for now I'll assume that for some unknown reason what they OP said is true. If there is significant time between when the $300k taxable account was withdrawn and $300k deposited into the IRA then the their position might have some credence.

If it was at the same time then it is stupid to view it as two transactions. The OP invested $200k and lost most of it so there is no gain to be clawed back.

You could even make the same argument if there was some time between the $300k withdrawal and the $300k deposit... soup-to-nuts the OP invested $200k and lost most of it so there is no gain to be clawed back.

Marginal cost is $200k... marginal revenue is not much... therefore an economic loss. Unless the law says differently (and it may) then economics should prevail.

I would get a lawyer and send them a letter explaining why you don't owe anything and then ignore all other communication until they file a lawsuit against you.... then get the lawyer involved again.

Gallaher 04-29-2021 09:12 AM

Seems like you could withdraw draw your cash, fly to Vegas for a lost weekend....Ēsorry, lost itĒ. Now what are they gonna do?
If they have shown you they are scammers, be bold to their scams.
Sounds like their advantage is to intimidate you.
You get to decide how you respond

USGrant1962 04-29-2021 09:14 AM

Quote:

Originally Posted by ivinsfan (Post 2599444)
Explain how you put 300K into an IRA...how many years did that take you? ..this makes no sense.


I know you picked a round number for example, but how much money was actually involved.

I read OP as re-buying into the investment with an existing IRA, not funding the IRA. Still, a strange transaction.

Retireby45ish 04-29-2021 09:16 AM

Investment nightmare
 
Quote:

Originally Posted by USGrant1962 (Post 2599447)
I read OP as re-buying into the investment with an existing IRA, not funding the IRA. Still, a strange transaction.


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 wasnít 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 efficientÖhence the IrA holding it rather than regular taxable cash.

Retireby45ish 04-29-2021 09:19 AM

Quote:

Originally Posted by pb4uski (Post 2599445)
+1 you can't just pop in $300k from taxable account into an IRA... there must be more to the story.


Sorry for not explaining it well. I clarified in post above.
This was an existing IRA account I had with funds. And at same time as removing cash I invested through my IRA (but not the same money).

jazz4cash 04-29-2021 09:24 AM

50% gain in 5 yrs is a decent return but I have no clue on the risk. Obviously it has turned out to be huge.

pb4uski 04-29-2021 09:24 AM

Ah.. ok. So in your taxable account you sold $300k at a $100k gain... and in your taxable account you used $300k of cash to reinvest.

Was the sale and reinvestment done at the same time? If not, what was the time difference between the two transactions? Hours? Days? Weeks? Months?

tulak 04-29-2021 09:24 AM

Quote:

Originally Posted by USGrant1962 (Post 2599447)
I read OP as re-buying into the investment with an existing IRA, not funding the IRA. Still, a strange transaction.


Could be, but in that case the OP should say he bought/sold the fund in taxable/IRA accounts. Using withdraw/deposit implies that money was transferred between accounts, which in this case is confusing.

Iím wondering who is asking for the money? Is this a government entity?

It sounds like a tough situation. I suspect youíd get something back for the 300k in losses, but that probably wonít happen until all the funds have been retrieved to determine how much can be given back to investors?

pb4uski 04-29-2021 09:28 AM

It is probably a trustee asking for the money.... like the guys that chased down Bernie Madoff's assets for the investors. It isn't uncommon to try to claw back gains... for example if the OP hadn't done the IRA piece then he would have clearly been $100k to the good and the trustee would try to clawback some of those gains for the other investors... same thing happened with Madoff.

Quote:

... Mr. Picard won a key legal victory in August 2011, when the Second Circuit upheld the method he and his team devised to determine how to handle claims. Madoff investors who took out more money from the fund than they deposited would have no claim, and would instead be liable to return their Ponzi-inflated gains. Only net losers would receive payments from money recovered by the trustee.

ivinsfan 04-29-2021 09:33 AM

Quote:

Originally Posted by USGrant1962 (Post 2599447)
I read OP as re-buying into the investment with an existing IRA, not funding the IRA. Still, a strange transaction.


Yes it could be that , that's the only logical answer. This just confuses the story because the fact he put in an IRA has no bearing. It's the buy, sell, buy they are looking at. However the fact he put all the money back into the same fund means he still had the same risk...so how did he bank a 100K in profit?

jazz4cash 04-29-2021 09:41 AM

Yeah. The OP leaves a lot of open issues so itís 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?

Sunset 04-29-2021 09:47 AM

If I read OP's post correctly, OP put 200K into investment, then cashed out $300K and put back in $300K into the investment.

Since OP didn't cash out , OP could argue there was no profit, the receiver probably does not connect the two different funding sources.

I think OP should reply there is no profit, and show the investment of the $300K IRA money. Since the investment lost 80%, OP's net profit is really $ - 160K , so they owe OP money. (the $300K was originally $200K ignoring source of funding, which is how I derive OP is out $160K (plus taxes paid on the original now absent fake profit of $100K).

I wonder what the limits are on clawbacks, lots of investors over years are innocently making profits and being taxed on it.

RunningBum 04-29-2021 09:51 AM

Quote:

Originally Posted by Retireby45ish (Post 2599436)

So now I get a letter saying ďhey 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 amtĒ. 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 would document the 80% loss on the $300K you invested with your IRA account. Point out that even though you made $100K in taxable, you lost $240K in your IRA and don't feel you should have money clawed back when you lost $140K overall between the two accounts.

disneysteve 04-29-2021 09:51 AM

Quote:

Originally Posted by Sunset (Post 2599482)
If I read OP's post correctly, OP put 200K into investment, then cashed out $300K and put back in $300K into the investment.

Since OP didn't cash out , OP could argue there was no profit, the receiver probably does not connect the two different funding sources.

That's how I would read this as well. OP may need an attorney to sort it out though.

ivinsfan 04-29-2021 09:51 AM

Quote:

Originally Posted by Sunset (Post 2599482)
If I read OP's post correctly, OP put 200K into investment, then cashed out $300K and put back in $300K into the investment.

Since OP didn't cash out , OP could argue there was no profit, the receiver probably does not connect the two different funding sources.

I think OP should reply there is no profit, and show the investment of the $300K IRA money. Since the investment lost 80%, OP's net profit is really $ - 160K , so they owe OP money. (the $300K was originally $200K ignoring source of funding, which is how I derive OP is out $160K (plus taxes paid on the original now absent fake profit of $100K).

I wonder what the limits are on clawbacks, lots of investors over years are innocently making profits and being taxed on it.


We don't know the time gap between the sell/buy but yes the math doesn't add up...apparently they told him the funds don't offset, he should get some clawback money on the extra 100K in profits whenever that happens. (or if it happens) I find it interesting they gave him a 50% discount which would lead me to doubt how much he would get paid out on the clawback settlement.

pb4uski 04-29-2021 09:58 AM

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.

Retireby45ish 04-29-2021 10:01 AM

Quote:

Originally Posted by jazz4cash (Post 2599480)
Yeah. The OP leaves a lot of open issues so itís 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 canít 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 ďtaxpayer IdĒ. I would think my IRA and my taxable accounts have same taxpayer Id (SSN) but they are saying otherwise. !!

SecondCor521 04-29-2021 10:02 AM

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.

OldShooter 04-29-2021 10:03 AM

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.

Safire 04-29-2021 10:06 AM

Quote:

Originally Posted by Retireby45ish (Post 2599436)
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.

Keim 04-29-2021 10:12 AM

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!

pb4uski 04-29-2021 10:13 AM

Quote:

Originally Posted by Retireby45ish (Post 2599494)
... 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 ďtaxpayer IdĒ. 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.

pb4uski 04-29-2021 10:16 AM

Quote:

Originally Posted by Keim (Post 2599501)
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

Letj 04-29-2021 10:17 AM

Investment nightmare
 
Quote:

Originally Posted by Retireby45ish (Post 2599449)
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 wasnít 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 efficientÖhence 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? Doesnít make sense.

pb4uski 04-29-2021 10:21 AM

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.

gayl 04-29-2021 10:29 AM

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.

Safire 04-29-2021 10:29 AM

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.

MRG 04-29-2021 10:34 AM

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.

pb4uski 04-29-2021 10:40 AM

Quote:

Originally Posted by MRG (Post 2599523)
OP this isn't right. Don't be afraid to throw an attorney into this. ...

+1

pb4uski 04-29-2021 10:45 AM

Quote:

Originally Posted by gayl (Post 2599519)
If I read it correctly, I'd be asking an attorney instead of SGOTI...

And many of the SGOTIs have been suggesting that too

Quote:

Originally Posted by pb4uski (Post 2599445)
...I would get a lawyer...

Quote:

Originally Posted by pb4uski (Post 2599493)
.... Time for the OP to hire a lawyer.

Quote:

Originally Posted by OldShooter (Post 2599497)
...You need a lawyer...

Quote:

Originally Posted by Keim (Post 2599501)
.... Time to lawyer up, son. Lawyer up QUICK!


gayl 04-29-2021 10:53 AM

Quote:

Originally Posted by pb4uski (Post 2599530)
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

CRLLS 04-29-2021 10:57 AM

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.

audreyh1 04-29-2021 11:00 AM

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?

ExFlyBoy5 04-29-2021 11:03 AM

Quote:

Originally Posted by Keim (Post 2599501)
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.

Jerry1 04-29-2021 11:08 AM

Quote:

Originally Posted by pb4uski (Post 2599513)
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 didnít get that. Thanks for the clarification.

As others have said, time for a lawyer. However, I just donít 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. Iíd 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 doesnít 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.

OldShooter 04-29-2021 11:10 AM

Quote:

Originally Posted by ExFlyBoy5 (Post 2599544)
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.

IANAL, so I donít' know if this is the correct approach or not. Preemptive moves, including a harsh response, might be advised. A knowledgeable lawyer reading the court documents might suggest other tactical moves as well. This situation is not one where I'd try to save a buck at the front end.

ivinsfan 04-29-2021 11:22 AM

Quote:

Originally Posted by Retireby45ish (Post 2599494)
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 canít 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 ďtaxpayer IdĒ. I would think my IRA and my taxable accounts have same taxpayer Id (SSN) but they are saying otherwise. !!


Your posts are so confusing, are you saying they returned 60K to you or they will return 60K, I cant figure it out. What is your actual financial damage to this point using your 200+100K number..and what might you still stand to get back.

gayl 04-29-2021 11:29 AM

Quote:

Originally Posted by audreyh1 (Post 2599543)
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?

+1. I think that might help OP sort through what he actually made / lost / owes / if this is for real or a shakedown.

FWIW I have no experience in something like this bc I have only invested through Fido - Schwab - Hartford (thats where my 457 was until retirement)

ExFlyBoy5 04-29-2021 11:31 AM

Quote:

Originally Posted by OldShooter (Post 2599550)
IANAL, so I don’t' know if this is the correct approach or not. Preemptive moves, including a harsh response, might be advised. A knowledgeable lawyer reading the court documents might suggest other tactical moves as well. This situation is not one where I'd try to save a buck at the front end.

Well, I *am* licensed as one (arguably a recovering one) :) and I am not saying to *not* lawyer up. With something this complex, especially if it involves a lot of parties and the federal court, the retainer will be enormous. Paying for an hour of time to get a consult from a reputable FEDERAL practitioner is prudent, however.

Retireby45ish 04-29-2021 11:42 AM

Investment nightmare
 
Quote:

Originally Posted by ivinsfan (Post 2599562)
Your posts are so confusing, are you saying they returned 60K to you or they will return 60K, I cant figure it out. What is your actual financial damage to this point using your 200+100K number..and what might you still stand to get back.



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 didnít want to risk too much in this one fund. At the time the 300k was about 20% of my NW.

All this was my attempt to diversify against the ups and downs of the market as 2008 really rattled me. I guess In the end I made the biggest financial mistake of my life here by not diversifying more (wish I knew about this board back then)

There are a few groups with suits against Deloitte who was the the auditor of the fund. But I donít see any other class actions. the money is gone so who else is there to sue? The guy is going to federal prison.

Safire 04-29-2021 11:47 AM

Quote:

Originally Posted by ivinsfan (Post 2599562)
Your posts are so confusing, are you saying they returned 60K to you or they will return 60K, I cant figure it out. What is your actual financial damage to this point using your 200+100K number..and what might you still stand to get back.

He gained 100K minus taxes in his taxable a/c.

Thinking this "investment" was a sweet deal and seeking to save on taxes, he closed the fund in his taxable a/c then put down 300K back into the same scheme with mlney in his IRA, losing 80% of that (240K)

In effect, his total "investments" were 500K, with a net loss of (-) 240K + 100K or (-) 140K + taxes he paid on a gain of 100K in his taxable.

He banked the "gain" in the taxable, paying taxes on it, no doubt, and then ate the loss in his IRA. The trustee is now trying to clawback another 50K of the gain out of him, failing which they're planning to sue him for the entire 100K gain on taxable. If he forks over the 50K, then he is increasingly his net loss to 190K + the taxes already paid on the 100K "gain".

There must be a legal reason that the bankruptcy trustee is treating his taxable & IRA as two different investments, even if he owns both of them. What he needs is a securities lawyer and a pitbull CPA in his corner. I doubt laypeople can figure out why the trustee is allowed to legally demand money back, even if it increases OP's losses to almost 200K!

ivinsfan 04-29-2021 11:49 AM

So if my math is right of the 60K they returned on your 300K, 20 of it was paid on the 100K profit you rolled over, yes?


Now looking at the original 200 plus 100 gain they want you to cough up 50K in fact you would payback a net of 30K.. 50 minus the 20 = 30? ..you might not like but I'm guessing they could collect it.



It would have been a lot less confusing if this had been in post number one.

ivinsfan 04-29-2021 11:50 AM

Quote:

Originally Posted by Safire (Post 2599573)
He gained 100K minus taxes in his taxable a/c.

Thinking this "investment" was a sweet deal and seeking to save on taxes, he closed the fund in his taxable a/c then put down 300K back into the same scheme with mlney in his IRA, losing 80% of that (240K)

In effect, his total "investments" were 500K, with a net loss of (-) 240K + 100K or (-) 140K + taxes he paid on a gain of 100K in his taxable.

He banked the "gain" in the taxable, paying taxes on it, no doubt, and then ate the loss in his IRA. The trustee is now trying to clawback another 50K of the gain out of him, failing which they're planning to sue him for the entire 100K gain on taxable. If he forks over the 50K, then he is increasingly his net loss to 190K + the taxes already paid on the 100K "gain".

There must be a legal reason that the bankruptcy trustee is treating his taxable & IRA as two different investments, even if he owns both of them. What he needs is a securities lawyer and a pitbull CPA in his corner. I doubt laypeople can figure out why the trustee is allowed to legally demand money back, even if it increases OP's losses to almost 200K!




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.

ExFlyBoy5 04-29-2021 11:54 AM

Quote:

Originally Posted by Retireby45ish (Post 2599571)
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 didnít want to risk too much in this one fund. At the time the 300k was about 20% of my NW.

All this was my attempt to diversify against the ups and downs of the market as 2008 really rattled me. I guess In the end I made the biggest financial mistake of my life here by not diversifying more (wish I knew about this board back then)

There are a few groups with suits against Deloitte who was the the auditor of the fund. But I donít see any other class actions. the money is gone so who else is there to sue? The guy is going to federal prison.

Deloitte, eh? Sounds reminiscent of the Aequitas Capital Management scheme.

Safire 04-29-2021 11:55 AM

Quote:

Originally Posted by Retireby45ish (Post 2599571)
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.

All this was my attempt to diversify against the ups and downs of the market as 2008 really rattled me. I guess In the end I made the biggest financial mistake of my life here by not diversifying more (wish I knew about this board back then)

There are a few groups with suits against Deloitte who was the the auditor of the fund. But I don’t see any other class actions. the money is gone so who else is there to sue? The guy is going to federal prison.

The bankruptcy trustee will sue all the "investors" who had "gains" on their returns from this Ponzi scheme, in order to spread out & distribute whatever is left equally among all those who were victims of this scheme. There may be other "investors" who were also sent claw back notices that you just aren't aware of.

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.

Safire 04-29-2021 12:01 PM

Quote:

Originally Posted by ivinsfan (Post 2599577)
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 04-29-2021 12:08 PM

Investment nightmare
 
Quote:

Originally Posted by Safire (Post 2599586)
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 canít 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 ďgainsĒ to claw some back. Itís in the ďtens of millions of dollarsĒ that fall into this boat per their letters.

Thanks again for all the insight and words of wisdom.

ivinsfan 04-29-2021 12:12 PM

Quote:

Originally Posted by Safire (Post 2599586)
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 04-29-2021 12:13 PM

Quote:

Originally Posted by Retireby45ish (Post 2599590)
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 04-29-2021 12:18 PM

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 04-29-2021 12:19 PM

Quote:

Originally Posted by ivinsfan (Post 2599595)
So what do you mean when you say they "returned" 60K,


Sorry for the confusion. Iíve 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 04-29-2021 12:20 PM

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.

JRon 04-29-2021 12:23 PM

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 04-29-2021 12:23 PM

Quote:

Originally Posted by Retireby45ish (Post 2599600)
Sorry for the confusion. Iíve 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.:coolsmiley:...Did the fund in question get liquidated to zero at it's implosion?

RunningBum 04-29-2021 12:27 PM

Quote:

Originally Posted by Jerry1 (Post 2599546)
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.
Quote:

Originally Posted by Retireby45ish (Post 2599571)
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 didnít 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 04-29-2021 12:31 PM

Quote:

Originally Posted by RunningBum (Post 2599607)
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 04-29-2021 12:34 PM

Quote:

Originally Posted by Sunset (Post 2599482)
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 04-29-2021 12:44 PM

Investment nightmare
 
Quote:

Originally Posted by JRon (Post 2599603)
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).

Quote:

Originally Posted by jazz4cash (Post 2599601)
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.

pb4uski 04-29-2021 01:08 PM

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 04-29-2021 01:18 PM

Quote:

Originally Posted by pb4uski (Post 2599627)
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 04-29-2021 01:21 PM

Quote:

Originally Posted by pb4uski (Post 2599627)
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.

pb4uski 04-29-2021 01:34 PM

Quote:

Originally Posted by Safire (Post 2599635)
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 04-29-2021 01:37 PM

Quote:

Originally Posted by pb4uski (Post 2599627)
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.

Quote:

Originally Posted by pb4uski (Post 2599645)
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 04-29-2021 01:39 PM

Quote:

Originally Posted by pb4uski (Post 2599627)
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 04-29-2021 01:39 PM

Quote:

Originally Posted by MichaelB (Post 2599637)
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

pb4uski 04-29-2021 01:43 PM

Quote:

Originally Posted by Jerry1 (Post 2599648)
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.

pb4uski 04-29-2021 01:47 PM

Quote:

Originally Posted by RunningBum (Post 2599607)
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.

Quote:

Originally Posted by ivinsfan (Post 2599611)
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 04-29-2021 01:47 PM

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 04-29-2021 01:50 PM

Quote:

Originally Posted by Safire (Post 2599647)
NO, what? What exactly are you disagreeing with so empathetically? ...

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

Quote:

Originally Posted by Safire (Post 2599580)
.... 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 04-29-2021 01:56 PM

Quote:

Originally Posted by pb4uski (Post 2599649)
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.

Retireby45ish 04-29-2021 01:59 PM

Quote:

Originally Posted by foxfirev5 (Post 2599658)
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.

NW-Bound 04-29-2021 02:11 PM

Quote:

Originally Posted by Retireby45ish (Post 2599436)
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.

foxfirev5 04-29-2021 02:12 PM

Quote:

Originally Posted by Retireby45ish (Post 2599673)
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.

Retireby45ish 04-29-2021 02:16 PM

Quote:

Originally Posted by foxfirev5 (Post 2599684)
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.

ivinsfan 04-29-2021 02:22 PM

Quote:

Originally Posted by pb4uski (Post 2599657)
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?

ivinsfan 04-29-2021 02:26 PM

Quote:

Originally Posted by MichaelB (Post 2599637)
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.

We don't know he is going to have to pay 50K....say they consider this two completely different accounts. Would his IRA account which was open at the time of the crash presumably get some of the last rounds of clawback money?

Safire 04-29-2021 02:31 PM

Quote:

Originally Posted by pb4uski (Post 2599665)
That he had $500k invested. He only had $200k invested.



And for the record, I am a retired CPA... 17 years with two of the Big 4 firms.

I see it as two different transactions, not one. In any case, we agree on the net result of a 140K loss. In addition, my calculations factor in the taxes he paid on the "gain", surely he's entitled to get a portion of that back, which won't happen if you consider this as one net transaction?

The trustee probably sees his loss as a smaller loss and not the 70% loss you see it. Hence the attempts at claw back in order to "even out" the losses across the board. What ultimately matters is not two random strangers arguing over what a 3rd strangers losses are, but how the bankruptcy trustee sees it.

pb4uski 04-29-2021 02:42 PM

Quote:

Originally Posted by Safire (Post 2599699)
I see it as two different transactions, not one. ...

That's fine... I just think you are incorrect on that part. It might well be treated combined/economically for settlement purposes and separately for tax purposes since taxable accounts and tax-deferred accounts are treated separately for tax purposes.

Percentages are irrelevant. Repeated from post #14 snipet from WSJ on Madoff workout:

Quote:

...Mr. Picard won a key legal victory in August 2011, when the Second Circuit upheld the method he and his team devised to determine how to handle claims. Madoff investors who took out more money from the fund than they deposited would have no claim, and would instead be liable to return their Ponzi-inflated gains. Only net losers would receive payments from money recovered by the trustee. ...
Also, the OP stated that some of the materials that he received from the trustee would look at things combined for a TIN which makes sense and is consistent with the WSJ quote.

If OP has a good lawyer it seems like the most likely outcome is that he will successfully defend against the trustee's attempt to clawback $50k and pay $0... and he'll get a theft loss deduction of $240k...$100k of the theft loss offsets the $100k capital gain that he previously recognized and paid tax on and the remaining $140k is the economic loss and he'll get a theft loss deduction for that too.

And attorney's fees.

That's my crystal ball.

Safire 04-29-2021 02:49 PM

Quote:

Originally Posted by pb4uski (Post 2599703)
That's fine... I just think you are incorrect on that part. It might well be treated combined/economically for settlement purposes and separately for tax purposes since taxable accounts and tax-deferred accounts are treated separately for tax purposes.

Percentages are irrelevant. Repeated from post #14 snipet from WSJ on Madoff workout:



Also, the OP stated that some of the materials that he received from the trustee would look at things combined for a TIN which makes sense and is consistent with the WSJ quote.

If OP has a good lawyer it seems like the most likely outcome is that he will successfully defend against the trustee's attempt to clawback $50k and pay $0... and he'll get a theft loss deduction of $240k...$100k of the theft loss offsets the $100k capital gain that he previously recognized and paid tax on and the remaining $140k is the economic loss and he'll get a theft loss deduction for that too.

And attorney's fees.

That's my crystal ball.

That would be the best outcome, under the circumstances.

pb4uski 04-29-2021 02:57 PM

Agreed... and still a very expensive lesson.

Retireby45ish 04-29-2021 04:40 PM

Quote:

Originally Posted by pb4uski (Post 2599715)
Agreed... and still a very expensive lesson.


+1000000000

(The OP)

When the sting wears off and I decide a path Iíll post how it all worked out. Thanks all.

I also checked my spreadsheet just now and ran another FireCalc to make me feel good about being on track to retiring in 1 or 2 years (even despite this major misstep in life).

sengsational 05-02-2021 10:23 AM

Quote:

Originally Posted by pb4uski (Post 2599627)
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.

Quote:

Originally Posted by Jerry1 (Post 2599648)
...For tax law, he had a taxable event. I donít know that tax law is relevant to this situation...

I agree with you guys. All of the tax perspective stuff is irrelevant.

And I also suggest that one does not need a lawyer to challenge the severed transactions sets. As I said before, you make a demand letter that forces them to reply, in writing, as to their justification for severing the transactions from a single individual. If it's BS, you take it to the judge yourself in a second letter. If all that fails, and it's going to cost you less to fight it than pay it, then get a lawyer. But I certainly wouldn't give up because some bozo said over the phone that I'm on the hook to pay when I'm not.

OldShooter 05-02-2021 11:11 AM

Quote:

Originally Posted by sengsational (Post 2599599)
... 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. ...

Somehow I don't see the bankruptcy trustee shaking in his boots at this kind of a threat from a pipsqueek creditor.

Quote:

Originally Posted by sengsational (Post 2599599)
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.

IANAL, but I think the two accounts have different legal owners: the OP as an individual, and his broker as trustee for the retirement account. So that may be the reason.

But I doubt the judge will every wonder about this at all. Any letter from the OP will be probably read by the judge's law clerk and filed with all the other amateur lawyering letters.

Quote:

Originally Posted by sengsational (Post 2599599)
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.

Yes. IOW, the trustee is doing exactly what the law requires him to do. No news there. That is how bankruptcy works. Remember, too, that the trustee doesn't benefit from any of the money he collects.

pb4uski 05-02-2021 11:31 AM

^^^^ I totally disagree with every single thing in your post. The law requires the trustee to pursue all legitimate ill-gotten gains, not to maximize recoveries by shaking down investors like a mafioso. I'm guessing that the trustee might not understand the OPs situation.

Also, the TIN would be the same for both accounts so I don't know how anyone could think that they are different owners.

OldShooter 05-02-2021 11:41 AM

Quote:

Originally Posted by pb4uski (Post 2601171)
^^^^ I totally disagree with every single thing in your post.

:laugh:

Quote:

Originally Posted by pb4uski (Post 2601171)
The law requires the trustee to pursue all legitimate ill-gotten gains, not to maximize recoveries by shaking down investors like a mafioso.

Probably in the eye of the beholder. From press reports, the Madoff trustee did not make very many friends, but he recovered a lot of money.

Quote:

Originally Posted by pb4uski (Post 2601171)
I'm guessing that the trustee might not understand the OPs situation.

Agree. A little guy like the OP is just a few magnetic dots and spots on a disk drive somewhere. He is not getting any kind of a personalized look, at least not yet. I still think his best chance will come from getting good legal advice.

Quote:

Originally Posted by pb4uski (Post 2601171)
Also, the TIN would be the same for both accounts so I don't know how anyone could think that they are different owners.

I dunno. I was just speculating. Certainly the two accounts were segregated on the Ponzi's books.

MichaelB 05-02-2021 11:42 AM

Quote:

Originally Posted by pb4uski (Post 2601171)
I'm guessing that the trustee might not understand the OPs situation.

This is quite likely IMO. In addition, trustee is charged with recovering funds and probably views an unusual situation like this with skepticism, and least initially.


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