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Securities — Ponzi schemes

United States Court of Appeals For the Seventh Circuit


Securities — Ponzi schemes

When distributing money to victims of a Ponzi scheme, it was not error to use the rising tide method of distribution rather than the net loss method.

“Our appellants argue against rising tide on the ground that they shouldn’t be penalized for having withdrawn some of ‘their’ money. But it was not their money; they withdrew portions of the commingled assets in the Ponzi schemer’s funds. Those were stolen moneys, albeit stolen in part from the eleven appellants. An investor has no entitlement to money stolen from other people. When investors’ funds are commingled, none being traceable to a particular investor, no part of whatever funds are recovered is property of any investor. Instead each investor is a creditor, and has merely a claim to a share of the funds that is appropriate in light of the relative size of his investment and other relevant circumstancea. Those circumstances can include withdrawals, which give credibility to a Ponzi scheme by demonstrating that it has assets—although withdrawals also may cause the scheme to run out of assets sooner and therefore collapse before additional investments are sucked into the whirlpool.”


12-1285 SEC v. Huber

Appeal from the United States District Court for the Northern District of Illinois, Castillo, J., Posner, J.

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