When a Ponzi scheme claims breaks, the govt rushes to forfeit the assets that comprise or derive from proceeds traceable to the crime. At the exact same time, creditors, thinking they had correctly secured their claims, attempt to grab those very same assets for themselves.
A recent call out of the Petters Ponzi scheme case highlights this battle, which has been raging in the majority of the pending Ponzi cases like Bernard Madoff, Scott Rothstein, Marc Dreier and others. In US v. Petters, 2012 U.S. LEXIS 57645 (Apr. 24, 2012) [an boosted version of this opinion is available to lexis.com subscribers], Crown Bank filed three petitions under 21 U.S.C. 853 (n) [an annotated version of this statute is available to lexis.com subscribers] claiming interests in 3 assets that had been forfeited by the govt.
Re the first asset, which was the Wisconsin Lodge, Crown had loaned money to Petters in 2008, and had taken back a security interest to secure the loan. Crown claimed that Petters executed and delivered a Security Agreement that provided “a 100% Membership Interest in Tam O’Shanter Lodge, LLC,” which LLC is “the sole owner of the [Wisconsin] Lodge.”
From Crown’s perspective, it sounded good – a 100% interest in the company that owned 100% of the asset. From the government’s point of view, it was not sufficient. As a threshold matter, to have standing to even lodge a claim, section 853 (n) demands that the complainant have a “legal interest” in the forfeited property. The govt argued, and the court agreed, that Crown had an interest in the LLC, and not in the forfeited property itself.
“The Validated Petition alleges only that Crown held a deep interest in the LLC, which is just one level too far removed from the forfeited property to have an assertable legal interest here.” Id. At *7.