It seems unquestionably unfair that many early investors who cashed out of the Ponzi scheme run by Joseph Forte before its collapse should escape with the loss of only their false "profits," while later investors should have to suffer the loss of their principal.
Undoubtedly, some of the "winners" in the Forte scheme acted in good faith. But it is hard to imagine that investors with enough money to throw hundreds of thousands of dollars into Forte's hands were so unsophisticated that they didn't notice something a bit fishy about annual returns that sometimes approached 40%.
The Securities and Exchange Commission and the Commodity Futures Trading Commission have effectively blocked the receiver in the Forte case from pursuing the principal of net winners, and there is understandable concern about giving a receiver license to claw back money from individuals who acted in good faith and were truly blind to the fraud that occurred. But again, it is hard to understand how all of Forte's investors can make the claim that they truly had no idea that something was amiss.
Under the law in Pennsylvania, where Forte was based, a receiver can seek to recover principal from investors who had, or should have had, knowledge of the fraud. Such investors have to present an affirmative defense of their good faith to avoid surrendering principal inveted with the fraudster.
Here's a proposal: Use the SEC's own definition of a "sophisticated investor" to determine who should be required to demonstrate that they acted in good faith.
Under its Rule 501-D, the SEC restricts investment in certain securities to "accredited" investors who meet either standards of financial sophistication (typically finance and investment firms) or have income or net worth levels such that they are deemed able to bear the risk.
Giving a free pass to everyone who does not meet the SEC's accreditation standard would eliminate those least likely to have acted in bad faith in the Forte scheme, and would provide a measure of fairness to the victims who lost everything.
Comments:
Tuesday, January 12, 2010 11:17:23 AM by Maria
I think the element that should be used to identifiy the "winners" and "profiters" of the ponzi and MLM scam are those person who promote the scam in a big scale such as meeting, web sites, etc and that without their help, the scam can't be possible. The amount they received in commision vs their investment should be other indicator. Usually they invest the minimun or nothing but received a lot. That persons the SEC and CFTC should be include in their demand.
Friday, January 08, 2010 4:51:41 PM by Ralph Norton
Accredited does not mean sophisticated. It just means able to bear the loss financially. Better to use part of the definition of "purchaser representative" in Rule 501(h): "has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the . . . investment."
