Introduction

Where actions are brought by the government to enjoin the continuation of conduct prohibited by law, the government frequently seeks appointment of a receiver to assist in marshalling assets on behalf of injured victims, consumers, or investors. For reasons discussed in detail in this Receivership Sourcebook, utilization of a federal-court equity receivership can prove particularly useful to the government and beneficial to victims, consumers, or investors. However, despite numerous cases addressing federal receiverships, there is virtually no current source to which one can turn to find summarization of the various issues that must be addressed in such receiverships. 1

The government initiated receivership frequently arises in connection with combined Ponzi-Pyramid marketing schemes. In such situations, there are frequently multiple perpetrators, as well as various “fellow travelers,” marketers, and possibly cooperating financial institutions, accountants, and attorneys, with varying levels of involvement in the scheme. There are usually assets that must be traced, including the assertion of claims on behalf of the victims, consumers, or investors, some of which must be raised by the receiver directly. Often there will be businesses that must be run, either temporarily until a rapid liquidation can be conducted or for some ongoing period if restoration of proper operating practices is critical to realizing the true value of the assets. The asset marshalling process in this type of case usually involves assets of many types, from cash to active businesses, realty (both commercial and residential, developed, undeveloped and in-between), stocks and bonds, artwork, jewelry, sports or celebrity memorabilia collections, automobiles, boats, and jet airplanes, not to mention causes of action. The assets may also be located throughout the United States, and, quite commonly, overseas, sometimes under the “protection” of foreign laws. In addition, hundreds to thousands of victims, consumers, or investors will frequently have been affected by the scam; and individual (and class action) lawsuits against the perpetrators and their assets, now under the control of the receiver, are quite common, complicating and potentially interfering with both the conduct of the receivership and the actual benefit of the victims, consumers, or investors. Note also that the claims of victims, consumers, investors, or trade creditors will generally exceed the value of the receivership assets and that potential conflicts are common among various classes of investors and trade creditors.

In dealing with these potential problem areas, note how everyone is benefited by the following attributes of the receivership:

1. All defendants and their assets, including affiliated entities, may be dealt with in a single action in a single location.

2. The receiver may bring suit in the receivership court against anyone, anywhere.

3. Summary procedures may be utilized in resolving various claims, both against and on behalf of the receivership entities, so long as basic principles of due process are honored.

4. Broad stay powers protect the receiver and give breathing room against crippling duties of defense in other actions.

5. Great flexibility is given the receivership court in ordering disgorgement and setting claims verification and payment procedures, including developing an appropriate plan of distribution.

This Receivership Sourcebook is an effort to address the most common issues arising in connection with receiverships, including the practical problems that receivers must address. Furthermore, the Receivership Sourcebook has been expanded to include other types of receiverships: see Chapter 1.


 

1The third edition of A Treatise on the Law and Practice of Receivers by Ralph Ewing Clark (Clark on Receivers) is useful, but even as supplemented it is over twenty years old. The author has found no modern treatise which specifically addresses the problems in government initiated enforcement actions using receiverships. The only other treatise on receiverships, Clark on Receivers, was first published in 1918 and last updated in 1992.
« PREVIOUS