(The news featured below is a selection from the news covered in Federal Securities Law Reporter.)

6th Circuit Affirms Summary Judgment in Ponzi Scheme

A federal appeals panel (6thCir) affirmed the entry of summary judgment for the SEC against defendants charged with registration violations and fraud. The SEC charged the defendants with operating a Ponzi scheme that purportedly invested in a "secretive European securities market." The appellate court found that the SEC produced sufficient evidence to establish as a matter of law that the principals in the scheme, all formerly affiliated with a large trading firm, solicited numerous investors, held themselves out as intermediaries between the investors and the purported trading programs and received transaction-related compensation without being registered as brokers.

Documents offered by the principals did not offer any substantive proof that the investment program was legitimate, concluded the court. The panel also found that personal denials of the allegations did not suffice by themselves to create a question of material fact. Despite the experience of the principals in the securities industry, none of them witnessed or received any documentation confirming that securities had been traded or independently verified the legitimacy of the scheme.

While most investors lost substantial amounts of money, 41 reported gains that were ordered disgorged and combined into an investor relief fund. Several of the relief defendants objected to disgorgement, but the panel found that the SEC sufficiently demonstrated that the money represented ill-gotten gains rather than returns on investments. The relief defendants could only receive the same pro rata share as other harmed investors, concluded the court.

SEC v. George (6thCir)