Robert Hill Presents Oral Argument to the Ninth Circuit Court of Appeals

Mr. Hill recently had the honor of arguing before the Ninth Circuit Court of Appeals in a case with potentially far-reaching implications on the scope of the California Fraudulent Transfer Act with regard to Ponzi schemes.

Summary of Ponzi Scheme Litigation

The underlying case is one of many lawsuits that originate from a Ponzi scheme called Nationwide Automated Systems, Inc. ("NASI"). NASI promoted itself as an investment opportunity that promised its investors substantial returns on their principal investment. In reality, NASI was a fraud and not a legitimate business. Like other Ponzi schemes, NASI used the investments received from new investors to pay "investment returns" to their older investors.

In September 2014 - after the NASI fraudulent Ponzi scheme had unraveled - the Securities and Exchange Commission ("SEC") filed a civil enforcement action against NASI and its principals. The District Court appointed a Receiver to pursue whatever NASI assets he could obtain so money could be distributed to the victims of the Ponzi scheme.

One of the primary ways a receiver typically obtains such assets for distribution is to pursue claims against the earlier Ponzi scheme investors who received distributions that exceeded their principal investment amount. The law provides that these "winning investors" must return their profit amount so this money can be distributed to the more recent investors who lost money in the Ponzi scheme.

The Lawsuit and Appeal to the Ninth Circuit

In March 2016 the Receiver filed the underlying lawsuit against Mr. Howard Markowitz in the Central District of California. In addition to believing Mr. Markowitz was a "winning investor" (something Mr. Markowitz disputed), Mr. Hoffman sought to compel Mr. Markowitz to return fees and commissions he had received from NASI as compensation for referring potential investors to NASI. Mr. Markowitz maintained he had earned these fees and commissions in good faith and that he did not know NASI was a Ponzi scheme; instead, he believed it was a legitimate investment opportunity of which he himself was an investor.

The District Court ultimately concluded that - even though Mr. Markowitz had acted in good faith and without knowledge that NASI was a Ponzi scheme - the commissions he had earned (and paid taxes on) could be avoided under the California Fraudulent Transfer Act. This decision resulted in a Judgment being entered against him for nearly $750,000.00.

Mr. Markowitz appealed the District Court's decision to the Ninth Circuit.  Mr. Hill argued that  the lower court had improperly applied the California Fraudulent Transfer Act by not allowing Mr. Markowitz the opportunity to show he had legitimately earned his commissions by providing services in good faith to NASI, without knowledge that NASI was a Ponzi scheme. 

Like every appeal, the parties first submitted lengthy written briefs outlining their respective positions. While the Court typically decides appeals solely on the briefs, here the Court requested oral argument. The matter was argued last week at the historic Ninth Circuit Courthouse in Pasadena, California.

Mr. Hill anticipates receiving the Court's written opinion in approximately thirty to sixty days. The case is William Hoffman v. Howard Markowitz, Case No. 17-56290. 

Law Offices of Robert L. Hill, APC

Mr. Hill represents individuals and businesses in all manner of legal disputes involving business, corporate, and financial matters.  He is particularly experienced in litigating the intricacies of Ponzi scheme cases and investment fraud.  If you need assistance with a legal dispute, contact the Law Offices of Robert L. Hill to schedule a free consultation. 

 


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