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Wednesday
Jan022019

Mississippi University Will Return Most Of Ponzi Schemer's $400,000 Donation

A Mississippi university has reached an agreement to return nearly 90% of funds its athletic department received from a Mississippi man who pleaded guilty last year to operating a $100 million Ponzi scheme. The University of Mississippi, also known as Ole Miss, agreed to return a total of approximately $350,000 to the court-appointed receiver overseeing the recovery of assets for victims defrauded by the Ponzi scheme perpetrated by Arthur Lamar Adams.  The scheme, which is believed to be the largest Ponzi scheme in Mississippi history, was uncovered last year and Adams is currently serving a 20-year prison sentence.

The Scheme

Adams founded Madison Timber Properties, LLC ("Madison"), which held itself out as a timber harvesting company.  The company began soliciting potential investors in 2004, offering annual returns ranging from 12% to 15% through the harvest of timber from plots of lands owned by third parties.  In many cases, investors were told that they had sole rights to timber harvested from specific plots of lands.  Investments were typically memorialized by a one-year promissory note that could be rolled over, a timber deed and cutting agreement, a security agreement, a tract summary with the purported timber value, and a title search certificate.  Adams and Madison raised at least $85 million from 150 investors throughout the southeastern United States that would purportedly be used to purchase additional timber tracts.  

Many of these promises, however, were false according to authorities.  For example, Adams is accused of never having obtained the requisite harvesting rights to the land as he had claimed.  Many of the investment documents were allegedly forged by Adams, including the timber deed and cutting agreements as well as the tract summary showing the purported timber value.  In many cases, Adams is accused of pledging the same plots of land (to which he had no rights) to multiple parties.  Adams also allegedly misappropriated investor funds for unauthorized purposes, including for his own personal benefit and the development of unrelated construction projects in Oxford and Starkville, Mississippi.  New investor funds were also used to pay returns to existing investors - a classic hallmark of a Ponzi scheme.  

Adams was charged by civil and criminal authorities in May 2018, pleaded guilty, and was sentenced to a 20-year term in October 2018.

The Receiver's Appointment and Pursuit of Transfers

At the SEC's request, Judge Reeves appointed Alysson Mills as a receiver tasked with recovering assets for defrauded victims (among other things).  The Receiver has focused her efforts on third parties that received transfers from Adams, including "recruiters" tasked with attracting new victims as well as charities and educational institutions.  One of those recipients was Ole Miss, which received over $400,000 from Adams in the past ten years.  The university initially agreed to return approximately $40,000 of that amount which had served as prepayment for 2018 football and 2019 baseball tickets and remained in discussions with Mills about the use and nature of the remaining funds.  In a report filed in December 2018, Mills indicated that the university had agreed to return an additional $310,169 which would result in the total recovery of roughly $350,000 of the $402,100 transferred by Adams.  Mills indicated that she would not seek the return of the remaining $52,264 based on her conclusion that Adams had received "tangible benefits" such as athletic event tickets.   

Mills' reports describe her efforts in seeking the repayment of transfers to other third parties, which include both pending litigation and informal discussions.  Those lawsuits not only target "recruiters" who were paid to funnel investors to Adams' scheme, but also various professionals who are accused of aiding the scheme.  On December 19, 2018, Mills filed suit against a number of defendants including two law firms that she alleged "lent their influence, their professional expertise, and even their clients to Adams and Madison Timber."  A copy of that complaint is available here.

The Receiver's website is available here.

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