Suspected Ponzi Schemer's Suicide Could Mean 100% Recovery For Victims
Monday, January 7, 2019 at 7:26AM
Jordan D. Maglich

Investors defrauded by a Charlotte businessman's suspected $50 million Ponzi scheme may ultimately recoup most or all of their losses in a proposed settlement due to the accused schemer's decision to purchase tens of millions of dollars in life insurance policies.  Richard Siskey is alleged to have committed one of the largest investment frauds in Charlotte's history and committed suicide in December 2016 just before the unsealing of an FBI affidavit accusing him of operating a Ponzi scheme for several years.  However, the revelation that Siskey's family received tens of millions of dollars in life insurance payouts has given victims hope that they could recover a a significant portion of thier losses.  A federal bankruptcy court will now decide whether to approve a proposed settlement that will allow victims to recover at least 90% (and potentially all) of their losses and also permit Siskey's family to maintain a portion of the payouts. 

The Scheme

Siskey operated several companies including TSI Holdings, LLC, WSC Holdings, LLC, and SouthPark Partners, LLC (collectively, the "Siskey Entities").  Siskey also operated Wall Street Capitol, a financial services firm that was operated under the Metlife Insurance Co. ("MetLife") umbrella. Siskey told potential investors that he would either manage or invest their money and that they could expect to receive a promised or guaranteed varying return.  Siskey was linked to MetLife in multiple ways besides selling MetLife insurance policies, including renting space in offices leased by MetLife and overseen by MetLife employees.  And at least one investor has alleged that MetLife employees were sent to her house on Siskey's behalf to pick up checks and documents.  

Unbeknownst to Siskey, law enforcement opened an investigation in late 2015 into whether Siskey was commingling personal and business funds.  This included interviews with Siskey clients, analysis of Siskey business accounts, and ultimately an interview with Siskey himself in December 2016.  Siskey committed suicide shortly after the December 2016 FBI interview, and a later-unsealed FBI affidavit concluded that "Siskey is operating what is commonly referred to as a 'Ponzi' scheme."  

The Bankruptcy

Shortly after Siskey's suicide, several creditors petitioned to have the Siskey Entities involuntarily placed into Chapter 7 bankruptcy.  Joe Grier was appointed as Trustee over the Siskey Entities.  In reports to the Bankruptcy Court, Grier has stated that "the Trustee and his professionals are of the opinion that [the Siskey Entities] were each operated as part of a Ponzi scheme."  But Grier also recognized that Siskey did have some legitimate investment ventures, including various business lines and investment deals that were not part of the Ponzi scheme.  This includes Siskey's apparent realization of nearly $20 million in returns from participation in a securities offering relating to Carolina Beer & Beverage Holdings, LLC.  Siskey's victims submitted claims to the Bankruptcy Court and the Trustee subsequently approved nearly $37 million in outstanding claims.  

Siskey's MansionSiskey used investor funds for various unauthorized reasons in running his scheme, including paying fictitious returns to other investors and supporting a lavish lifestyle for himself and his family.  For example, Siskey was an avid wine collector whose extensive collection was ultimately liquidated by the Trustee for approximately $1.5 million.  Siskey's antique car collection was also put up for auction, along with his 6,000 square foot mansion and various furnishings including a 5-carat diamond ring.  According to the auctioneer, the auction took place after Siskey's son threw an unauthorized party at the mansion.

Siskey's Life Insurance Policies

But those assets paled in comparison to what may have been Siskey's best investment: the purchase of life insurance policies that made nearly $50 million in payouts to his family after his death.  Those proceeds were the subject of immediate scrutiny following Siskey's death, with the Trustee asserting that they were purchased using stolen investor funds and Siskey's wife disputing that position.  The source of the funds used to purchase and maintain the policies has significant ramifications, as the Trustee has taken the position that those funds belong to the bankruptcy estate and should be used to compensate Siskey's defrauded victims.  Siskey's wife agreed to initially return $11 million of the proceeds to the Trustee, and $10 million of those proceeds were used to fund an initial distribution to creditors that constituted roughly 28% of each investor's approved claim.

Following negotiations with various parties including Rick Siskey's family and MetLife, the Trustee filed a motion seeking approval of a settlement in which Siskey's family would return a total of $33.1 million (which includes the initial $11 million that was paid by the family) in insurance proceeds to the bankruptcy estate in exchange for a release of all claims the Trustee could assert against the family.  MetLife agreed to a similar arrangement whereby it would pay $250,000 to the estate in exchange for a release of claims by the Trustee.  Both MetLife and the Siskey family also agreed to make additional payments to a separate settlement fund in the bankruptcy estate that would be used to pay victims agreeing to release any individual claims they might have against MetLife and/or the Siskey Family, with MetLife agreeing to chip in an additional $750,000 and the Siskey family agreeing to pay another $8.2 million. 

Investors' decision to release the Siskey family and/or MetLife would be completely optional and independent of their ability to participate in distributions stemming from the $33.35 million paid by Siskey's family and MetLife.  The Trustee estimates that investors could ultimately recoup approximately 90% of their approved losses should they agree to release MetLife and the Siskey family.  In the event that investors chose not to release the Siskey family or MetLife, they would receive nearly 70% of their approved losses and be free to pursue MetLife and/or the Siskey family for any additional amounts.  Already, at least some investors have announced their opposition to the settlement because they contend it would be used to "shield the company" from those investors' pending claims against MetLife in state court.  MetLife has characterized those investors' position as "based upon a fundamental misunderstanding of the" proposed settlement and asked the Court to deny the opposition.

Another 'Holy Grail' of Recovery?

It should be noted that the proposed recovery scenarios - i.e., that investors will recover 90% of their investment if they participate in all available recovery options - are contemplated only based on funds contributed in the settlement and do not include their potential to receive additional distributions of funds already marshaled by the Siskey estate.  For example, the Trustee's settlement motion indicates that the Administrator of Siskey's estate has at least $5.5 million in cash on hand (funded in part by the liquidation of Siskey's personal property, cars, and eal estate) as well as other assets that are expected to be converted to cash in the future.  The administrator of Siskey's estate was also included in the Trustee's settlement and agreed in relevant part to pay 100% of the net value of the estate into the Trustee's settlement fund to allow future distributions to Siskey's victims. 

Thus, it is possible - and indeed more than likely - that Siskey's investors are moving closer to the "holy grail" possibility of recovering all of their losses through the efforts of court-appointed fiduciaries.  To date, Ponzitracker is aware of three such scenarios in the past eight years: the Management Solutions $220 million Ponzi scheme, Scott Rothstein's $1.2 billion Ponzi scheme, and David Dadante's $58 million Ponzi scheme. Such an outcome is extremely rare, as it is estimated that the average investor recovery from a Ponzi scheme is less than 10%.   

The common denominator in those rare instances where a 100% (or more) recovery is possible is the existence of a third-party recovery or source of funds that might not otherwise be typically available.  In Rothstein's case, the alleged complicity of a TD Bank vice president led to TD Bank's payment of over $100 million towards the recovery and suits by various investors.  In the case of Dadante and Management Solutions, the existence of other appreciating assets in the receivership estate (and shrewd decisions by the respective receivers) served as a windfall used to plug the gap.  While the pursuit of "net winners" for excess profits is typically the tool most used to generate assets for defrauded victims, it is the availability and identification of third-party recoveries or assets that typically leads to any meaningful recovery.

A hearing on the Trustee's Motion to Approve Settlement is scheduled to take place today. 

A list of top Ponzi recoveries is here.

The Trustee's case website is here.

The Trustee's motion to approve the settlement is here

Article originally appeared on Ponzitracker (http://www.ponzitracker.com/).
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