In a rare move, a credit union that was among the victims duped by a South Carolina man in a $90 million Ponzi scheme has asked a federal judge to order the immediate return of 100% of its loss while the remaining victims have received less than 20% of their losses. The National Credit Union Administration Board (the "NCUA"), as the liquidating agent for the Taupa Lithuanian Credit Union ("Taupa"), filed a motion with U.S. District Judge J. Michelle Childs to order Beattie Ashmore, the court-appointed receiver overseeing the recovery of assets for victims of Ronnie Wilson's Ponzi scheme, to return a $100,000 investment made with Taupa funds pursuant to the Federal Credit Union Act (the "Act"). The Receiver has opposed NCUA's request.
Ronnie Wilson's Scheme
Wilson operated Atlantic Bullion & Coin, Inc., ("ABC") for at least a decade, representing to potential investors that they could realize profits from ownership of silver without having to actually physically possess the silver. To accomplish this, Wilson purported to purchase and warehouse silver on behalf of investors. Investors were told that their silver would be held in safe-keeping at a Delaware depository, and were provided with regular account statements allegedly showing regular appreciation in their holdings. In total, Wilson raised approximately $90 million from over 1000 investors in 25 states.
However, in reality, Wilson used the majority of investor funds not for the purchase of silver, but to perpetrate a massive Ponzi scheme in which "profits" paid to existing investors were simply the re-distribution of incoming investor funds. While investors were told that Wilson kept nearly $17 million of silver at a Delaware depository, they later discovered that the depository had never heard of Wilson. Of the $90 million raised from investors, authorities and the court-appointed receiver have since pegged investor losses at approximately $60 million. The receiver previously forecast a dim possibility of a meaningful recovery. Wilson was sentenced to a 19-year prison term.
Last month, U.S. District Judge Childs approved the Receiver's request to make a 19% initial distribution to scheme victims using funds gathered as a result of his efforts. The amount and number of future distributions will be dictated by the Receiver's success in marshaling additional assets whether through litigation or asset sales. Ponzi scheme victims historically are lucky to recoup more than pennies on the dollar of their losses.
One of Wilson's many victims was John Struna, who allegedly fraudulently obtained $25,000 on four separate occasions from NCUA that he subsequently transferred to ABC as a $100,000 investment. The Receiver disclosed that his investigation showed that Struna had received nearly 50 transfers into his accounts through the assistance of former Taupa CEO Alex Spirikaitis. Following discovery of the fraud, the NCUA filed a lawsuit against Struna and was granted the right to attach a claim Struna could file with the Receiver for the right to participate in victim distributions.
While the NCUA agreed that it was entitled to equally share in distributions with other Wilson victims "at a minimum," it argued that the Act afforded it the power to recover its entire $100,000 investment immediately without any consideration as to its stature with other victims. NCUA pointed to the interplay between two provisions of the Act: first, the provision under 12 U.S.C. § 1787(b)(16)(A) allowing the liquidating agent could recover any fraudulent transfers made within five years of its appointment, and second, the section in 12 U.S.C. § 1787(g) providing that:
Except as provided in this section, no court may take any action, except at the request of the Board of Directors by regulation or order, to restrain or affect the exercise of powers or functions of the Board as a conservator or a liquidating agent.
In essence, the NCUA argued that the receivership court was without jurisdiction to restrain or otherwise hinder its ability to recover the $100,000 fraudulently transferred from Taupa to ABC. Couching the argument in public policy terms, the NCUA also argued that the recovery of the $100,000 by the federal insurance fund served a public purpose in maintaining a strong, healthy, self-sustaining federal insurance fund. Finally, NCUA suggested that the receiver was required to exhaust his administrative remedies in the Ohio district court action governing the Taupa receivership.
The Receiver saw NCUA's claims a different way. First, he pointed to the well-known maxim that a receivership court sits in equity and argued that the court should take into account the bad acts and fraud committed by NCUA through its former CEO Spirikaitis. The receiver then took issue with NCUA's claim that 12 U.S.C. § 1787(g)'s provision stripped the receivership court of its power to affect the distribution, noting that NCUA itself had requested authority from the Ohio district court to "file a claim against Ronnie Gene Wilson." The receiver's brief makes the distinction between the NCUA requesting authority to file a claim with the receiver (which happened) and the NCUA requesting that the Ohio district court order the receiver to file a claim as to his right to the money (which did not happen). Finally, while NCUA points to purported administrative remedies the receiver is required to follow as a creditor, the receiver points out that he is not a creditor and in fact NCUA's brief acknowledges that he is a debtor of the NCUA. In any event, the receiver argues, he has never been afforded notice of the administrative process touted by NCUA.
NCUA's motion remains pending before the receivership court. Similar requests to that made by NCUA are not uncommon as victims often point to their supposedly disparate or different standing with other victims to justify advantageous treatment. However, courts frequently exercise their equity powers in denying such relief. NCUA's request, while similar in the general sense to these requests, is unique in that it draws on the interplay between a federal credit union liquidation and a federal equity receivership. Indeed, this statutory framework appears to be isolated to credit unions as similar requests do not appear in the context of financial institutions holding claims. Nonetheless, NCUA's request still seeks to benefit itself at the undeniable expense of other less fortunate victims - many elderly and perhaps less able to withstand such a loss than a federally-insured credit union. Further, a result in NCUA's favor undermines a court's ability to exercise its equity powers in ensuring that victims receive equal treatment.
NCUA's Motion and the Receiver's response are below.