The Expert Podcast

With any kind of fraud investigation that we do, one of the first things we look for is who makes up the total pool of potential liability for recovering from that fraud. If you're a victim of a Ponzi scheme, the Ponzi schemer—whoever it is—may have some assets to be recovered from. Maybe the Ponzi schemer has a bank account, real estate, or vehicles, and you definitely want to go after those assets. But many times, in a Ponzi scheme, fraud, or scam, the person or company directly behind it doesn't have all the money available to pay back all the victims.

So, third-party liability, nominee trustees, or other legal theories are often used to recover funds for victims. If you're a victim, you want to make sure that whatever investigation is being performed for your scam or fraud is looking at all the deep pockets that can pay back the money. If you only go after the primary actor, there might not be enough funds to go around. Remember, we're not attorneys and we're not giving legal advice—you want to get good legal advice from a qualified law firm if that's what you need. But as you're looking at this, make sure that whoever is working on your case—whether it's an attorney, a private investigator, or an agency—is looking at these third parties.

Remember the Scott Rothstein case in Florida or even the Bernie Madoff case in New York? The victims in those cases got back almost all their money—100 cents on the dollar. The reason why? Third parties, mostly banks, were claimed against to get back the money.

And here we go again with FTX—the major crypto scam that people have been reading about for weeks and days. It’s going bankrupt, and there are billions of dollars at stake—$20, $30, even $50 billion, depending on how you add it up. The primary source of that fraud, allegedly Sam Bankman-Fried, may not have all that money to go around. So, already, there are attorneys suing and looking for third parties. In one case, they're going after the Golden State Warriors because they received endorsements from FTX, calling it the "official cryptocurrency platform."

If you're a major NBA team and you say, "This is our official cryptocurrency platform," you may have liability to pay back unrecovered losses to victims—and they are being sued. In other cases, some celebrity endorsers—Tom Brady, Shaq—are now being sued by victims. Liability may depend on whether it's deemed a security, and it also hinges on whether compensation was disclosed.

We've seen this in other fraud cases where celebrities or even advertisers were held responsible. There was a case involving a real estate scam that paid for ads in The Wall Street Journal, and The Wall Street Journal had to give back the money they were paid for those ads—and even come out of pocket for more.

Another famous case is the Jeffrey Epstein case. Victims and accusers are suing Deutsche Bank and JP Morgan, claiming that the banks facilitated these crimes. There’s a legal theory you’ll hear often called "extending the fraud" or "enabling the fraud." Even if you are a third party distant from the fraud, if you accidentally enable it because you did not do proper due diligence, attorneys can often look at you as a source of recovery for victims.

So, make sure that when you're doing an investigation, you're not just looking at assets belonging to the fraudster or scammer. You need to get a list of potential third parties who can step in with "fill-in-the-gap" funding if the scammer is unable to make you whole as a victim. Now, it's up to your attorney and the court to decide how much comes from each party, if any, but you need to at least have that information to present.

A lot of times, attorneys won't do this on their own, and the courts won’t take the initiative either. So, you need to make sure you bring it forward. Not all third parties may end up being liable, and all of this is alleged at this point with FTX. But if it can be shown that they knew about the fraud, should have known about it, or even if they didn't know but failed to follow best practices, they could still be held accountable.

For example, in the Scott Rothstein case, there was a bank that allowed the scammer to open up accounts without filling out the proper paperwork. It was just an administrative error—a paperwork problem. But the court ruled that if the bank had done its due diligence and required the fraudster to complete the paperwork correctly, the accounts wouldn’t have been opened, and the fraud wouldn’t have grown as large as it did.

So, always look at third parties. Are they accountants? Salespeople? Employment agencies? Even landlords? There have been cases where landlords were sued because they allowed a fraudster to rent space in their building. Cast a wide net when looking for possible deep pockets, then let the legal side sort out who owes what and who is liable for what.

If you're a victim, don't despair if it seems like the fraudster or scammer doesn’t have all the money. Others may be held accountable and required to contribute. Also, remember that these third parties often have insurance policies. Many times, as soon as a legitimate professional company—like the Golden State Warriors—gets a notice of a claim, their insurance company steps in and says, "We’ll just put a policy limit on the table," because they don’t want to get dragged into fraud cases, discovery, depositions, and everything else.

Sometimes, insurance companies are your best friend because they just want to put the money out there and buy their way out of the problem.