CFTC v. 3M Employee Welfare Benefit Association Trust I
712 F.3d 735
| 2d Cir. | 2013Background
- Ponzi scheme operated by Greenwood and Walsh over ~13 years, commingling funds via WGTC and WGTI and misrepresenting returns to investors.
- Receiver Robb Evans appointed in 2009 to marshal assets and propose distributions to defrauded investors.
- District court approved a pro rata, net-investment distribution plan for an initial $815,000,000 recovery, with no inflation adjustment for the initial distribution.
- CFTC/SEC jointly endorsed net investment pro rata approach, arguing it best returns to all victims given commingling and Ponzi structure.
- 3M Benefits Group sought a prudence premium for WGTC investors and KCERA sought an inflation adjustment; district court rejected both and approved Receiver’s plan.
- This appeal concerns whether the district court abused its discretion in approving the pro rata plan and denying inflation/ premium adjustments.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a prudence premium was warranted | 3M Group argues WGTC investors deserve premium for regulation. | Walsh/Greenwood and receivers argue all victims similarly situated; no premium justified. | No; plan upheld, no prudence premium awarded. |
| Whether inflation adjustment is required for long-term investors | KCERA seeks inflation adjustment to protect long-term investors. | Plan should be inflation-neutral at initial distribution given insufficient funds. | No; district court did not abuse discretion in not applying inflation adjustment. |
| Standard of review for district court’s distribution decision | Credit Bancorp supports broad equitable discretion for pro rata distributions. | Discretionary decision could be abused if misapplied. | Abuse of discretion not shown; district court acted within range of permissible decisions. |
Key Cases Cited
- SEC v. Credit Bancorp, Ltd., 290 F.3d 80 (2d Cir. 2002) (net investment pro rata distribution appropriate for Ponzi scheme victims; equitable authority to treat victims alike)
- In re Madoff Investment Securities LLC, 654 F.3d 229 (2d Cir. 2011) (trustee discretion in distributing assets in Ponzi scheme cases; avoid defrauder’s whim controlling unwind)
- SEC v. Enterprise Trust Co., 559 F.3d 649 (7th Cir. 2009) (layered/disparate distributions not necessarily improper; distinguishing custodial vs. managed accounts)
- Till v. SCS Credit Corp., 541 U.S. 465 (2004) (time value of money considerations in appropriate contexts; bankruptcy context cited)