New York, NY securities attorney Jenice L. Malecki discusses the legal consequences for individuals and companies involved in affinity fraud or a Ponzi scheme. She explains that investors in affinity fraud or Ponzi schemes can pursue legal action, but it is essential to consider whether there is a “deep pocket” to sue. Without a viable source for recovery, pursuing a case may result in putting good money after bad. She frequently advises clients over the phone that she will not take on cases where she does not believe there is a reasonable chance of recovering funds.

Many Ponzi schemers spend investor money on luxury cars, expensive homes with high mortgages, or transfer funds overseas, which complicates recovery. It is important to investigate whether a broker-dealer, bank branch, or other party had oversight responsibilities and could have intervened to prevent the scheme.

The consequences for the Ponzi schemer include both civil and criminal liability, often involving the SEC. When the SEC becomes involved, a receiver is typically appointed to distribute any recovered funds on a pro rata basis. She references the well-known Madoff case as an example of effective receiver management. However, she notes that this is not always the case in every Ponzi scheme. When a receiver is in place and no broker-dealer is involved, it is generally advisable to follow the receiver’s actions closely.