Court holds that adviser recommending that its clients invest in Bayou Funds, which turned out to be Ponzi schemes, is not liable for violating Federal Securities Antifraud Statute
Abstract
Purpose
The purpose of this paper is to address the potential liability of investments advisers who recommend investments that are later revealed to be Ponzi schemes.
Design/methodology/approach
The paper considers a recent opinion issued by the United States Court of Appeals for the Second Circuit, as well as a recent enforcement action taken by the United States Securities and Exchange Commission relating to a recent large Ponzi scheme.
Findings
The paper finds that the court held that the investment adviser was not liable for federal securities fraud because the plaintiff failed to prove the investment adviser acted with the requisite state of mind.
Practical implications
The paper highlights potential outcomes for investment advisers when private investors or the government seek to hold advisers liable under various statutes and regulations.
Originality/value
The paper will be valuable to any investment adviser, and particularly to those who recommend investments that are later revealed to be Ponzi schemes.
Keywords
Citation
Cauley, T. and Rauscher, S. (2009), "Court holds that adviser recommending that its clients invest in Bayou Funds, which turned out to be Ponzi schemes, is not liable for violating Federal Securities Antifraud Statute", Journal of Investment Compliance, Vol. 10 No. 4, pp. 23-25. https://doi.org/10.1108/15285810911007363
Publisher
:Emerald Group Publishing Limited
Copyright © 2009, Emerald Group Publishing Limited