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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

Thomas Cauley (Associate at Sidley Austin LLP, Chicago, Illinois, USA)
Scott Rauscher (Associate at Sidley Austin LLP, Chicago, Illinois, USA)

Journal of Investment Compliance

ISSN: 1528-5812

Article publication date: 20 November 2009

167

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

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Emerald Group Publishing Limited

Copyright © 2009, Emerald Group Publishing Limited

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