You Can't Cheat an Honest Man - James Walsh [123]
In the criminal case, Trippet and Home-Stake executives Harry Fitzgerald and Frank Sims were charged in a 10-count indictment with defrauding investors of almost $100 million. In May 1976, they pleaded no contest to charges of mail fraud and conspiracy. The three men spent one night in jail and received probation. Trippet also paid a $19,000 fine and, as a result, was widely described as the “mastermind” behind “one of America’s greatest Ponzi schemes.” (Later in 1976, Norman Cross—who had been Home-Stake’s auditor—became the only person to go to trial on criminal fraud and conspiracy charges related to Home-Stake. He was acquitted.)
The civil lawsuits continued to churn along. During the early 1980s, more than $20 million in claims against Home-Stake were settled by insurance companies for several of the law firms that had advised Trippet and his colleagues.
According to William Wineberg, a San Francisco attorney who filed the original lawsuit in the case, collection efforts concentrated on the insurance companies that provided liability coverage for Home-Stake’s accounting firm, Cross & Co., and law firm, the defunct Kothe & Eagleton of Tulsa.
In February 1991, attorneys for three insurance companies asked the court to reconsider its ruling. The insurance companies—Continental Casualty Co., American Home Assurance Co. and Federal Insurance Co.—were liable for $56 million of the total $132 million judgment. And that number could increase to more than $74 million as post-judgment interest mounted during the appeals process.
The ruled that it “found no just reason for delay in entering the judgment.” So, the insurance lawyers appealed.
In 1994—six years after the initial class-action verdict—the U.S. Supreme Court ruled in another case that federal securities law does not permit a plaintiff in a civil lawsuit to make an aiding-and-abetting claim. The court concluded that this issue, common to Ponzi scheme lawsuits, was more appropriately addressed in criminal court.
The Home-Stake class-action case, which was a civil action, had made an aiding-and-abetting claim. The appellate court hearing the defendants’ appeal was bound by the Supreme Court’s new precedent. Accordingly, in January 1996, a the Tenth Circuit decided to send the case back—again—for re-trial.
Norman Cross’ longtime attorney, B. Hayden Crawford, who had been with the case since September 1973, said that “we feel the decision is correct and do not anticipate it will be changed.” He said he was “anxious for a re-trial” even after almost 23 years.
Likewise, the lawsuit has been a long road for wealthy investors who lost large amounts of money, another investor attorney said. “Many of the original investors are dead, so we are dealing with their children and grandchildren.”
This was part of the reason the parties were willing to settle. And they did so in 1996. According to lawyers familiar with the case, the amount of the settlement was close to the $56 million due from the three insurance companies.
Who Can Keep Ponzi Money?
Forget all the jokes you’ve heard about the definition of chutzpah. Few people are as brash as Ponzi perps...and those near or dear to them...determined to keep the money they’ve taken from trusting investors. Like case studies in a psychology textbook, these people will often convince themselves that the money is rightly theirs.
Luckily, the law—or at least the part of the law that deals with fraud— doesn’t put much stock in psychology. The 1995 federal appeals court case Scholes v. Lehmann dealt with some complicated issues of who can pursue whom in the wake of a collapsed Ponzi scheme. In the case, the receiver for several companies ruined by a Ponzi perp brought fraudulent conveyance actions against one of the investors, the perp’s former spouse and several religious organizations. All of these people or groups had received funds from the ruined companies.
The court of appeals ruled that the receiver had standing to assert the fraudulent conveyance claims. The people who’d received