You Can't Cheat an Honest Man - James Walsh [150]
In February 1991, Jobin removed M&L’s inventory from its warehouse. Over the next several months, she opened and inspected more than 700 computer boxes. Most of them contained only bricks and dirt or hardened foam.
In September 1991, Jobin started suing people. In time, she filed over 400 adversary actions—against everyone from the Ponzi perps to investors who got money out, lawyers who gave advice and banks that made foolish loans. Rarely has there been a better example of fighting like hell in bankruptcy court.
In March 1992, a federal grand jury handed down a 41-count indictment against the M&L principals and a handful of confidantes. In announcing the indictments after a year-long investigation, law-enforcement officials credited each other for cooperation among federal, state and local agencies. In July 1993, the indicted M&L officers and employees drew federal prison terms of various lengths for what the sentencing judge called a “scam from day one.”
None of this did very much for Jobin. She tried to claim all rights to sue the M&L Ponzi perps. This effort resulted in a legal tangle with some people who loaned M&L money. From its opening remarks, the court seemed soured by the tone of the proceedings:
Rarely does the Court have the displeasure of reviewing such antagonistic pleadings wherein at times counsel on both sides lost sight of the issues.
In the case, some of the people who’d loaned money to M&L argued that their claims against the perps were not assets of estate and, therefore, that Jobin had no standing to absorb their claims.
Jobin argued that the Bankruptcy Code weighs in favor of allowing only a trustee to pursue these claims so that all similarly situated creditors will be treated alike. This meant that only she had the right to pursue any action against the M&L Ponzi perps. The investors countered that Jobin would only have the rights she claimed if there were voidable transfers for her to recover. Because she was not claiming that the property in the hands of the perps belonged to M&L, she had to get out of their way.
The court sided with the lenders, allowing them to proceed with their own claims against the perps. Jobin simply redirected her efforts.
In December 1992, she sued Gregory Lalan, an investor who’d gotten some money out of the scheme. Jobin wanted Lalan to give back money which he’d received from M&L during the year preceding its bankruptcy petition. The bankruptcy court ruled in her favor and order Lalan to return $409,476, plus costs and interest. He appealed.
Lalan had owned a dry cleaning business since 1975. He was a conservative businessman. For years, he’d had a line of credit secured by the business, but he’d never used it; he owned his home, free and clear. In the summer of 1989, a friend told Lalan about investment opportunities available with M&L. He suspected the promised returns, telling the friend that “there was no way to make money that quick without a catch.” But Lalan eventually visited M&L’s offices and—in October 1989—invested $10,000 cash.
Lalan didn’t see any of the contracts in which he was supposedly investing. He didn’t ask for any detailed financial records or statements. Whenever he invested money in M&L, he’d receive two post-dated checks—one for his principal investment, and one for his profit. This process confirmed his understanding that he faced no risk.
However, Lalan could not always cash the checks on the dates they matured. Sometimes he was told to hang on to the checks a few extra days. He became suspicious after about six months—but continued to participate because the returns were so good.
The bankruptcy court concluded:
[Lalan] ignored his own initial intuition and plunged headlong into the scam because of the huge profits he was promised, and which he received. Is it reasonable to expect profits of 125 percent to 512 percent? Especially when there is supposedly “no risk” for the investment? Is it reasonable