What is a Receivership?

A receivership is created by a court at the request of the United States Securities and Exchange Commission (the “SEC”) in a securities fraud case involving a sufficiently large number of investors and a sufficiently large enough amount of money.   The SEC typically will ask the court to create a receivership and to appoint a receiver. 

A receiver is an individual who is charged with marshalling the assets of the fraud and holding them in trust for the SEC to distribute them to aggrieved investors once all of the remaining assets are recovered. 

Receiverships often are created in the context of a Ponzi scheme, which is a form of investment fraud where the money of new investors is used to pay earlier investors, making the investment opportunity seem attractive and viable.  Ponzi schemes are always unstable and inevitably collapse and the SEC may bring an emergency action to freeze the assets of the Ponzi scheme before it collapses to prevent the assets from disappearing and to ensure proper distribution of the remaining assets.

The Claims Process

In order to receive a distribution from the receivership, defrauded investors typically must submit a claim with the receiver.  

Claims forms generally ask for information about the investment in the fraud such as the date and amount of the investment(s) along with any supporting documentation about such investments.

There is no standard receivership claim form as the claim form is tailored to the circumstances of each case. 

Receivers often put deadlines on claim submission to ensure that claims are submitted in a timely manner.

Distribution of Receivership Assets

Once the receiver has marshaled the assets from the investment fraud and determined the amount of claims submitted by investors, a plan of distribution is filed with the court. 

The plan of distribution often will identify the individuals who will receive money from the receivership as well as the amount they are to receive.