IN a case involving a $255m (£173m) Ponzi scheme targeting Orthodox Jews, a federal appeals court said district judges have the power to block creditors from beginning involuntary bankruptcies against entities put under US Securities and Exchange Commission (SEC) receivership.
Tuesday’s ruling by the US Second Circuit Court of Appeals is a setback for creditors of WexTrust Capital, and could make it harder for other creditors to challenge SEC receiverships.
Investigators had accused former WexTrust executives Steven Byers and Joseph Shereshevsky of conducting at least 60 private placements purportedly to fund commercial real estate ventures, when in fact they were diverting money to themselves or to pay off prior investors. The alleged scheme involved some 240 affiliates in the United States, the Middle East and Africa. In 2008 the SEC won a court order to freeze WexTrust assets, block creditors from filing their own bankruptcy petitions, and appoint a receiver authorised to handle any WexTrust bankruptcy case as a Chapter 11 trustee. That court later gave creditors a limited right to file an involuntary bankruptcy, but the creditors appealed.
City A.M. Reporter