This recent Illinois case shows you that Ponzi schemes are still going on, even in a post Madoff era. Trustees of family trusts and marital trusts need to be cautious about where they invest trust funds and who they invest with. Trustees or any individual investor who is considering investing money may want to read this trust lawsuit case involving fraud and ask yourself 2 questions: 1) Was this prudent investing on the part of the trustees of the family trust ? 2) Shouldn’t I just invest trust assets with a large trust company ?
Here are the facts:
- Beginning in 2005, a family invested their “life savings” with George, who was a financial adviser
- A family trust was one of the investors
- The largest investment they made with George was at George’s suggestion
- It was a Ponzi scheme
- By 2009, they lost over $ 1 Million
- They sued according to the Financial Industry Regulatory Authority (“FINRA”)
TRUST LAWSUIT GOES TO ARBITRATION
- There was an issue of whether this lawsuit over trust funds would go to court or to an arbitration. Arbitration is often described as “private judging” where one or more arbitrators, sometimes called a “panel”, are making all the rulings and the decisions. Arbitration does NOT guarantee you a judge, or a retired judge, and it is private: you are not in a court of law.
- The parties conducted an arbitration hearing in Chicago, Illinois between May 14, 2013 and May 16, 2013.
- The arbitration panel
- awarded the family $1,207,500
- plus 10% interest beginning on April 14, 2010, as well as
- $400,000 in attorneys fees.
- The family trust was awarded $600,000 and some family members were individually awarded additional sums
DEFENDANT BROKERAGE FIRM APPEALS: claims $1.2 Million arbitration award is invalid
The losing side wanted to set aside the $1.2 Million arbitration award based upon:
- The award was procured by undue means;
- There was evident partiality in the arbitrators;
- The arbitrators refused to hear evidence pertinent and material to the controversy
- And other things
On appeal the $1.2 Million award was upheld.
LESSONS FOR A PRUDENT TRUSTEE INVESTING FAMILY TRUST FUNDS
Here in Florida, many Florida estate planning clients have family trusts. Sometimes they are irrevocable family Florida trusts created for a specific beneficiary, like a child or a nephew. Other times the Florida trust is a revocable trust which one creates during their lifetime, with you, the trust creator, as your own trustee. The Florida trust operates for your benefit during your life and then it “goes” to family members: or in further trust for your beneficiaries or descendants or next of kin who inherit the trust.
Q Who is going to be the trustee of your Florida family trust when you are gone ?
Regardless, here are a few questions which Florida trustees or beneficiaries of Florida trusts may want to think about when it comes to investing, in light of this recent Ponzi scheme case:
- Am I being prudent as a trustee ?
- What does prudent investing really mean ?
- Can a trustee get into trouble or be sued if they invest trust assets poorly ?
- How do I know if what I’m investing trust money in is a Ponzi scheme ?
- What’s the best way for a Florida trustee to invest trust money ?
- What basic steps can a Palm Beach trustee take to avoid Ponzi schemes ?
- If I’m a trust beneficiary of a Florida trust and the trustee loses trust money, can I sue for imprudent investing ?
- How do I recover losses in a trust account ?
- If I’m involved in a trust lawsuit, or a prudent investing lawsuit, or a Ponzi scheme lawsuit, is a court of law better than arbitration ?