The Fourth Circuit upheld Milligan’s plan to distribute funds to investors defrauded in a $400 million Ponzi scheme.
With the assistance of his counsel at Husch Blackwell, Milligan prevailed in the U.S. Court of Appeals for the Fourth Circuit after multiple investor groups challenged how the proposed distribution plan allocated recovered funds among claimants.
Milligan, Executive Vice President at Harney Partners, was appointed under seal by the United States District Court for the District of Maryland in September of 2018 at the request of the Securities and Exchange Commission. Prior to his appointment, Milligan tapped Husch Blackwell’s Insolvency & Corporate Bankruptcy team to assist in the recovery operation.
The Harney Partners team deployed its personnel across multiple locations to be present for the pre-dawn raids conducted by law enforcement in several states which included more than 100 FBI agents from Florida to Nevada. At the conclusion of the law enforcement activity, the Harney team took possession of all assets of the receivership estate, which included including 4 operating businesses, 11 real estate assets, 34 vehicles, an interest in an aircraft, as well as many millions of dollars of fine art, watches, and other jewelry. In total, more than 40 entities were subject to the receivership and administration by Milligan and the Harney team.
The distribution plan came after the Milligan and the Harney team operated three of the four businesses for several years to maximize the value of the businesses and returns to defrauded investors. The largest of these businesses owned/administered a portfolio of delinquent/defaulted consumer debt with a face value of $6 billion.
“Typically, in a Ponzi situation there is very little, if anything, to recover for the benefit of investors. The money is simply gone,” said Milligan. “Fortunately for the victims in this case, there were some actual business assets to monetize and the perpetrators were fond of accumulating various luxury goods, which collectively formed the basis of our massive recovery operation. Our team utilized a wide array of skills and experiences to address the challenges presented, including investigative, operational, forensics, transactional, and litigation support, each performed with both time pressures and often less than complete information.”
This matter is one of the largest securities fraud recovery projects in U.S. history following the successful prosecution of defendants Kevin B. Merrill, Jay B. Ledford, and Cameron R. Jezierski by the U.S. government. From 2013 to 2018, Merrill, Ledford, and their co-conspirators and their affiliated entities took in more than $394 million from more than 230 individual investors to purportedly purchase consumer debt portfolios. The fraudsters returned approximately $248 million to investors, churning the monies in Ponzi-like fashion while claiming the returns were the result of profitable debt portfolio collections and sales; however, in reality, the majority of investors (at least 160) lost 50 percent or more of their principal investment, with 74 investors losing 100 percent of their investment.
The Husch Blackwell team, led by partners Lynn Butler, Buffey Klein, and Jameson Watts, with assistance from others in the firm, including boots on the ground in the appointing court in Maryland, helped facilitate all aspects of the receivership including asset monetization, litigation against third parties, and claims allowance which included the distribution plan at the heart of the appeal.
Milligan’s distribution plan was approved by the district court in November 2022 over the objections from two investor groups who opposed the plan’s distribution methodology. After the district court overruled the investors’ separate objections, the plaintiffs separately appealed to the Fourth Circuit, which consolidated the appeals and then affirmed the lower court’s decision.
By some accounts, the investment fraud perpetrated by Merrill and his co-conspirators places among the largest 20 such schemes in U.S. history. Recovery estimates vary, but a typical recovery in the Ponzi setting rarely exceeds 30 percent. To date, all investor victims have received at least nearly 50 percent of their invested capital – and further distributions will be made.
“I’m very proud that our team was able to so successfully and efficiently handle the diverse issues presented in this matter – asset classes, geographies, business operations, forensic accounting and claims management – to not only maximize the value of the estate’s assets, but to create an equitable distribution plan that has been confirmed by multiple levels of judicial review. These are not easy cases, and as the 4th Circuit noted in its opinion, “[W]hen funds are limited, hard choices must be made.””
The Harney Partners team was led by Greg Milligan, Bill Patterson, Jim Keane, Karen Nicolou, Erik White, and Wade Horst.
# # #