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ERIC Number: EJ936066
Record Type: Journal
Publication Date: 2011
Pages: 58
Abstractor: ERIC
Reference Count: 0
ISSN: ISSN-0896-5811
The Rise and Fall of a Ponzi Scheme: The Ideal Illustration of the Law and Ethics of the Federal Bankruptcy Code
Benson, Sandra S.; Chumney, Wade M.
Journal of Legal Studies Education, v28 n2 p273-330 Sum-Fall 2011
The news is rife with Ponzi schemes--named after Charles Ponzi, who enticed investors with promissory notes paying an above-market return. Ponzi schemes present a unique opportunity to bring to life a federal Bankruptcy Code by illustrating the requirements for commencing a voluntary or involuntary bankruptcy case, the broad avoidance powers of the trustee to recover assets into the bankruptcy estate, and the distribution of the estate and the concrete effects of being a secured versus an unsecured creditor in a bankruptcy proceeding. Like the investors, students might be surprised to learn that undergraduates who were given money by a fraudster can be sued by the trustee and forced to repay the gifts for tuition and living expenses. It is this fact that makes Robert McLean's case a particularly engaging example for use in a business law course. This article describes a class exercise based on the McLean case that simulates for students the experience of investing in a Ponzi scheme. Through this exercise, students recognize that, just as in the infamous Charles Ponzi scheme, all schemes must eventually collapse, and those who are diligent to discover the fraud and demand a refund before its collapse will not be protected by the bankruptcy law. The authors review the infamous Charles Ponzi scheme and subsequent bankruptcy issue that was decided by the U.S. Supreme Court. Then, they continue with a review of the federal Bankruptcy Code and the powers of bankruptcy trustees to reclaim assets from victims and others on behalf of creditors. The ethics of such powers is also discussed. Next, they review the facts of the Robert W. McLean scheme. Finally, they describe the teaching methods, including a simulation and case study, enabling an instructor to teach the legal issues and ethics encountered in bankruptcy law utilizing the McLean scheme. (Contains 242 footnotes.)
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Publication Type: Journal Articles; Reports - Research
Education Level: Higher Education; Postsecondary Education
Audience: N/A
Language: English
Sponsor: N/A
Authoring Institution: N/A