Allocating Loss in Securities Fraud: Time to Adopt a Uniform Rule for the Special Case of Ponzi Schemes

The global financial crisis precipitated a condensing of capital and a fall in global equities markets that not only resulted in the necessity of government bailouts of the financial industry, but also exposed a number of Ponzi schemes that collectively will cost investors tens of billions of dollars. With a new wave of litigation by innocent investors against Ponzi scheme operators just beginning, and likely to take years to finish, it becomes important to clearly identify the methodologies used to value the loss and allocate existing assets among the remaining creditors. To that end, this Article argues that courts ought to use a comparatively new approach— the loss to the losing victim methodology originally pioneered in criminal law—to determine how equally innocent victims share the losses these schemes precipitated. By standardizing the calculation of loss to investors in both criminal and civil law, the courts will make the determination of loss not only considerably easier but also more equitable.