Appeals from the United States District Court for the
Northern District of Georgia D.C. Docket No.
WILSON and JORDAN, Circuit Judges, and MOORE, District Judge.
JORDAN, CIRCUIT JUDGE
1903, Charles Ponzi emigrated from northern Italy to Boston,
Massachusetts, with almost nothing. See Mitchell
Zuckoff, Ponzi's Scheme: The True Story of a
Financial Legend 6-7 (2006). More than one hundred years
later, his surname still frequents the headlines of
America's largest news outlets. See, e.g., Diana
B. Henriques, Madoff Is Sentenced to 150 Years for Ponzi
Scheme, N.Y. Times, June 29, 2009, at A1. Mr. Ponzi is
widely credited with conceiving a fraudulent investment
scheme in which potential investors are lured with promises
of high returns, the fraudsters skim a portion of the
incoming investments, and the remaining funds are redirected
to pay the returns promised to previous investors who are
lulled into believing that the expected returns are being
realized. See generally United States v. Orton, 73
F.3d 331, 332 n.2 (11th Cir. 1996) (outlining the parameters
of the scheme). So long as the fraudsters can attract enough
new investments to cover the returns promised to previous
investors, the scheme can continue.
Ponzi's scheme collapsed after investors were defrauded
of millions of dollars, causing half-a-dozen banks to crash.
See Cunningham v. Brown, 265 U.S. 1, 7-8 (1924).
See also Zuckoff, Ponzi's Scheme, at
198, 295; Mary Darby, In Ponzi We Trust, Smithsonian
Mag., Dec. 1998, at 134-60 (also available at
In the end, those investors only recovered about thirty cents
on the dollar. See Zuckoff, Ponzi's
Scheme, at 106.
century since Mr. Ponzi conned the people of Boston, the U.S.
legal system has improved its response to financial scams.
See generally Eric Lode, Annotation, Judicial
Remedies for Proceeds and Funds from Ponzi Schemes, 100
A.L.R.6th 281 (2014). For example, courts now regularly
appoint receivers to manage the entities used in Ponzi
schemes, collect and sell any assets connected to the fraud,
and distribute the proceeds to defrauded investors. See
Wiand v. Lee, 753 F.3d 1194, 1200 (11th Cir. 2014)
(citing S.E.C. v. Elliott, 953 F.2d 1560, 1567-68
(11th Cir. 1992)). The goal of such receiverships is to grant
fair relief to as many investors as possible. See
Elliott, 953 F.2d at 1566.
appellants in this case are investors who fell victim to a
Ponzi scheme orchestrated by James Torchia. After the
Securities and Exchange Commission initiated federal
proceedings against Mr. Torchia, the district court appointed
a receiver for one of Mr. Torchia's entities. The
receiver proposed a plan to collect and sell assets connected
to the scheme and distribute the proceeds. On appeal, the
investors argue that the district court denied them due
process by employing summary proceedings that did not allow
them to present their claims and defenses or meaningfully
challenge the receiver's decisions. We agree that the
summary proceedings here did not afford the investors due
process, and reverse and remand for further proceedings.
S.E.C. filed suit against Mr. Torchia in 2015, alleging that
he operated a Ponzi scheme through one of his entities,
Credit Nation Capital, LLC. CN Capital and its investors
purchased interests from third parties in life insurance
policies, commonly called life settlement policies. Mr.
Torchia, claimed the S.E.C., used another entity, Credit
Nation Acceptance, LLC, to sell promissory notes with
interests in life insurance policies acquired by CN Capital.
According to the S.E.C., Mr. Torchia commingled funds from CN
Acceptance to cover CN Capital's deficits.
April of 2016, the district court froze CN Capital's
assets and appointed a receiver to facilitate the collection,
sale, and distribution of assets to repay investors defrauded
by Mr. Torchia. The receiver determined that CN Capital had
three categories of investors: (1) investors who loaned money
to CN Capital in return for a promissory note; (2) investors
who purchased life insurance policies in which they were the
sole beneficiaries (the "Direct Investors"); and
(3) investors who purchased fractional interests in life
insurance policies where CN Capital was the beneficiary.
month later, in May of 2016, the district court ruled that
proceeds from the receivership would be distributed pro
rata-i.e., equally among all investors. The district
court also ordered the Direct Investors-who were the sole
beneficiaries of one or more insurance policies-to either (a)
assign their policies to the receiver (because the policies
were serviced with funds comingled from CN Acceptance), or
(b) retain their policies provided they "remit to the
receiver the value of the benefit they have received from CN
Capital," including any so-called "fictitious
profits." D.E. 120 at 11. "Fictitious profits"
included "the amount of premiums paid by CN Capital to
keep the Direct Investors' policies in force, and the
fair market value of other services provided to the Direct
Investors by CN Capital." Id.
and Richard Sutherland were Direct Investors in CN Capital
and the sole beneficiaries of an insurance policy with the
face value of $26, 992 on the life of Jimmy Martin. In June
of 2016 and December of 2016, the receiver sent the
Sutherlands letters demanding that they either assign the
Martin policy to him or remit $25, 820.34 in purported
fictitious profits. According to the receiver, the premiums
paid by CN Capital on the Martin policy totaled $21, 641.71
and the "fair market value of other services"
provided by CN Capital was $4, 178.63. The receiver did not
explain how he had calculated the "fair market value of
other services." The Sutherlands objected, arguing that
their rights were superior to those of the receiver because,
as a contractual matter, the money they paid to acquire the
Martin policy included payment for the premiums and for CN
Capital's servicing of the policy. The receiver responded
that he was acting on the district court's earlier order
to collect CN Capital's assets.
February 14, 2017, the receiver moved for an order requiring
the Sutherlands to file written objections to the assignment
of the Martin policy. The district court allowed the
Sutherlands to file a response to the receiver's motion,
and the receiver replied to the Sutherlands' arguments.
movant, the receiver had the burden to show that the
receivership was entitled to the requested relief. See,
e.g., Evans v. Robins, 897 F.2d 966, 968 (8th
Cir. 1990). Cf. Donell v. Kowell, 533 F.3d 762, 771
(9th Cir. 2009) (discussing a receiver's burden in
recovering false profits); In re Bernard L. Madoff Inv.
Sec. LLC, 454 B.R. 317, 331, 334-35 (Bankr. S.D.N.Y.
2011) (same). Throughout the process, however, the receiver
did not submit any evidence to the district court justifying
his determination that the Sutherlands were obligated to
remit fictitious profits or supporting his calculations of
the fictitious profits. Cf. Wiand, 753 F.3d at 1199,
1204 (affirming summary judgment order that allowed the
receiver to recover "false profits" where the
receiver alleged that the Ponzi scheme paid out investors in
excess of their original investment and provided evidence of
Sutherlands were not permitted discovery on the
receiver's determinations and calculations. Nor, as we
explain later, were they allowed to fully present their
claims or defenses to dispute the receiver's fictitious
12, 2017, the district court overruled the objections and
ordered the Sutherlands to either remit the fictitious
profits claimed by the receiver (i.e., the premiums paid by
CN Capital plus the "fair market value of other
services") or assign the Martin policy to the receiver.
The district court did not explain why the receiver's
fictitious profits calculations were correct. Shortly
thereafter, the Sutherlands assigned the Martin policy to the
the district court was considering the Sutherlands'
objections, additional issues arose between the receiver and
CN Capital's investors. On April 19, 2017, following Mr.
Torchia's consent to a final judgment, the receiver asked
the district court to approve his proposed claims process and
distribution plan. The receiver's distribution plan,
among other things, treated all categories of investors
equally and consolidated each investor's multiple claims
into a single claim. One group of investors-the O'Dell
investors-jointly objected to the proposed distribution plan
and the district court's use of summary proceedings
related to the receivership.
18, 2017, the district court held a hearing on the
receiver's distribution plan, and the O'Dell
investors were allowed to present argument at that hearing.
The O'Dell investors, however, were not permitted to call
witnesses or conduct discovery, and oral argument was limited
to objections to the plan's claims and distribution
process. On August 7, 2017, the district court overruled the
O'Dell investors' objections and approved the
receiver's distribution plan.
Sutherlands and the O'Dell investors separately appealed
the district court's orders. They contend that that they
were denied due process because the district court's
summary proceedings did not provide them with a meaningful
opportunity to present their claims and defenses or to