The position is clear in the United States. Investors who lose money in mutual funds operated as Ponzi schemes when they collapse have a well-grounded expectation that those who took out money before the collapse will be required to pay back what they took out. The money goes to the fund’s trustee in bankruptcy and gets shared between all victims, without distinction between those who got out before the collapse and those who were still in. Two decisions last year in the English common law world suggest the beginnings of a significant divergence between the treatment of Ponzi frauds in the U.S. and in the English common law world. That would be surprising and unwelcome.
The seed of schism was sown in April 2014 when the Privy Council (one of the highest judicial tribunals in England and Wales) remarked in Fairfield Sentry v. Migani [2014] UKPC 9:
It is inherent in a Ponzi scheme that those who withdraw their funds before the scheme collapses escape without loss, and quite possibly with substantial fictitious profits. The loss falls entirely on those investors whose funds are still invested when the money runs out and the scheme fails.
