This CLE course will discuss developments in asset recovery litigation against officers, directors, and outside professionals of distressed or insolvent companies and against banks and other third-party non-professionals alleged to be complicit in or to have otherwise contributed to the losses resulting from Ponzi and other fraudulent schemes, in particular the evolving and complex in pari delicto defense that may bar recovery by trustees, receivers, investors, creditors, and assignees for the benefit of creditors.
When a debtor's fraud or misconduct has led to insolvency and/or bankruptcy, those charged with recovering assets for the estate often sue the debtor's management, lenders, or professionals who were involved in or facilitated the company's misdeeds. A significant defense in such cases is the equitable doctrine of in pari delicto ("of equal fault"), which provides that courts will not help plaintiffs profit from their wrongdoings. Similarly, the Wagoner rule deprives trustees standing to sue those who assisted the debtor corporation in fraud.
This defense has been rapidly evolving in the past few years, and its scope varies by jurisdiction. It was recently applied in Kelley v. BMO Harris Bank Nat’l Ass’n, 2024 WL 4158179 (8th Cir. Sept. 12, 2024), but had gained traction through the Madoff and MF Global litigation.
Nonetheless, exceptions to in pari delicto do exist, such as the non-statutory insider exception and the adverse interest exception. There are even exceptions to the exceptions.
Listen as our authoritative panel offers updates on asset recovery litigation against a debtor's officers, directors, outside professionals, and lenders; on the in pari delicto and related defenses; and on recent trends and developments.
