Flanders Fraud set up a corporation named the Fraud Foundati…
Flanders Fraud set up a corporation named the Fraud Foundation, Inc. to operate a ponzi scheme. Under the scheme, Flanders would promise extremely high returns in order to persuade investors to invest their life savings with the Fraud Foundation. In order to keep the scheme going, the Fraud Foundation would use the money from later investors to pay off the earlier investors. Ultimately the scheme collapsed and the defrauded investors filed separate class actions against both Flanders and the Fraud Foundation in state court. The Fraud Foundation suit has not yet been set for trial. The suit against Flanders did go to trial and the jury found that Flanders had engaged in fraud and awarded damages against him and in favor of the investor plaintiffs. Last week, one of the investor-plaintiffs garnished Flanders’s bank account. Both Flanders and the Fraud Foundation immediately filed petitions under Chapter 7 of the Bankruptcy Code. In the Fraud Foundation Chapter 7 case, the claims of the investors: