Update (February 23, 201): Imagine some scenarios: (1) You own “cabins” in Colorado, you sell “one-week stays” to others, and you sell 200 “one-week stays” in your “cabins” although you only have 100 one-week slots; or (2) You do not own any cabins in Colorado, you nevertheless sell “one-week stays” to others, and you sell 200 “one-week stays” in your non-existent cabins or (3) How about you start with a legitimate business, slide into plan #1, and then get piggy and add plan #2?
You might think of the first scam as an “oversold participation.” There’s a real asset or value that you’re peddling, but you’re over-peddling. The second scam is an out-right “fictitious participation.”
Apparently, a fellow named Corey Johnston was entering into both kinds of deals with Minnesota banks in the early 2000’s through an entity called First United selling interests in commercial loans rather than cabins or phantom cabins.
So, when the entire enterprise collapses and the authorities seize a pot of money from the bad guy to redistribute to creditors, insufficient to refund all the money to all of the victims, should courts treat all of the members of the “oversold participations” and the “fictitious participations” the same?
Do we treat the earliest victims the same as the latest? What if we view the earliest victims as more innocent (having less reason to doubt the scheme’s legitimacy)? The later victims could have googled “fake cruddy cabin” + “bad guy” and they’d have avoided victimization? What if some folks in the “oversold participations” actually got some time in the cabins (again, with the metaphor (work with me))? Are they treated the same as everyone else?
What if some of the cabins were uninhabitable and unfortunate suckers only stayed a day or two and immediately demanded refunds? What if some got refunds or partial refunds? Can the authorities seize those back to be redistributed pro rata among all the victims? Do some recover less money because they actually got to “enjoy” the cabins for a little? What if there were several cabins, some nicer than others, and one actually very nice? In other words, what if our bad guy also ran some legitimate deals? So maybe some of the money was not “ill-gotten gains” but was actual legitimate income?
What if our bad guy borrowed money to buy some cabins and paid lenders back with money from the bad guys “oversold participations” and/or “fictitious participations”? Does that money that our bad guy paid lenders when he was scamming or semi-scamming get “clawed back” for pro rata distribution among all of the victims?