(CN) - A federal judge approved a proposal to compensate investors in Joseph Forte's multimillion dollar Ponzi scheme.
Judge Paul Diamond of the U.S. Eastern District of Pennsylvania in Philadelphia granted equity receiver Marion Hecht's proposal - even in the face of objections from roughly one-third of Forte's investors - finding that it would benefit the estate.
The Securities and Exchange Commission and the Commodity Futures Trading Commissions brought an enforcement action against Forte, a Broomall, Pa.-based investment manager, alleging that he used his partnership, Joseph Forte LP, to run a scam which dated back to 1995.
Forte was accused of operating an $80 million scam using funds from 80 investors. He admitted to keeping between $10-12 million for himself and was sentenced to 15 years in prison in 2009.
Two groups of investors and two individuals challenged the proposal, partly because the receiver planned to prevent investors from benefiting from equitable distribution unless "false profits" are returned.
But Diamond rejected that challenge, finding that it would be unfair to investors who "had no reason to suspect fraud."
"I will not reward investors with equitable shares if they choose to keep principal they withdrew after they had good reason to believe that Forte's 'investment' regime was dishonest," the ruling states.
The judge likewise rejected a claim that "reckless" investors should be rewarded with equitable distributions as well as the idea that those "who acted recklessly are innocent."
"It is difficult to accept that such a contention is made seriously," Diamond said. "Those investors who, by their reckless behavior, furthered Forte's Ponzi scheme plainly are not 'innocent' and so are not entitled to the same relief as truly innocent investors."
Diamond also approved the methodology used to distribute receivership assets, and found that individualized discovery and so-called "clawback" actions to recover fraudulent disbursements will benefit the estate. The judge also rubbished the claim that the proposal violates the Pennsylvania Uniform Fraudulent Transfer Act.
Diamond also found that the receiver had "standing to assert fraudulent transfer claims as to the estate' assets."
"It is perhaps ironic that, having compelled the estate to respond at length to these baseless arguments, the objectors complain that the receiver's professional fees are too high." Diamond concluded. "These complaints are of a piece with the heated, often unreasoning, resistance with which the receiver and her counsel have been met since their appointment. ... I am acutely aware of the professional costs incurred by the receiver. That the great majority of Forte's Investors have not objected to the receiver's proposals confirms my conclusion that the proposals will likely benefit the estate."