Ex-wife may recover assets tied to Ponzi scheme: court

Reuters News
|
Posted: Sep 15, 2011 2:38 PM
Ex-wife may recover assets tied to Ponzi scheme: court

By Jonathan Stempel

NEW YORK (Reuters) - A federal appeals court on Thursday lifted an asset freeze imposed on a woman whose divorce proceeds derived in part from her former husband's alleged $554 million Ponzi scheme.

The 2nd U.S. Circuit Court of Appeals' decision came three months after New York's highest state court ruled that an ex-spouse could keep ill-gotten gains from a former spouse's fraud.

That ruling was a defeat for the government, and could apply to other divorce settlements tinged by a spouse's fraud.

Thursday's decision overturned a Manhattan federal district judge's August 2009 freeze on $7.59 million of assets held by Janet Schaberg, who was once married to Stephen Walsh, a former principal at Greenwich, Connecticut-based WG Trading Co.

Schaberg was not implicated when Walsh and former partner Paul Greenwood were accused in 2009 by federal prosecutors, the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission of running a 13-year Ponzi scheme.

Investigators said the men fleeced charities, pension plans and others that thought they were investing in a program tied to the Standard & Poor's 500 index.

Schaberg's 2007 divorce settlement called for Walsh to pay her $12.5 million biannually through 2020, and for Schaberg to keep $5 million and condominiums in New York and Florida. The $7.59 million asset freeze was obtained by the SEC and CFTC.

In a June ruling, the New York state court, also called the Court of Appeals, said fraud proceeds can constitute marital property, and that "ex-spouses have a reasonable expectation that, once their marriage has been dissolved and their property divided, they will be free to move on with their lives."

The court also said a divorce decree may give an innocent spouse a right to share in those proceeds, so long as that spouse acted in good faith and the distribution is fair.

Applying that ruling, the 2nd Circuit said the asset freeze against Schaberg could not continue, but that the SEC and CFTC could seek a new freeze on "some or all" marital assets. It returned the case to the Manhattan district court.

Steven Kessler, a lawyer for Schaberg, said he was "cautiously optimistic" about the case's ultimate outcome.

"The only issue before the 2nd Circuit was the validity of the injunction," he said in an interview. "It is now up to the agencies to negate the presumption that the divorce agreement fairly and equitably distributed the marital assets."

SEC spokeswoman Florence Harmon and CFTC spokesman Dennis Holden declined to comment.

Greenwood pleaded guilty in July 2010 to six criminal charges, and agreed to cooperate in the criminal case against Walsh, who pleaded not guilty. No trial date has been set.

The cases are Walsh v. CFTC and Walsh v. SEC, 2nd U.S. Circuit Court of Appeals, Nos. 09-3742 and 09-3787.

(Reporting by Jonathan Stempel in New York, Editing by Maureen Bavdek)