The legal architecture of recovery.
A. The securities-fraud spine and secondary liability
Regional-center interests are generally securities, so Section 17(a), Section 10(b), and Rule 10b-5 anchor both SEC enforcement and private claims, reaching not only the promoter but also those who directed or substantially assisted the fraud; registration violations can add enforcement exposure and, at times, rescission.17
B. State blue-sky and common-law claims
Alongside the federal spine sit state securities statutes and common-law claims — fraud, negligent misrepresentation, breach of contract, and breach of fiduciary duty. These are the workhorses of the non-fraud middle of the spectrum, where there is no need to prove scienter but only a broken promise or a violated duty to enforce.
C. The receiver's standing and the cleansing of the entity
Once a court appoints a receiver, the wrongdoer is displaced, and the entities are free to pursue their own claims on behalf of innocent investors; in pari delicto “loses its sting when the person who is in pari delicto is eliminated.”18 The receiver holds the entities' claims — not investors' direct claims — which is why the direct-versus-derivative line drawn in Section V resurfaces here.
D. Fraudulent transfer and clawback
Money paid out before a collapse can be recovered as a fraudulent transfer; in Ponzi recoveries, the Ninth Circuit's netting rule makes a net winner's fictitious profits recoverable while a good-faith net loser retains principal.19 Applied evenhandedly, clawback spreads a limited recovery among all victims rather than rewarding those who exited first.
E. Third-party and gatekeeper liability
The deepest pockets are rarely those of the fraudster. Banks that moved the money, brokerages that held the accounts, and lawyers and accountants who vouched for the deal can face substantial exposure — as Jay Peak's settlements, which dwarfed anything recoverable from the principals, demonstrate.20
F. Choosing the vehicle, and reaching across borders
The choice among an SEC receivership, a bankruptcy, and coordinated private litigation shapes everything that follows — who controls the assets, who may sue whom, which defenses apply, and how any recovery is distributed. Because EB-5 money and the people who built the deal are so often offshore, cross-border asset tracing and enforcement are frequently part of the job. That threshold choice should be made deliberately, with recovery rather than control as the goal, because it is very hard to unwind once it is set.
17 Securities Act § 17(a), 15 U.S.C. § 77q(a); Exchange Act § 10(b), 15 U.S.C. § 78j(b); Rule 10b-5, 17 C.F.R. § 240.10b-5. Regional-center interests are generally securities, bringing these antifraud provisions — and control-person and secondary-liability theories — into play.
18 Scholes v. Lehmann, 56 F.3d 750 (7th Cir. 1995) (Posner, J.). A federal equity receiver has standing to assert the entities' claims, not investors' direct claims. Accord Janvey v. Democratic Senatorial Campaign Comm., 712 F.3d 185 (5th Cir. 2013).
19 Donell v. Kowell, 533 F.3d 762 (9th Cir. 2008). Ponzi recoveries apply a “netting rule”: a net winner's fictitious profits are recoverable as fraudulent transfers; a good-faith net loser generally keeps principal. Cal. Civ. Code §§ 3439.04, 3439.08.
20 Third-party recoveries rest on aiding-and-abetting, negligence and professional malpractice, breach of fiduciary duty, and failure to supervise. The Jay Peak settlements with a brokerage firm ($150 million) and a law firm ($32.5 million) show the deepest recoveries often lie with the institutions around a judgment-proof principal.