Some of the 510 people who collectively lost millions of dollars in an alleged local investment scam could become targets of lawsuits themselves.
Former employees and investors say Luis H. Rivas, who is under federal criminal investigation and was forced into involuntary bankruptcy Tuesday, promised fabulous wealth by investing their money in the foreign currencies market.
But of the estimated $31 million he collected over the past year from his office in Chattanooga, it appears Mr. Rivas put only $5 million into that market, U.S. Bankruptcy Trustee Grey Steed said. All the while, court documents show the businessman promised to pay every client monthly returns as high as 10 percent on their investments.
While some investors received those promised payments, others received nothing, according to court records. If any of the payments are deemed to have been made to the detriment of other investors, legal action to recover the money is not out of the question, Mr. Steed said.
“My duties are to protect all creditors equally” according to U.S. bankruptcy law, said Mr. Steed, who was appointed last week by U.S. Bankruptcy Judge John Cook to investigate Mr. Rivas’ finances.
The law states a trustee can take action to recover money distributed in the 90 days preceding a bankruptcy if the debtor was “insolvent,” meaning having more liabilities than assets.
Mr. Steed, however, said his investigation into Mr. Rivas’ financial records still is in the beginning stages. It is too early, he said, to predict under what circumstances certain investors would have to forfeit their returns, if at all.
Once all of Mr. Rivas’ assets are identified, investors will be entitled to collect at least a portion of their money. Mr. Steed said he did not know how long the investigation will take, especially since he is getting “no cooperation from the debtor.” An investors’ meeting has been scheduled for July 10 at 2 p.m. in U.S. Bankruptcy Court in Chattanooga.
A similar case resulted in 155 lawsuits against victims of an investment scam who lost about $100 million to the late Atlanta hedge-fund manager Kirk Wright. He committed suicide in his jail cell May 24.
A federal jury had convicted Mr. Wright just days before his death of mail fraud, securities fraud and money laundering in the wake of evidence he had lied to investors for years about what he was doing with their money. Atlanta attorney John W. Mills III said recovering payments made to certain investors is necessary to “level the playing field” so the money fairly can be returned to all 500 investors who suffered from the scam.
In Mr. Rivas’ case, court documents describe what turned out to be a “classic Ponzi scheme” in which he apparently used money from new investors to pay fraudulent investment returns to previous ones.
The whereabouts of Mr. Rivas have been unknown since mid-May, when he shuttered his Chattanooga office and fired his employees. A multistate federal criminal investigation is ongoing, because authorities said he operated offices here and in Spartanburg, S.C.; Orlando; and Tulsa, Okla. All have closed in recent months.
FBI agents have declined comment on the case, and criminal charges have not been filed.
Mr. Steed has filed only one lawsuit so far, against Mr. Rivas’ wife and two girlfriends, asking that they be barred from accessing money from certain bank accounts. The suit also seeks the return of other assets Mr. Rivas might have given the women, such as vehicles, houses, furniture and jewelry.
Judge Cook has signed a temporary restraining order freezing several accounts owned by Mr. Rivas at various banks.
