PDF: Pam Morgan judgment
The former girlfriend of a local currencies trader who admitted to running a huge Ponzi scheme must forfeit more than $500,000 in cash and gifts that a bankruptcy judge said she fraudulently received during the scam.
The civil judgment issued June 3 against Pamela Morgan is the first court victory for bankruptcy officials who chased a paper trail for more than two years in an effort to recover the funds that Chattanooga-based foreign currencies trader Luis Rivas stole.
At least 30 others who allegedly profited from the scam now are being sued. Chattanooga bankruptcy attorney Cara Alday said the "big win" against Ms. Morgan only will make it more difficult for defendants to make their cases.
"(The defendants) always claimed that this was not a Ponzi scheme and that (Mr. Rivas) was not insolvent" when they received money from him, Ms. Alday said Tuesday. "With this judgment, we'll be able to meet our initial burden of proof easily now in the rest of the cases."
About 500 investors in Chattanooga and across the nation who thought they'd be getting rich in the foreign currencies market collectively lost close to $30 million in Mr. Rivas' scheme that began in early 2007, authorities said.
Mr. Rivas told investors that they would receive returns as high as 60 percent each year. But he invested only 19 percent of the funds, records show, and spent the rest on himself and others such as Ms. Morgan, who supposedly worked for him as one of his foreign currencies traders.
Mr. Rivas used money from new investors to pay fake returns to previous investors.
Authorities caught Mr. Rivas on the run in Kansas in the summer of 2008. At the time an involuntary bankruptcy proceeding against him already was under way to try to recover as much money as possible and minimize damage to investors.
In December, Mr. Rivas pleaded guilty to fraud in U.S. District Court in Chattanooga and is serving a 20-year sentence in a South Carolina federal prison.
Ms. Morgan fought against returning the money and gifts for more than a year before ultimately representing herself in a two-day trial in U.S. District Bankruptcy Court in Chattanooga in late May.
She could not be reached Tuesday for comment.
Evidence at the trial showed that Mr. Rivas in one instance gave her $225,000 in cash after the bankruptcy proceeding already had been filed. Such actions are known as "post-petition transfers" and are prohibited according to bankruptcy law.
Mr. Rivas also bought her a 2008 Volkswagen Toureg in late 2007 for $82,000, an engagement ring worth $11,000 and furniture worth about $10,000. He made other various cash transfers to Ms. Morgan in 2007 totaling about $235,000.
In addition to establishing that Mr. Rivas ran a Ponzi scheme, U.S. Bankruptcy Judge John C. Cook's judgment against Ms. Morgan indicates the businessman was insolvent by April 2007.
Judge Cook in his written judgment stated that any gifts Mr. Rivas gave to Ms. Morgan after that date were intended to "hinder, delay or defraud" creditors.