With its second look at C. Randel Lewis v. Steve Taylor, the Colorado Supreme Court gets to decide an issue of first impression.
On Wednesday, the court heard oral arguments to determine whether an innocent person who invested in a Ponzi scheme, but managed to profit from it, must forfeit those gains under state law. While both sides of Lewis v. Taylor agree that the investor is entitled to keeping the amount of his original investment, the plaintiff says the defendant’s “false profits” must be distributed among the rest of the scheme’s victims.
The issue turns on whether the transfer of the Ponzi scheme profits was void under Colorado Uniform Fraudulent Transfer Act. CUFTA nullifies fraudulent transfers, but it makes an exception if the investor was in good faith and gave something of “reasonably equivalent value.” The Colorado Court of Appeals opened the door for that exception in Lewis v. Taylor and remanded the case, but the state Supreme Court might decide differently.