by Ben Widlanski | December 2018
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Often, when a company or individual is suspected of fraud, either because of a criminal indictment or a civil suit from the SEC or a private individual, the courts will take action to make sure that an “outside” person has some level of authority over the assets or operations of that company.  In these instances, the court will appoint someone to make sure that the assets of the company are sold at maximum value, or the operations of the company are continued so as to add more money to the pot for creditors or other victims of the company’s fraud.

This person is called a receiver, and the company is said to have entered “receivership.”

While the exact duties or powers of a receiver vary significantly from case to case, generally the goal of a receiver is to make as much money as possible on behalf of the entity for whom the receiver was appointed.  Of course, at the end of that day, the money the receiver earns or uncovers will almost always be distributed out to other folks – whether it’s creditors of the company or victims of a fraud.

Receivers are perhaps best understood as stepping into the shoes of the company or entity over whom they were appointed.  That is to say, if a receiver is appointed, the receiver can then sue anyone who the bankrupt company might have been able to sue.  However, any defense that can be asserted against that company can also be asserted against the receiver – that’s why you’ll often see defenses called “in pari delicto” – sometimes conflated with the defense known as “unclean hands” – raised against receivers.  Even though the receiver did nothing wrong, because the receiver has stepped into the shoes of the company, the company’s previous wrongdoing – or “unclean hands” – now belong to the receiver.

In the fraud recovery context, receivers will often hire law firms (either their own law firm or an outside firm) to bring lawsuits against companies or individuals who profited as a result of the fraud.  For example, in a famous case, the “Zeek Rewards” pyramid scheme in North Carolina, the receiver has recovered over $300 million to distribute to the victims of the scam.  Unfortunately, the fraudsters defrauded the victims in that case out of nearly $900 million, so there’s still a big gap.

Indeed, while receivers often obtain significant recoveries for the victims of financial fraud, they are rarely able to recover all, or even most, of the lost money.  However, when a receiver is given authority over a company that was involved in fraud, they are acting on behalf of the judge who appointed them, and they are often able to get at least some money back for the victims.