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Eleventh Circuit Affirms Arbitration Dismissal in Favor of Investor’s Estate in Clawback Suit

The receiver of hedge funds that were part of a $168 million Ponzi scheme was unable to vacate an arbitration award denying clawback claims brought against an investor’s estate. The US Court of Appeals of the Eleventh Circuit rejected the receiver’s argument that the clawback claims were exempt from arbitration.

In January 2009, Burton Wiand was appointed the receiver of six hedge funds that were part of a Ponzi scheme orchestrated by Arthur Nadel. Nadel managed the hedge funds, all of which were undercapitalized, for approximately ten years before the Securities and Exchange Commission brought an emergency enforcement action and Wiand was appointed as a receiver to manage and preserve the assets of the funds. Wiand proceeded to bring clawback actions to recover “false profits” from hedge-fund investors and redistribute them to those who came up short. As part of this, Wiand filed such a claim against Herbert Schneiderman (now deceased), who was among the profitable investors. Schneiderman’s estate moved to compel arbitration based on an arbitration clause in an agreement that governed Schneiderman’s investment in one of the hedge funds. The district court granted that motion, and subsequently, the arbitrator granted summary judgment to the estate, which was thereafter affirmed by the district court. The receiver then appealed the district court’s decisions compelling arbitration and denying a motion to vacate the arbitration award.

The receiver argued in part that the receivership statute, 28 U.S.C. § 754, precluded arbitration for clawback actions, pointing to purported conflicts between the arbitration and the laws governing distribution of assets, like in a receivership or bankruptcy. Noting a “liberal federal policy” in favor of arbitration, the court of appeals held that the receivership statute did not give the district courts complete jurisdiction and control over receivership properties, but rather granted that control to the court-appointed receiver without establishing a special method by which, or an exclusive forum where, the receiver is to exercise that authority. Consequentially, the court found no inherent conflict between arbitration and the underlying purposes of receiverships in clawback actions, and ultimately, affirmed the district court’s decision.

Wiand v. Schneiderman et al., No. 14-11203 (11th Cir. Feb. 10, 2015).

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