$50M Restitution Order in Ponzi-Scheme Plea Overturned

SAN FRANCISCO (CN) – A federal court erred in ordering a Bay Area investor to pay $50.3 million in restitution and forfeiture for his role in a Ponzi scheme, the Ninth Circuit ruled.

John A. Geringer and his co-conspirators Christopher A. Luck and Keith E. Rode raised money for a privately held investment fund called GLR Growth Fund that they claimed returned 17 to 25 percent on investments. The fund supposedly was able to do this because it invested “in companies tied to the S&P 100 and 500, NASDAQ, and Dow Jones stock indices,” according to the original complaint.

But the money actually went into privately held companies and was used to pay back previous investors, with the conspirators pocketing the rest — a typical Ponzi scheme.

Geringer pleaded guilty to conspiracy and mail and securities fraud, but the U.S. District Court gave him permission to appeal his sentence within 14 days. Luck and Rode, who were not parties in the current case, pleaded guilty to the same charges. Luck received a sentence of 130 months in prison and was ordered to pay $33.2 million in restitution whereas Rode received 70 months in prison and was ordered to pay $32.9 million in restitution.

On appeal, the Ninth Circuit wrote in a unanimous, unpublished opinion that the trial court erroneously calculated the loss caused by Geringer’s fraud.

“Geringer argues that the district court improperly refused to consider the value of the investment fund’s remaining assets for the purpose of calculating loss,” the panel wrote.

It rejected this argument without making factual findings, believing that the remaining assets did not apply to the case.

“This is incorrect. A victim’s loss should be offset by the victim’s benefit for the purpose of calculating loss under the Sentencing Guidelines,” the panel wrote. “Under this principle, the district court was obligated to determine the actual value, if any, of the fund, and to deduct that value from the amount of loss.”

The panel remanded for new calculations.

But it rejected Geringer’s requests to apply revised loss tables retroactively and transfer the case to a new judge.

U.S. Circuit Judge John B. Owens, in a one-sentence concurrence, stated: “I concur with the understanding that on remand, the district court ultimately may impose the same sentence, restitution, and forfeiture so long as it provides a more robust explanation as to how it calculated these amounts.”

William Michael Whelan Jr., who represented Geringer at the trial level, said he was pleased with the result. Jay Nelson represented Geringer before the panel and declined to comment Tuesday. A representative from the U.S. Attorney’s Office also declined to comment Tuesday.

In addition to Owens, the panel consisted of U.S. Circuit Judge Stephen Reinhardt and District Judge Salvador Mendoza Jr., from the Eastern District of Washington, sitting by designation.