An ABI Committee Newsletter
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| Vol 12, Num 2 | June, 2026
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by Kathy Bazoian Phelps,
Raines Feldman Littrell LLP, Los Angeles
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Bankruptcy mediation in Ponzi scheme cases presents a uniquely difficult challenge: Not only are there too many claimants chasing too few assets, but those claims are often emotionally charged and morally complex. The situation becomes even more fraught when some investors manage to withdraw funds before the collapse — sometimes recovering their principal or even profits — while others receive nothing.
This uneven landscape creates a sharp divide. “Net winners” (those who withdrew more than they invested) may face clawback claims, while “net losers” seek recovery from a depleted estate. Each side believes it has a compelling legal and equitable position. Yet the mathematics of insolvency make it likely that a purely monetary solution will rarely satisfy everyone. In this setting, mediation becomes not just helpful, but essential.
Why a
Cash-Only Approach Falls Short
In Ponzi scheme-related bankruptcies, the available assets are almost always insufficient to make victims whole. Even a trustee’s aggressive litigation — pursuing fraudulent transfer claims or third-party recoveries — does not guarantee full recovery and often consumes significant time and expense.
Meanwhile, the investors’ interests extend beyond dollars. Net losers may prioritize speed, certainty and a sense of fairness in the distribution process. Net winners, who may have acted in good faith, often seek to limit litigation expense and exposure, protect their reputations and achieve closure. Trustees, receivers or other estate representatives must balance maximizing recovery with minimizing administrative costs and delay.
Read Full Article Online →
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by Randy Nussbaum,
The Cavanagh Law Firm, Phoenix
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Many years ago, a senior and eccentric lawyer advised me that even experienced lawyers do not appreciate how timing impacts all aspects of our lives, both professionally and personally. Once I embraced this concept, I started extending it to all aspects of my life, particularly to the timing of mediation.
With very few exceptions, the goal of mediation is to settle the case. With that being said, how does the timing of mediation come into play?
Here Are the Ways in Which Timing Is Crucial to the Success of Mediation
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- If requested too early, the following problems arise.
- You might not have sufficient information to demonstrate why your position is supportable. You might not know enough about your adversary's case, and the other side might be in the same position.
- You might send a message that you are unwilling to litigate, or that your position is weak and you don't want to expose it. Interestedly enough, this might be actually be an excellent reason to push for early mediation., but you have to accept the impression that you could leave.
- The other side may feel emboldened by not having had to spend substancial monies to advance his/her views.
- The mediator may be hampered in the process by lack of
information.
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- If you wait too long, you have to deal with the following:
- Both sides may have spent too much to be able to settle.
- Something may have occured during the course of the litigation prompting the parties to have hardened their stances.
- Information may have been added to complicate any possible settlement.
- A party's ability to fund a settlement might have been impaired by the passage of time.
- The liable party could use the delay to secrete assets or engender certain planning strategies.
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