Two methods for dividing the same recovered fund among the same claimants produce a different answer to who gets paid, and the choice is made by the court.
Start a conversation with the Forensic Concierge, already scoped to clawback & distribution. Pick a starting point, or describe the matter directly.
Trustees, receivers and examiners are a distinct buyer with a distinct rulebook, and their work divides cleanly in two. Before a fund exists the question is what can be brought back: which transfers are avoidable, who received them, and whether a recipient was the first pair of hands or a later one. After a fund exists the question is arithmetic performed on the historical record — cash in and cash out for every claimant, run through whichever distribution method the court adopts. Those methods are not equivalent. Rising tide counts an investor’s prior withdrawals against their share and so effectively excludes net winners; the net investment or pro rata alternative does not. Same fund, same claimants, a different answer to who is paid.
Six questions, and the first three decide whether there is anything to divide at all.
A trustee under 11 U.S.C. § 548 and, through § 544(b), state statutes with a longer reach-back. A receiver works outside bankruptcy; an examiner under § 1106(b) investigates and reports rather than recovers.
Badges of fraud, and what the transfer record shows about them. The solvency opinion is valuation work and belongs to the Economic Damages Institute.
That transfers made in furtherance of a Ponzi scheme carry actual intent, relieving a trustee of proving badges. Applied in some circuits, rejected in others.
Cash in against cash out, claimant by claimant, rebuilt from the entity’s own bank records rather than from the statements investors were sent.
Who received a transfer first and who received it afterward, which changes both the defenses available and the practical prospect of collection.
Rising tide against net investment, once tracing has failed and the court is dividing a pot rather than identifying particular dollars.
The work a trustee, receiver or prosecutor actually buys.
These are the decisions that determine who is actually paid, and how much.
Firm publications and at least one Law360 article credit Cunningham v. Brown, 265 U.S. 1 (1924) with first recognizing the lowest intermediate balance rule. The opinion never states the rule. It found the money impossible to trace on those facts and refused the analogous trust presumption, saying that to apply it there "would be running the fiction of Knatchbull v. Hallett into the ground." Cunningham is authority for equality of distribution among victims, not for tracing.
No, and treating it as settled is how a clawback strategy goes wrong in the wrong forum. The presumption holds that transfers made in furtherance of a Ponzi scheme carry actual intent to defraud, relieving a trustee of proving badges of fraud transfer by transfer. Several circuits apply it — Janvey v. Brown, 767 F.3d 430, 439 (5th Cir. 2014) is a common anchor. Others have declined: the Minnesota Supreme Court rejected it in the Finn litigation, the Eighth Circuit reached the same conclusion in Stoebner, and the Texas Supreme Court has questioned whether it sits comfortably with the uniform act’s text. The consequence is jurisdictional and large: whether intent must be proved from the record at all.
What each does with money a claimant already received. Under the net investment or pro rata approach, an allowed claim is cash in less cash out, and distributions are made rateably against those claims. Under rising tide, prior withdrawals count as part of what the claimant has already been distributed and are set against their share, so claimants who withdrew more than the eventual percentage receive nothing further — net winners are excluded. The Seventh Circuit upheld a receiver’s use of rising tide in SEC v. Huber, 702 F.3d 903 (7th Cir. 2012). Neither method measures anyone’s loss. Both divide a fund that already exists, which is why the arithmetic sits on this side of the boundary.
No. A damages model asks what the world would look like had the conduct not occurred and prices the difference. A distribution asks how an existing sum is apportioned among claimants under a court-approved method, and every input comes from the historical record. The same holds in criminal matters: loss under USSG § 2B1.1 and restitution are legal-definitional constructs applied to records rather than economic models of harm, and the guideline’s loss definitions moved from commentary into the guideline text by Amendment 827, effective 1 November 2024. Where a matter does need a damages measure, that is a separate question for a separate report — often written by the same practitioner. The boundary is the question, not the person.
Not one bound by the relevant professional standards, and an accountant who reaches for the label anyway has given opposing counsel a cross-examination line. AICPA Statement on Standards for Forensic Services No. 1 reserves that conclusion to the trier of fact and prohibits a member performing forensic services from opining on it; the ACFE Code bars a certified fraud examiner from any opinion on legal guilt or innocence. Both are membership obligations rather than rules of evidence. What survives is nearly everything short of the verdict, because SSFS No. 1 expressly permits opinions on whether evidence is consistent with certain elements: which transfers occurred, in what sequence, from which accounts and to whom, and whether the pattern is consistent with the indicia a court weighs. What it cannot do is characterize the transfers in the statute’s vocabulary, or tell a court what anyone intended.
Describe the claimant population and what has been recovered so far. The Institute will help you see how the methods diverge.