When NITA faculty Peter Weidman happened to mention to us that he’d just prevailed in a $2.45 million bankruptcy case in federal court last month, it was a nice little tickle to our antennae here at “Asked and Answered.” We suspected he’d make for a lively interview, and as you’ll see, he didn’t disappoint. Peter and his wife, Debra Banks Weidman, head up their own firm in Philadelphia, where Peter concentrates his practice on commercial litigation, employment law and litigation, and executive compensation—and teaches at NITA deposition and trial skills programs in Philadelphia every chance he gets. Read on to learn more about how a Ponzi scheme operates and what it took to win big at trial. Congratulations, Peter!
I’m not going to lie to you, Peter: when I read about your case, it was so complicated I literally had to sketch out a relationship chart just to grasp the rudimentaries. For our readers checking out this blog post during a quick break at work, how would you summarize the case in a snappy, thirty-second elevator pitch?
Sure, let me give it a try. Ira Pressman pretended to be in the business of buying and selling overstocked and damaged inventory that retailers can’t sell in the ordinary course—the sort of stuff that may end up in stores like Five Below or the Dollar Store. He would tell his victims that he had a seller and buyer of such inventory lined up, that the deal was “pre-sold,” and that if the person loaned his company the funds to make the purchase, he would split the profit with the person when the company received payment from the buyer in about ninety days. In fact, however, the underlying transactions were fictional, and instead of using the person’s money to buy inventory, he used it to repay earlier loans made on the same basis while siphoning off a portion for himself. Over the course of five years, the Ponzi scheme flourished and grew, and nearly $50 million in “deal loan” money flowed through the company in this manner. When the scheme ultimately collapsed, the company was forced into bankruptcy, and the victims of the scheme filed proofs of claim against the bankruptcy estate that totaled more than $8 million. Ira Pressman surrendered to federal criminal authorities, pleaded guilty to wire fraud and other crimes, and is now serving an eight-year sentence in a federal prison.
The bankruptcy trustee hired my firm and the firm of Banks & Banks as special litigation counsel to pursue a lawsuit against the accounting firm and its partners who provided services to Mr. Pressman and his company. These services included keeping the company’s books for three years, preparing tax returns for five years, and preparing compiled financial statements for three years. The books, tax returns, and compiled financial statements gave the false appearance of a healthy, growing company, when in fact the company was just a vehicle for the scheme, incurring ever-increasing amounts of fraudulent debt. Mr. Pressman showed some lenders the misleading tax returns and financial statements prepared by the defendants, allowing him to raise additional money and permitting the scheme to continue and grow.
We contended—and the jury concluded—that the accounting firm and two of its partners aided and abetted Mr. Pressman because they were “willfully blind” to mounting evidence of the Ponzi scheme. In addition to aiding and abetting, the jury found the accounting firm and three of its partners liable for negligence, breach of fiduciary duty, and deepening the company’s insolvency. The compensatory damages of $1.95 million awarded by the jury included the approved proofs of claim filed against the bankruptcy estate by “net losers” of the scheme, professional fees and expenses incurred by the estate, and the accounting fees paid by the company to the defendants. The jury also awarded just over $500,000 in punitive damages.
How was that? I guess it works if the elevator ride was a long one! [Note: It is—if we’re in the Burj Khalifa in Dubai!]
How many years did Pressman operate the Ponzi scheme without detection? What was the exact point that led to his downfall?
He operated the scheme for about five years before it collapsed. The downfall was caused because Ponzi schemes, by definition, must grow and expand in order to survive. The more money Mr. Pressman borrowed, the more he had to borrow from “new” lenders in order to repay the earlier loans with the interest he had promised. Eventually, he was unable to keep up and started defaulting on loan agreements and bouncing checks before being forced into bankruptcy and turning himself in.
I recall from reading about Bernie Madoff’s racket that early investors in a Ponzi scheme sometimes come out ahead, which helps propel and grow the scheme, and it’s the later investors who tend to lose their shirts. Is that what happened here? Were there any early winners whose success unwittingly led to later investors suffering huge losses?
Yes, that is correct. In a Ponzi scheme, there are “net winners” and “net losers.” Net winners are people who, in the aggregate, took more money out than they put in. Net losers are people who put more money in than they took out—and typically, the net losers in a Ponzi scheme invest late, shortly before the scheme collapses. In this case, the scheme collapsed in late 2010/early 2011. All of the net losers were people who invested in late 2009 and 2010.
Can you give me a range, from the least to the most, the plaintiffs lost in the Ponzi scheme?
The approved proofs of claim for the “net losers” range from about $50,000 to about $350,000, and total more than $2 million.
How long did you actively work on the case?
About five years. We were initially engaged shortly after the scheme collapsed by a group of Ponzi scheme victims. We were later approached by the bankruptcy trustee to represent her, and were formally engaged with bankruptcy court approval in the summer of 2012.
What was the greatest challenge of trying this case? What was the most important turning point of the case for you?
The greatest challenge was convincing the jury to look beyond Mr. Pressman and his wrongdoing, and to conclude that, as outrageous as his conduct was, and as much as he deserves to be in prison for what he did, he had help, and could not have committed the Ponzi scheme without this help.
$2.45 million is some mad cheddar. How many plaintiffs will share it, and how confident are you that the plaintiffs will receive their due?
Mad cheddar, huh? You’re making me hungry.
There is only one plaintiff—the bankruptcy trustee—but money that she recovers as a result of the verdict will be distributed, with bankruptcy court approval, to the people who have approved proofs of claim in the bankruptcy, primarily including the “net losers.” We intend to recover the entire amount of the verdict.
Did it surprise you to learn that fellow lawyers had been played by a Ponzi scheme?
Not really. Mr. Pressman was a non-practicing attorney himself. He was very persuasive, and his victims were mostly his close friends and colleagues, including some of his law school classmates.
Big litigations and trials are exhausting and demanding both professionally and personally. What practices or habits do you rely on to stay well, healthy, and happy?
I exercise regularly; play piano and guitar; spend as much time as possible with my wife, family, and good friends—and occasionally indulge in a glass of single malt Scotch.
This was a substantial victory for your client and, by extension, you. How do you like to celebrate a big win?
I guess we’re back to the Scotch again . . . .
Will we be seeing you teach at any NITA programs this year?
I certainly hope so. I normally teach the deposition and trial advocacy programs in Philadelphia in the fall.
Why do you teach for NITA?
I enjoy it. It’s fun—and I always learn something new, whether from fellow faculty members or from students. And I like the CLE credit!
How did you first come to associate with NITA?
I worked at the Defender Association of Philadelphia in the late 1980s. I was asked to teach for NITA in the early 2000s by former colleagues from the Defender’s office, Mary DeFusco and Phillipe Restrepo, who were running a NITA trial advocacy program.
What’s your motto?
I don’t have a motto . . . but I do believe that life is about relationships . . . professional relationships, like those I developed at the Defender Association years ago and at NITA . . . and personal relationships with family and friends. When those relationships are meaningful and in balance, I am happy and productive.
Enjoy this interview? Find more of our “Asked and Answered” interview posts with NITA personalities here on The Legal Advocate.
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