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June 22, 2010 2:11 PM

Nine West Founder in the Clear Over Ponzi Investment

Posted by Zach Lowe

Here's an interesting question: If a high-level business executive and investor recruits you to invest in a particular vehicle--praising the vehicle's high returns and otherwise talking it up--can you sue that investor if the vehicle turns out to be a Ponzi scheme?

The answer, according to a federal judge in Florida: A big, emphatic no. That's good news for Jerome Fisher, a Palm Beach resident that the shoe mavens among our readership may know as the cofounder of Nine West. Fisher convinced Salomon Melgen, a West Palm Beach doctor, to invest in the infamous $194 million KL Group Ponzi scheme. Jung Bae Kim, the scheme's ringleader, is currently serving an 18-year prison term, according to the Daily Business Review, an Am Law Daily sibling publication. Kim promised investors annual returns of 125 percent to 150 percent in hedge funds that turned out to be bogus, according to the paper. 

Fisher was an early investor, and Melgen claimed in a suit (originally filed in state court) that Fisher lied to Melgen about making money through the KL scheme in order to get Melgen to invest, the DBR reports. Melgen now claims he lost $15 million in the scheme, the paper reports, and he has sued both a bank that controlled his investment money and Fisher. 

The suit has been a no-go at all stages, the DBR says. Courts have ruled that the bank merely executed trades and account withdrawals and deposits, and thus can't be held liable for the Ponzi fraud. And a federal judge recently ruled that Melgen can't sue Fisher, since investors in a Ponzi scheme generally can't sue each other. (Also not helping: Records that show Melgen began investing with Kim before Fisher started pumping up Kim's funds, the DBR reports). 

Fisher's lawyer, Jeffrey Schneider, says the case cements an important precedent that investor-victims can't go after each other in court, something Fisher said would create chaos, the DBR reports.

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