When Ponzi schemes collapse and enter into bankruptcy liquidation, bankruptcy trustees assume that conveyances made by the debtor for no consideration are fraudulent conveyances. This Article argues that they are not. Virtually all the assets held by a Ponzi scheme are held in constructive trust for the victims of the fraud. If victims of the fraud can trace the proceeds of their investments into property transferred to a third party, the third party holds the asset transferred in trust for the relevant victim. When a bankruptcy trustee characterizes the asset as a fraudulently conveyed asset, the trustee expropriates the asset from the victim on behalf of the unsecured creditors of the Ponzi scheme. There are only two justifications for this expropriation. First, tracing is impossible or too costly. This claim reduces to the theory that a thief should not restore the loot to the victim when it is costly to do so. Second, when the third party points out that the victims (not the bankruptcy trustee) own the cause of action for restoration of the loot, the third party is making an impermissible ius tertii defense. Being estopped from this defense, the third party must surrender the transferred asset to the bankruptcy trustee. This essentially completes the expropriation of victim property for the benefit of the unsecured creditors, who are scarcely entitled to enjoy this stolen property
