The wages of sin is death. What wages do you get from a Ponzi scheme?

The kind you can't access any more.

People who worked at Stanford Group Company found that out the hard way. Their employer, we now learn, paid them with proceeds of a Ponzi scheme. The Fifth Circuit held that funds they claim belong to them will remain subject to a freeze order pending trial on the merits.

The case involved Texas wheeler-dealer Allen Stanford's eponymous Stanford International Bank. For years, SIB paid outsize returns on "certificates of deposit" from its sunny roost on the island of Antigua (having fled there from Montserrat, well before the volcano covered much of the Caribbean get-away with hot lava and ash). As the Fifth Circuit noted, "Stanford should have held assets of greater than $7 billion, but actually held assets of less than $1 billion." Janvey v. Alguire, No. 10-10617, slip op. at 4 (5th Cir. July 22, 2011).

Do the math.

The Securities and Exchange Commission sued to put the Stanford empire into receivership. The district court granted the relief and appointed Richard Janvey the receiver. Mr. Janvey in turn sought to grab funds from accounts in the names of Stanford employees at Pershing and JP Morgan. The district court granted Mr. Janvey's motion for a preliminary injunction freezing the accounts. The court did so despite a pending motion by the employees to compel arbitration, ruling that it could enjoin now and compel (or not) later.

The Fifth Circuit affirmed in December, see Janvey v. Alguire, 628 F.3d 124 (5th Cir. 2010), and last week, the panel affirmed again, but this time it held that it lacked jurisdiction to decide whether the district court should have compelled arbitration

The interesting thing? The court ruled that the very fact the employees worked for and got wages from a Ponzi scheme implied that they would run off with the money and never pay it back if the court lifted the freeze order:

Here, the Receiver provided evidence of a massive Ponzi scheme and proof that each individual received proceeds from the fraudulent scheme. This is sufficient to prove the likelihood of each individual removing or dissipating the frozen assets but for the preliminary injunction.

Janvey, slip op. at 22.