                    FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

JAMES H. DONELL, Receiver for            
J.T. Wallenbrock & Associates
and Citadel Capital Management                  No. 06-55544
Group, Inc.,
                 Plaintiff-Appellee,             D.C. No.
                                               CV-04-09702-ER
                v.                               OPINION
ROBERT KOWELL,
              Defendant-Appellant.
                                         
        Appeal from the United States District Court
           for the Central District of California
         Edward Rafeedie, District Judge, Presiding

                  Argued and Submitted
           December 6, 2007—Pasadena, California

                        Filed July 1, 2008

      Before: Pasco M. Bowman,* Melvin Brunetti, and
                Jay S. Bybee, Circuit Judges.

                    Opinion by Judge Bybee




  *The Honorable Pasco M. Bowman, United States Circuit Judge for the
Eighth Circuit, sitting by designation.

                               7841
                      DONELL v. KOWELL                    7845


                         COUNSEL

Richard D. Ackerman, Temecula, California, for the
defendant-appellant.

Peter A. Davidson, Los Angeles, California, for the plaintiff-
appellee.


                         OPINION

BYBEE, Circuit Judge:

   Robert Kowell found an investment opportunity that
sounded too good to be true. In Kowell’s case, it wasn’t. J.T.
Wallenbrock & Associates (“Wallenbrock”) promised Kowell
a 20 percent return on his investment every ninety days, risk
free, and that is nearly what he got. Because he received regu-
lar interest payments from Wallenbrock, Kowell was quite
surprised to learn later that an SEC investigation had revealed
the business to be a Ponzi scheme in which thousands of
investors had been defrauded. Several years after Kowell first
invested, and long after he had spent his returns, he was
informed by the receiver for Wallenbrock that California law
requires him to pay back all of his gains. Kowell challenges
a judgment requiring him, as an innocent investor, to disgorge
7846                  DONELL v. KOWELL
his profits as fraudulent transfers under the Uniform Fraudu-
lent Transfer Act. He also asks this court to permit him to off-
set any liability by amounts paid in federal income taxes on
his earnings. The district court found that Kowell was liable
to repay $26,396.10, plus pre-judgment interest of $5,159.22.
We affirm.

                               I

                               A

  The Uniform Fraudulent Transfer Act (“UFTA”) as
adopted by California states in relevant part:

    (a) A transfer made or obligation incurred by a
    debtor is fraudulent as to a creditor, whether the
    creditor’s claim arose before or after the transfer was
    made or the obligation was incurred, if the debtor
    made the transfer or incurred the obligation as fol-
    lows:

         (1) With actual intent to hinder, delay, or
         defraud any creditor of the debtor.

         (2) Without receiving a reasonably equiv-
         alent value in exchange for the transfer or
         obligation, and the debtor either:

           (A) Was engaged or was about to engage
           in a business or a transaction for which
           the remaining assets of the debtor were
           unreasonably small in relation to the
           business or transaction.

           (B) Intended to incur, or believed or
           reasonably should have believed that he
           or she would incur, debts beyond his or
           her ability to pay as they became due.
                          DONELL v. KOWELL                           7847
CAL. CIV. CODE § 3439.04(a).1

   Courts have routinely applied UFTA to allow receivers or
trustees in bankruptcy to recover monies lost by Ponzi-
scheme investors.2 See, e.g., In re Agric. Research & Tech.
Group, 916 F.2d 528, 534 (9th Cir. 1990) (“Agritech”);
Scholes v. Lehmann, 56 F.3d 750, 755 (7th Cir. 1995). The
Ponzi scheme operator is the “debtor,” and each investor is a
“creditor.” See Scholes, 56 F.3d at 755 (explaining that
defrauded Ponzi scheme investors are actually tort creditors).
The profiting investors are the recipients of the Ponzi scheme
operator’s fraudulent transfer.

                                    B

   Robert Kowell and his mother Edna were two of the thou-
sands of investors in a Ponzi scheme operated by Wallen-
brock. See SEC v. J.T. Wallenbrock, 313 F.3d 532 (9th Cir.
2002) (detailing the scheme). Wallenbrock promised investors
a 20 percent return in ninety days, by using their money to
provide working capital to Malaysian latex glove manufactur-
ers. Id. at 535-36. Ordinarily, Wallenbrock claimed, these
manufacturers had to wait eighty to ninety days after ship-
ment to collect payments from buyers. Wallenbrock would
purchase these manufacturers’ accounts receivables at a sig-
nificant discount, providing the glove manufacturers with
  1
     Notwithstanding the quoted language above, all courts construing
UFTA state that there is an “or” between subsections (a)(1) and (a)(2).
   2
     A Ponzi scheme is a financial fraud that induces investment by promis-
ing extremely high, risk-free returns, usually in a short time period, from
an allegedly legitimate business venture. “The fraud consists of funnelling
proceeds received from new investors to previous investors in the guise of
profits from the alleged business venture, thereby cultivating an illusion
that a legitimate profit-making business opportunity exists and inducing
further investment.” In re United Energy Corp., 944 F.2d 589, 590 n.1
(9th Cir. 1991). See generally Cunningham v. Brown, 265 U.S. 1, 7-9
(1924) (detailing the remarkable criminal financial career of Charles
Ponzi).
7848                  DONELL v. KOWELL
immediate access to working capital. Wallenbrock investors,
in turn, would enjoy a 20 percent return when Wallenbrock
collected the receivables from glove purchasers in due time.
Id. In reality, the officers of Wallenbrock took the investors’
money and used some of it to pay off earlier investors, some
to pay for personal expenses, and some to invest in risky start-
up companies.

   In January of 2002, the Securities and Exchange Commis-
sion (“SEC”) brought a civil enforcement action against Wal-
lenbrock, alleging that it was engaged in a fraudulent scheme
to sell unregistered securities. Id. at 535. Notwithstanding
Wallenbrock’s characterization of the fraudulent investment
instruments as “notes” (and therefore not “securities” within
the meaning of the Securities Act), we held that the invest-
ment instruments were, for purposes of the SEC’s enforce-
ment action, “securities.” Id. at 537. Wallenbrock was later
placed in receivership and appellee James H. Donell (“the
Receiver”) was appointed receiver.

   On August 24, 2004, Kowell and his mother received a let-
ter from Donell. The letter informed Kowell that Wallenbrock
had been declared a Ponzi scheme, and that Donell had been
authorized by a federal court to recover “profits” paid to
investors. The letter stated that of approximately 6,000 inves-
tors, only 800 had received payments in excess of their princi-
pal investment. The letter claimed that Kowell had invested
“the sum of $ .00,” and had received back payments totaling
$69,546.70. Thus, Kowell had allegedly received a “profit” of
$69,546.70. The letter encouraged Kowell “[t]o take advan-
tage of this one-time offer to settle with the Receivership
estate for 90% of the profit you received” by mailing a check
in the amount of $62,592.03 (calculated as 90 percent of
$69,546.70). The letter also required Kowell to execute an
enclosed Settlement Agreement. It stated in bold letters that
“it is imperative that I hear from you within 20 days from the
date of this letter,” or else “I will proceed accordingly.”
                      DONELL v. KOWELL                      7849
   Kowell replied by letter on August 31, 2004. Kowell stated
that he had no idea Wallenbrock was a Ponzi scheme, and was
in fact dubious that this was the case. Kowell expressed con-
fusion as to how he could be liable to other investors if he had
no idea Wallenbrock was a fraud. Kowell was also confused
about the determination that Wallenbrock “notes” were actu-
ally securities. Kowell pointed out that Donell’s letter claimed
that Kowell’s initial investment was “0.00,” and that this must
be error because Kowell had obviously made some non-zero
investment in order to be eligible for returns from Wallen-
brock. Finally, Kowell’s letter stated that the money received
in payments had been spent long ago, and if Kowell was
required to pay back this amount, close to $70,000, he would
have to declare bankruptcy.

   Donell responded with a letter on September 22, 2004,
which reiterated that Kowell was liable. The letter stated that
“[t]he law in this regard goes back years and years,” but nota-
bly did not cite any legal authority justifying Donell’s
demands. The letter also threatened:

    If you refuse to work out a settlement agreement
    with us, we will sue you and that will be your only
    option. It is not what we want for either you or your
    mother, however. . . . If you hire an attorney, you
    may certainly file a motion to bar the Receiver from
    collecting money from those that profited. Both the
    Receiver and the SEC would file objections and it
    would probably take about $20,000.00 in legal fees
    for you to file such a motion.

   Kowell refused to sign the settlement agreement. By a letter
dated September 27, 2004, he reiterated his utter disbelief that
Wallenbrock was in fact a Ponzi scheme and his outrage that
a good-faith investor in a business could be required to return
his profits years later.

  The Receiver filed a complaint in federal district court on
November 30, 2004. The complaint sought to avoid the trans-
7850                   DONELL v. KOWELL
fers to Kowell as fraudulent and to recover property trans-
ferred under CAL. CIV. CODE §§ 3439.04(a)(1)-(2) and
3439.05. Retreating from his earlier position that Kowell was
liable for $69,546.70, the Receiver now claimed he was enti-
tled to recover $50,431.78. On motion for summary judgment,
the district court found that there were no disputed issues of
fact as to Kowell’s liability under § 3439.04, and granted
judgment for the Receiver. Applying the statute of limitations,
the district court found that the receiver was only entitled to
recover $26,396.10, the total of the payments to Kowell
within the statutory period, plus pre judgment interest of
$5,159.22. The district court made no ruling on whether
Kowell would be permitted to offset his liability by the
amount paid in taxes on those payments or other expenses.
Kowell timely appealed.

                               II

   [1] Although the Receiver only filed suit under a California
statute, we have subject matter jurisdiction because this pro-
ceeding is ancillary to the SEC enforcement action. Wallen-
brock was found liable to its investors and to the SEC under
Sections 10(b) and 15(c)(1) of the Securities Exchange Act of
1934 (and related Rules 10b-5 and 15c1-2) and Sections
17(a)(1), (2), and (3) of the Securities Exchange Act of 1933.
The district court, using its equity powers, appointed the
Receiver to “use reasonable efforts to determine the nature,
location, and value of all assets and property” belonging to
Wallenbrock, “determine the identity of all investors, amounts
invested by investors, and payouts to investors,” and “take
such action as necessary” to identify, preserve, collect, or liq-
uidate Wallenbrock’s assets. The district court authorized the
Receiver to “bring such legal actions based on law or equity
in any state or federal court as he deems necessary” to carry
out his duties.

   [2] The federal securities laws create exclusive federal
jurisdiction over “all suits in equity and actions at law brought
                      DONELL v. KOWELL                     7851
to enforce any liability or duty created by” federal securities
laws. 15 U.S.C. §§ 77v(a), 78aa. The federal district court
properly authorized the Receiver to bring suits under state law
in federal court under ancillary jurisdiction for the purpose of
effectuating its decree of liability against Wallenbrock
because the primary lawsuit against Wallenbrock presented a
federal question. See 28 U.S.C. § 1367; Fed. R. Civ. P. 66. As
the Supreme Court stated in Peacock v. Thomas, “we have
approved the exercise of ancillary jurisdiction over a broad
range of supplementary proceedings involving third parties to
assist in the protection and enforcement of federal judgments
—including attachment, mandamus, garnishment, and the pre-
judgment avoidance of fraudulent conveyances.” 516 U.S.
349, 356 (1996); see also Pope v. Louisville, New Albany &
Chicago Ry., 173 U.S. 573, 577 (1899) (holding that a
receiver appointed to “accomplish the ends sought and direct-
ed” by a suit with a proper basis for federal jurisdiction may
proceed in ancillary jurisdiction on claims with no other inde-
pendent basis for federal jurisdiction); Scholes, 56 F.3d at 753
(holding that federal jurisdiction over a claim under the Illi-
nois UFTA is based on the ancillary jurisdiction of the federal
courts); Tcherepnin v. Franz, 485 F.2d 1251, 1255-56 (7th
Cir. 1973); Esbitt v. Dutch-American Mercantile Corp., 355
F.2d 141, 142-43 (2d Cir. 1964).

   We review a district court’s rulings on summary judgment
motions de novo. Agritech, 916 F.2d at 533. California’s
fraudulent transfer act and the federal bankruptcy code’s
fraudulent transfer provisions are almost identical in form and
substance; therefore, we draw upon cases interpreting both. In
re AFI Holding, Inc., 525 F.3d 700, 703 (9th Cir. April. 16,
2008); Agritech, 916 F.2d at 534.

                              III

  [3] Where causes of action are brought under UFTA
against Ponzi scheme investors, the general rule is that to the
extent innocent investors have received payments in excess of
7852                  DONELL v. KOWELL
the amounts of principal that they originally invested, those
payments are avoidable as fraudulent transfers:

    The money used for the [underlying investments]
    came from investors gulled by fraudulent representa-
    tions. [The defendant] was one of those investors,
    and it may seem “only fair” that he should be enti-
    tled to the profits on trades made with his money.
    That would be true as between him and [the Ponzi
    scheme operator]. It is not true as between him and
    either the creditors of or the other investors in the
    corporations. He should not be permitted to benefit
    from a fraud at their expense merely because he was
    not himself to blame for the fraud. All he is being
    asked to do is to return the net profits of his
    investment—the difference between what he put in
    at the beginning and what he had at the end.

Scholes, 56 F.3d at 757-58; see also In re Slatkin, 525 F.3d
805, 814-15 (9th Cir. May 6, 2008). The policy justification
is ratable distribution of remaining assets among all the
defrauded investors. The “winners” in the Ponzi scheme, even
if innocent of any fraud themselves, should not be permitted
to “enjoy an advantage over later investors sucked into the
Ponzi scheme who were not so lucky.” In re United Energy
Corp., 944 F.2d 589, 596 (9th Cir. 1991).

   Although we previously have not had occasion to prescribe
an analysis for applying UFTA to allow recovery from inves-
tors in a Ponzi scheme, federal district and bankruptcy courts
have adopted a largely uniform practice. In adopting this anal-
ysis, we first describe the theories of liability on which the
receiver may proceed. We then describe a two-step process
for determining the existence of liability and the amount of
this liability.

                              A

  There are two theories under which a receiver may proceed
under UFTA: actual fraud or constructive fraud. Under
                      DONELL v. KOWELL                     7853
§ 3439.04(a)(1), codifying the “actual fraud” theory, the
receiver alleges that the debtor (Ponzi scheme operator) made
transfers to the transferee (the winning investor) “[w]ith
actual intent to hinder, delay, or defraud” the creditors (the
losing investors). “[T]he mere existence of a Ponzi scheme is
sufficient to establish actual intent” to defraud. In re AFI
Holding, 525 F.3d at 704 (internal quotation marks omitted);
Agritech, 916 F.2d at 535. Under § 3439.04(a)(2), codifying
the “constructive fraud” theory, the receiver alleges that the
transfer of “profits” to the winning investor was made
“[w]ithout receiving a reasonably equivalent value in
exchange for the transfer,” because profits gained through
theft from later investors are not a reasonably equivalent
exchange for the winning investor’s initial investment. See
Scholes, 56 F.3d at 757. Proof that transfers were made pursu-
ant to a Ponzi scheme generally establishes that the scheme
operator “[w]as engaged or was about to engage in a business
or a transaction for which the remaining assets of the debtor
were unreasonably small in relation to the business or transac-
tion,” § 3439.04(a)(2)(A), or “[i]ntended to incur, or believed
or reasonably should have believed that he or she would
incur, debts beyond his or her ability to pay as they became
due,” § 3439.04(a)(2)(B).

   In the context of a Ponzi scheme, whether the receiver
seeks to recover from winning investors under the actual
fraud or constructive fraud theories generally does not impact
the amount of recovery from innocent investors. Under the
actual fraud theory, the receiver may recover the entire
amount paid to the winning investor, including amounts
which could be considered “return of principal.” However,
there is a “good faith” defense that permits an innocent win-
ning investor to retain funds up to the amount of the initial
outlay. See CAL. CIV. CODE § 3439.08(a); Scholes, 56 F.3d at
759; Agritech, 916 F.2d at 535. Under the constructive fraud
theory, the receiver may only recover “profits” above the ini-
tial outlay, unless the receiver can prove a lack of good faith,
in which case the receiver may also recover the amounts that
7854                       DONELL v. KOWELL
could be considered return of principal. CAL. CIV. CODE
§ 3439.08(d); Scholes, 56 F.3d at 757. The Seventh Circuit
has suggested that the only practical distinction between these
theories of recovery is the allocation of burdens of proof. See
id. at 756-57. The parties do not dispute that Kowell acted
with good faith at all times; therefore, the issue of who bears
the burden of proof is not before us.3

                                    B

   [4] Drawing from this theory, federal courts have generally
followed a two-step process. First, to determine whether the
investor is liable, courts use the so-called “netting rule.” See
Mark A. McDermott, Ponzi Schemes and the Law of Fraudu-
lent and Preferential Transfers, 72 AM. BANKR. L.J. 157, 168-
69 (1998) (surveying federal district court and bankruptcy
cases). Amounts transferred by the Ponzi scheme perpetrator
to the investor are netted against the initial amounts invested
by that individual. If the net is positive, the receiver has estab-
lished liability, and the court then determines the actual
amount of liability, which may or may not be equal to the net
gain, depending on factors such as whether transfers were
made within the limitations period or whether the investor
lacked good faith. If the net is negative, the good faith inves-
tor is not liable because payments received in amounts less
than the initial investment, being payments against the good
faith losing investor’s as-yet unsatisfied restitution claim
against the Ponzi scheme perpetrator, are not avoidable within
the meaning of UFTA.4 See CAL. CIV. CODE § 3439.04(a)(2)
  3
    Similarly, because the parties do not dispute Kowell’s good faith, we
need not consider the precise definition of good faith. Cf. Agritech, 916
F.2d at 535-36 (stating that a Ponzi scheme investor claiming good faith
must meet an objective standard, and possibly prove that a diligent inquiry
would not have discovered the fraudulent purpose of the transfer, but
declining to determine a precise definition of good faith).
  4
    Under the actual fraud theory, the good faith losing investor is techni-
cally still liable even if his net transactions are negative, because even
                           DONELL v. KOWELL                           7855
(holding that only payments made “[w]ithout receiving a rea-
sonably equivalent value” are avoidable as fraudulent trans-
fers); United Energy, 944 F.2d at 597 (holding there has been
no fraudulent transfer to a good faith investor where a Ponzi
scheme makes payments that total less than that investor’s ini-
tial investment).5

   [5] Second, to determine the actual amount of liability, the
court permits good faith investors to retain payments up to the
amount invested, and requires disgorgement of only the “prof-
its” paid to them by the Ponzi scheme. See In re Lake States
Commodities, Inc., 253 B.R. 866, 872 (Bankr. N.D. Ill. 2000)
(collecting cases). Payments of amounts up to the value of the
initial investment are not, however, considered a “return of
principal,” because the initial payment is not considered a true
investment. Rather, investors are permitted to retain these
amounts because they have claims for restitution or recision
against the debtor that operated the scheme up to the amount
of the initial investment. Payments up to the amount of the
initial investment are considered to be exchanged for “reason-
ably equivalent value,” and thus not fraudulent, because they

payments that total less than the amount of that investor’s initial outlay
were made “[w]ith actual intent to hinder, delay, or defraud [a] creditor of
the debtor.” CAL. CIV. CODE § 3439.04(a)(1). However, because of the
“good faith” defense, that permits an innocent investor to retain funds up
to the amount of the initial outlay, CAL. CIV. CODE § 3439.08(a), the good
faith investor with a net loss will not face any actual liability.
   5
     The application of the netting rule may be more complex in a case
where the relationship between the investor and the Ponzi scheme perpe-
trator changes over time. See, e.g., In re Lake States Commodities, Inc.,
253 B.R. 866, 872 (Bankr. N.D. Ill. 2000) (considering whether to permit
netting of transactions from a period in which the defendant undisputably
acted in good faith with transactions from a later period during which the
defendant may have come to learn of the Ponzi scheme and then continued
to invest, while lacking good faith, to keep the scheme afloat). The parties
here do not dispute that Kowell acted with good faith at all times; we
express no opinion on the application of the netting rule in more complex
cases.
7856                   DONELL v. KOWELL
proportionally reduce the investors’ rights to restitution.
United Energy, 944 F.2d at 595. If investors receive more
than they invested, “[p]ayments in excess of amounts invested
are considered fictitious profits because they do not represent
a return on legitimate investment activity.” Lake States, 253
B.R. at 872.

   Although all payments of fictitious profits are avoidable as
fraudulent transfers, the appropriate statute of limitations
restricts the payments the Ponzi scheme investor may be
required to disgorge. Only transfers made within the limita-
tions period are avoidable. Warfield v. Alaniz, 453 F. Supp. 2d
1118, 1131 (D. Ariz. 2006) (holding that a court-appointed
receiver could not base his claims under Arizona’s UFTA on
transfers that took place outside of the limitations period);
Neilson v. Union Bank of Cal., N.A., 290 F. Supp. 2d 1101,
1145-46 (C.D. Cal. 2003) (holding that plaintiffs could pre-
vail if they could prove at trial that certain transfers made pur-
suant to a Ponzi scheme were made within the limitations
period of California’s UFTA). Once the district court has
identified the avoidable transfers, it has the discretion to per-
mit the receiver to recover pre-judgment interest on the fraud-
ulent transfers from the date each transfer was made. In re
Slatkin, 525 F.3d at 820; Agritech, 916 F.2d at 541-42.
“[P]rejudgment interest should not be thought of as a windfall
in any event; it is simply an ingredient of full compensation
that corrects judgments for the time value of money.” In re
P.A. Bergner & Co., 140 F.3d 1111, 1123 (7th Cir. 1998).

                               IV

                                A

   [6] The district court applied the analysis described above.
The Receiver filed suit against Kowell under both
§ 3439.04(a)(1) (actual fraud) and § 3439.04(a)(2) (construc-
tive fraud). The claim under § 3439.04(a)(1) alleged that
“[t]he payments made to Kowell by Wallenbrock were made
                      DONELL v. KOWELL                     7857
with the actual intent to hinder, delay or defraud Wallen-
brock’s Noteholders,” now the “creditors of Wallenbrock.”
The claim under § 3439.04(a)(2) alleged that “[t]he payments
made to Kowell in excess of Kowell’s Principal Investment
were made without Kowell giving a reasonably equivalent
value to Wallenbrock in exchange for the payments.” The dis-
trict court did not indicate under which theory it granted sum-
mary judgment for the Receiver, although it cited “actual
fraud” cases. See In re Cohen, 199 B.R. 709, 717 (9th Cir.
B.A.P. 1996); In re Slatkin, 310 B.R. 740, 748-49 (C.D. Cal.
2004). Because Kowell’s good faith was not disputed, the dis-
trict court could have granted summary judgment on either
ground. There was no triable issue of fact that Wallenbrock
was a Ponzi scheme, see Wallenbrock, 313 F.3d 532, or that
payments made in furtherance of that scheme were fraudulent
transfers. See In re AFI Holdings, 525 F.3d at 703-04.

   The district court, to determine Kowell’s liability, netted
the amount Kowell received from Wallenbrock against his
initial investment, finding that Kowell invested $22,858.92
and received $73,290.70, for a net profit of $50,431.78. In the
alternative, the court noted that Kowell had admitted in his
own interrogatory answer that he paid taxes on approximately
$50,000 in profits, which was sufficient to establish a net gain
for purposes of proving liability under § 3439.04.

   [7] Kowell argues that the district court erred in admitting
the declaration and report of Samuel Biggs, the Receiver’s
accounting expert, to prove that Kowell netted $50,431.78,
because the declaration and report lacked foundation.
Kowell’s claim fails because the declaration satisfies the
requirements for foundation and expert opinion. See FED. R.
EVID. 703, 705. Samuel Biggs is a certified public accountant,
and his declaration and report were based on accounting
records held by Wells Fargo Bank and one of the scheme per-
petrators. More importantly, any error in admitting the Biggs
declaration would have been harmless, because Kowell admit-
ted in his own interrogatory that he received approximately
7858                   DONELL v. KOWELL
$50,000 in net profits. The netting rule is used not to deter-
mine the amount of liability but rather the existence of liabil-
ity; it requires only a positive net transaction with the Ponzi
scheme. Thus, Kowell’s admission that he netted $50,000 was
sufficient to establish the existence of liability under
§ 3439.04.

   [8] The district court properly limited the Receiver’s recov-
ery to amounts transferred to Kowell within the statutory
period. California’s UFTA has its own associated statute of
limitations. CAL. CIV. CODE § 3439.09. An action under
§ 3439.04(a)(1), for actual fraud, must be brought “within
four years after the transfer was made or the obligation was
incurred or, if later, within one year after the transfer or obli-
gation was or could reasonably have been discovered by the
claimant.” CAL. CIV. CODE § 3439.09(a). An action under
§ 3439.04(a)(2), for constructive fraud, must be brought
within four years after the transfer was made. CAL. CIV. CODE
§ 3439.09(b). The Receiver filed suit on November 30, 2004.
The district court found Kowell liable only for payments
received on December 20, 2000, June 19, 2001, and Septem-
ber 19, 2001, totaling $26,396.10. Thus, although Kowell
actually netted $50,431.78 in total, the district court entered
judgment for $26,396.10, plus pre-judgment interest.

   [9] Kowell argues that the district court should have
required the Receiver to trace the transfers and demonstrate
whether the three payments within the statutory period were
return of principal or profit. He argues that if some of the
transfers from within the statutory period were returns of the
principal which Kowell invested before the statutory period,
these transfers would also fall outside of the statute of limita-
tions. Kowell’s proposed tracing requirement is unsupported
by law and would be unmanageable in practice. We decline
to require such tracing. As with the netting rule:

    [T]he trustee need not match up each investment
    with each payment made by the debtor and follow
                      DONELL v. KOWELL                      7859
    the parties’ characterizations of the transfers. This
    may be the only workable rule in the typical Ponzi-
    scheme case, where documentation of transfers is
    less than complete, payments are sporadic and not
    always in accordance with the documentation of the
    investment, and neither the investor nor the debtor
    can recall precisely what the parties intended.

Lake States, 253 B.R. at 872 (citation omitted). The district
court may presume that the earliest payments received by the
investor are payments against the investor’s claim for restitu-
tion. Transfers in excess of that amount, made within the stat-
ute of limitations, are avoidable as fraudulent conveyances.

                               B

   Kowell offers several theories as to why we should not per-
mit courts to require innocent investors to disgorge net profits
from a Ponzi scheme under UFTA. We address each in turn.

                               1

   First, Kowell argues that UFTA was never intended to
apply to innocent investors in a Ponzi scheme. To support his
argument, he challenges that the text of the statute covers
transfers between “debtors” and “creditors,” not between
early investors and later investors in the same enterprise. In
the same vein, he argues that if all the investors in the scheme
are “creditors” under UFTA, he should be considered a credi-
tor as well, and not, as the receiver argues, a “transferee.” In
other words, Kowell argues that application of UFTA in the
wake of a Ponzi scheme seems to necessitate that all investors
in the scheme be deemed “creditors” but only some are
deemed “transferees,” but that nothing in the text of the stat-
ute dictates this result.

   [10] Kowell’s claim fails because the terms of the statute
are abstract in order to protect defrauded creditors, no matter
7860                    DONELL v. KOWELL
what form a Ponzi scheme or other financial fraud might take.
See Agritech, 916 F.2d at 534 (describing UFTA as one of
“two overlapping bodies of law applicable to [a collapsed
Ponzi scheme] which permit the trustee to recover”); Lake
States, 253 B.R. at 871-872 (discussing numerous cases
applying UFTA in the wake of a collapsed Ponzi scheme).
Laws governing fraudulent transfer have existed for centuries,
as codified (in terms remarkably similar to the current version
of § 3439.04) in the Statute of 13 Elizabeth I. See An Act
Against Fraudulent Deeds, Gifts, and Alienations, 1571, 13
Eliz. c.5, s.2 (avoiding conveyances made with the “Purpose
and Intent to delaye hynder or defraude Creditors”). In con-
struing this early codification, an English court noted, “And
because fraud and deceit abound in these days more than in
former times, it was resolved in this case by the whole Court,
that all statutes made against fraud should be liberally and
beneficially expounded to suppress the fraud.” Twyne’s Case,
76 Eng. Rep. 809, 815 (1601) (Star Chamber).

   [11] In this case, we need not construe the terms particu-
larly broadly in order to see that they apply quite clearly to
Kowell. As we discussed above, when Kowell and the other
innocent victims gave money to Wallenbrock, they were not
actually investors, but rather tort creditors with a fraud claim
for restitution equal to the amount they gave. See United
Energy, 944 F.2d at 595. At that point, Wallenbrock was in
fact a “debtor,” and Kowell and all other innocent investors
were “creditors.” See CAL. CIV. CODE § 3439.04(a). Wallen-
brock then began making payments to Kowell, not because
Kowell’s money had actually been profitably invested, but
because Wallenbrock had the “actual intent to hinder, delay,
or defraud [the other tort] creditor[s],” i.e., the later victims of
the scheme. CAL. CIV. CODE § 3439.04(a)(1). At the point at
which the payments to Kowell exceeded the amount of
Kowell’s claim for restitution, Kowell was no longer a credi-
tor of Wallenbrock. His initial, fraudulently obtained payment
had been restored. Thus, Kowell is incorrect when he argues
that all innocent investors are similarly situated, and that if the
                           DONELL v. KOWELL                           7861
losing investors are “creditors,” then so is he. Once Kowell
has regained his initial “investment,” he is no longer a
creditor—his claim has been repaid. The other victims who
did not receive payments in excess of the initial amount they
were fraudulently induced to put into the scheme are the
“creditors” that UFTA protects.

                                     2

   [12] Second, Kowell argues that the federal securities laws
preempt UFTA, and therefore, because the Wallenbrock
“notes” have been deemed securities, the Receiver may only
sue him for securities fraud, not for restitution as the recipient
of a fraudulent transfer. Federal preemption may be express
or implied. See Montalvo v. Spirit Airlines, 508 F.3d 464, 470
(9th Cir. 2007). Kowell does not cite to any provision of fed-
eral securities laws that would demonstrate express preemp-
tion of state uniform fraudulent transfer law. Federal
preemption may be implied through “conflict preemption,”
when a state law actually conflicts with, or poses an obstacle
to the accomplishment of the purposes of, a federal law, or
“field preemption,” when a federal law so thoroughly occu-
pies a legislative field that there is no room for state action in
that area. See id. Kowell does not suggest how the federal
securities laws might conflict with, pose an obstacle to, or
occupy the field of, state fraudulent transfer laws.6 To the con-
trary, federal securities law expressly creates exclusive federal
jurisdiction to permit enforcement of “any liability or duty”
created by the Securities Act through “all suits in equity and
actions at law” that may prove effective. 15 U.S.C. § 78aa
(emphasis added).
  6
   Kowell’s reliance on Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gil-
bertson, 501 U.S. 350 (1991), and Livid Holdings Ltd. v. Salomon Smith
Barney, Inc., 416 F.3d 940 (9th Cir. 2005), is misplaced. Lampf held that
a private cause of action implied under Rule 10b-5 of the Securities Act
must be brought under the Act’s statute of limitation. 501 U.S. at 359. Pre-
emption was not implicated. Livid Holdings addressed the effects of the
Sarbanes-Oxley Act on Lampf. 416 F.3d at 950.
7862                      DONELL v. KOWELL
   [13] UFTA permits a receiver or trustee to further the pur-
pose of many securities laws by providing recourse to
defrauded debtors.7 The fact that the initial perpetrator may
have been found guilty for securities fraud does not mandate
that actions brought against other participants sound in securi-
ties fraud. The actions against participants like Kowell are
brought to “enforce [a] liability or duty” created by the securi-
ties laws.8

                                    3

   [14] Third, Kowell argues that it is inequitable to apply
UFTA to recover profits he received because he was an inno-
cent victim of the Wallenbrock scheme, just like those whom
UFTA purports to protect. We are aware that it may create a
significant hardship when an innocent investor such as
Kowell is informed that he must disgorge profits he earned
innocently, often years after the money has been received and
spent.9 Nevertheless, courts have long held that is more equi-
   7
     Although in this case bankruptcy proceedings were not initiated, a
common epilogue to a collapsed Ponzi scheme is a bankruptcy proceed-
ing. Once in bankruptcy, federal law authorizes the trustee to bring suit
under both applicable state law and also the fraudulent transfer provision
of the bankruptcy code. See 11 U.S.C. § 548 (the federal fraudulent trans-
fer provision); 11 U.S.C. § 544(b) (authorizing the trustee to recover
fraudulent transfers under § 548 and also applicable state law); United
Energy, 944 F.2d at 593-594 (applying both federal law and California’s
UFTA). Thus, not only do federal securities laws not preempt UFTA, but
federal bankruptcy law expressly permits actions under UFTA. 11 U.S.C.
§ 544(b).
   8
     For the same reasons, we reject Kowell’s argument that the statute of
limitations found in the securities laws applies to his case. The fact that
Wallenbrock was found guilty of securities fraud, aside from supporting
federal jurisdiction in this ancillary proceeding, has no bearing on the
case. The Receiver brought suit under California Civil Code § 3439.04,
and that statute expressly provides a limitations period. CAL. CIV. CODE
§ 3439.09.
   9
     The hardship visited on innocent investors who are later required to
disgorge their profits has been widely reported as yet another common
tragic result of a Ponzi scheme. See, e.g., E. Scott Reckard, You Won, Now
Give it Back, L.A. TIMES, May 20, 2004, at A1.
                       DONELL v. KOWELL                     7863
table to attempt to distribute all recoverable assets among the
defrauded investors who did not recover their initial invest-
ments rather than to allow the losses to rest where they fell.
See Scholes, 56 F.3d at 757 (“[I]t may seem ‘only fair’ that
[the early investor] should be entitled to the profits . . . made
with his money. . . . [However, h]e should not be permitted
to benefit from a fraud at [later investors’] expense merely
because he was not himself to blame for the fraud.”).

   Moreover, pursuant to UFTA, the Receiver is only entitled
to recovery of the amounts above Kowell’s initial investment
transferred within the limitations period. Thus, the statute pro-
tects Kowell in two ways. It allows him to keep the full
amount of his original investment, see Scholes, 56 F.3d at
757, and it shields those “profits” paid to Kowell for which
the statute of limitations has run. According to the Receiver,
in this case approximately 6,000 investors participated in the
Wallenbrock Ponzi scheme, but only about 800 received back
more than their initial investment. It is likely that many of the
other 5,200 losing investors will see only a portion of their
initial investment returned. See McDermott, supra, at 157-159
(explaining that assets recovered after a collapsed Ponzi
scheme typically are insufficient to satisfy claims by
defrauded investors). We see nothing inequitable in the effort
to mitigate the losses suffered by other innocent investors.

                               4

   [15] Fourth, Kowell argues that the Receiver does not have
standing to bring this action against him. Ordinarily, he points
out, a debtor does not have standing to avoid his own transac-
tions. Similarly, he claims that the Receiver cannot represent
the interests of all of the investors because Kowell himself is
an investor as much as any other and yet his interests are
adverse to those of the Receiver. The Seventh Circuit con-
fronted similar arguments in Scholes, in which the defendants
(winning investors) argued that the receiver did not have
standing to sue them because he was “really” suing on behalf
7864                   DONELL v. KOWELL
of the losing investors, as opposed to the corporation. 56 F.3d
at 753. Under bankruptcy law, they argued, “a receiver does
not have standing to sue on behalf of the creditors of the
entity in receivership. Like a trustee in bankruptcy or for that
matter the plaintiff in a derivative suit, an equity receiver may
sue only to redress injuries to the entity in receivership. . . .”
Id.

   Scholes held that, during the operation of the scheme, the
corporations created by the scheme operator were “robotic
tools” of the operator, but nonetheless separate legal entities
in the eyes of the law that were forced (by the operator) to pay
out funds to early investors instead of using the corporation’s
funds for legitimate investments. Id. at 754. Once the scheme
collapsed, “[t]he appointment of the receiver removed the
wrongdoer from the scene. The corporations were no more
[the operator’s] evil zombies. Freed from his spell they
became entitled to the return of the moneys—for the benefit
not of [the operator] but of innnocent investors—that [the
operator] had made the corporations divert to unauthorized
purposes.” Id. We agree with the Seventh Circuit’s colorful
analysis. The Receiver has standing to bring this suit because,
although the losing investors will ultimately benefit from the
asset recovery, the Receiver is in fact suing to redress injuries
that Wallenbrock suffered when its managers caused Wallen-
brock to commit waste and fraud.

                                5

   [16] Fifth, Kowell argues that even if UFTA applies to this
case, he should not be found liable because his initial invest-
ment provided “reasonably equivalent value” in exchange for
the profits he earned in the scheme. See CAL. CIV. CODE
§ 3439.04(a)(2). Despite the intuitive appeal of Kowell’s
argument, we reject it by considering the economic exchange
in a Ponzi scheme.

  UFTA identifies an avoidable transfer as one made
“[w]ithout receiving a reasonably equivalent value in
                       DONELL v. KOWELL                     7865
exchange.” CAL. CIV. CODE § 3439.04(a)(2). Unlike contract
law, which requires only that “adequate” consideration be
given, UFTA requires that, to escape avoidance, a transfer
have been made for “reasonably equivalent value.” The pur-
pose is not to identify binding agreements, but to identify
transfers made with no rational purpose except to avoid credi-
tors. See Scholes, 56 F.3d at 756.

   Payouts of “profits” made by Ponzi scheme operators are
not payments of return on investment from an actual business
venture. Rather, they are payments that deplete the assets of
the scheme operator for the purpose of creating the appear-
ance of a profitable business venture. Id. at 756-57. The
appearance of a profitable business venture is used to con-
vince early investors to “roll over” their investment instead of
withdrawing it, and to convince new investors that the prom-
ised returns are guaranteed. Cf. Agritech, 916 F.2d at 537
(“[Defendant’s] demand for payment explicitly stated that the
payment would induce other investors to transfer funds into
new partnerships [Defendant] was syndicating.”). Up to the
amount that “profit” payments return the innocent investor’s
initial outlay, these payments are settlements against the
defrauded investor’s restitution claim. Up to this amount,
therefore, there is an exchange of “reasonably equivalent
value” for the defrauded investor’s outlay. Amounts above
this, however, are merely used to keep the fraud going by giv-
ing the false impression that the scheme is a profitable, legiti-
mate business. These amounts are not a “reasonably
equivalent” exchange for the defrauded investor’s initial out-
lay.

   In this case, Kowell never actually possessed an interest in
a company purchasing account receivables from Malaysian
glove manufacturers. The investment strategy promised by
Wallenbrock’s officers was a lie to induce Kowell and inves-
tors like him to fund Wallenbrock. What Wallenbrock did was
return to Kowell his own money, plus money from subsequent
“investors,” to persuade Kowell to continue to invest and to
7866                  DONELL v. KOWELL
secure testimonial evidence from people like Kowell to
induce others to invest. Although Kowell was putting real
money into Wallenbrock, and was getting what looked like
real profits in return, in fact he never received “reasonably
equivalent value” for his investment, just cash that was moved
around in an elaborate shell game.

                               V

   Kowell argues that even if he is liable to return amounts in
excess of his initial outlay, he should be permitted to offset
this liability by amounts paid as income taxes on those gains,
bank transfer fees, and other expenses. Kowell argues that
unless these offsets are permitted, he will be forced to pay
back more money than he actually netted from his participa-
tion in the scheme. He argues that UFTA should not be
applied so as to aid other investors in recovering the full
amount of their outlay by forcing Kowell to retain less than
the full amount of his outlay. Kowell cites no authority to sup-
port his position. The cases cited by the Receiver, however,
do not guide us to the contrary conclusion.

   In In re Tiger Petroleum Company, the trustee attempted to
classify certain “investors” who did not actually receive pay-
ments for amounts greater than their initial investments liable
as net-gain investors under the netting rule through the novel
argument that tax benefits those investors received due to par-
ticipation in the scheme should be added into the calculation
of their gains. 319 B.R. 225, 238-39 (Bankr. N.D. Okla.
2004). The bankruptcy court rejected the trustee’s argument
because adopting it might lead to inequitable results, and
could also require courts to consider even more creative
claims as to what “value” investors received. Id. Also, tax
benefits were transfers of value from the federal government,
not from the debtor. Id. In re Tiger Petroleum says nothing
about whether an innocent winning investor may offset his
liability under UFTA for amounts that have been used in good
faith to pay income taxes on his gains.
                       DONELL v. KOWELL                     7867
   The Receiver also quotes In re Acequia, Inc. for the propo-
sition that “[a] fraudulent conveyance cannot be offset against
or exchanged for a general unsecured claim.” 34 F.3d 800,
817 (9th Cir. 1994) (internal quotation and citation omitted).
This quote is taken out of context. In In re Acequia, we stated
that a fraudulent conveyance cannot be offset against a gen-
eral unsecured claim against the debtor. In other words, under
In re Acequia, an investor like Kowell could not offset his lia-
bility to the Receiver for amounts in excess of his initial out-
lay with an alleged claim against Wallenbrock. The principle
behind this is apparent: permitting each winning investor to
offset his profits by a claim against the debtor would defeat
UFTA entirely. Id. (“It would defeat the purpose of the Bank-
ruptcy Act’s provisions relating to fraudulent transfers to
allow [creditors] to offset the value of the property thus trans-
ferred to them by the amount of their unsecured claim against
[the debtor].” (internal quotations and citation omitted) (alter-
ations in original)). This case says nothing about whether an
innocent winning investor may seek an offset against his lia-
bility to the receiver for amounts paid in good faith as taxes
on his gains.

   [17] Kowell’s argument does merit consideration. The pur-
pose of UFTA is to permit the receiver to collect those assets
that can actually be located and recovered in the wake of a
Ponzi scheme, and to ratably distribute those assets among all
participants, including the many investors who lost every-
thing. UFTA accomplishes this by requiring good faith partic-
ipants to disgorge their gains and permitting them keep the
full amount of their initial investment. See Scholes, 56 F.3d
at 757-58. Prohibiting good faith investors from claiming off-
sets for amounts that were paid in good faith as taxes will
mean that some investors, like Kowell, will actually not be
permitted to retain the full amount of their investment. Kowell
argues this exceeds the policy goal of UFTA.

  [18] Nevertheless, three factors lead us to decline to permit
good faith investors to claim offsets for taxes or other
7868                    DONELL v. KOWELL
expenses paid in connection with receipt and management of
income from a Ponzi scheme. First, as Kowell’s argument
suggests, if we permit offsets for taxes, logic suggests we
should also permit offsets for bank transfer fees and other
fund management fees. There would also be no reason to pro-
hibit offsets for the other countless expenses Kowell has
incurred. There is simply no principle by which to limit such
offsets; one could argue that every purchase made with the
gains from the scheme would not have been made “but for”
receipt of that money. If each net winner could shield his
gains in their entirety in this manner, the purpose of UFTA
would be defeated, and the multitude of victims who lost their
entire investment would receive no recovery.

   Second, even if we could limit permissible offsets to a few
areas such as taxes paid, this would introduce complex prob-
lems of proof and tracing into each case. This would severely
reduce the receiver’s ability to effectively gather what few
assets can be located in the wake of a failed Ponzi scheme. In
addition, were we to adopt a tax offset, the amount of the off-
set would depend on Kowell’s tax bracket. Thus, two Wallen-
brock investors, having made identical payments and having
received identical returns, might receive different tax offsets
because of their other financial decisions. Third, we cannot
discern the equity in permitting an offset here, when any tax-
paid credit offered to Kowell must come at the expense of
other Wallenbrock investors. The Internal Revenue Service is
not a party to this suit, and the disappointed investors have no
cause of action to recover those monies from the IRS.

   [19] We thus decline to start down a path we do not recog-
nize. There is no basis in UFTA for Kowell’s offset. Accord-
ingly, Kowell is not entitled in this action to offset his liability
to the Receiver by the taxes (or other expenses) he paid on his
Wallenbrock “profits.” If Kowell believes he overpaid his
taxes for the years he received Wallenbrock “profits,” he may
wish to pursue his remedies with the IRS.
                      DONELL v. KOWELL                     7869
                              VI

   Ponzi schemes leave no true winners once the scheme
collapses—even the winners were defrauded, because their
returns were illusory. Those who receive gains from innocent
participation in the scheme may be required to disgorge those
amounts, long after the money has been spent. Addressing the
victims of the original Ponzi scheme, the Supreme Court com-
mented that “[i]t is a case the circumstances of which call
strongly for the principle that equality is equity.” Cunningham
v. Brown, 265 U.S. 1, 13 (1924). In this case, then, equity
compels that Kowell share some of the hardship equally with
those who lost their initial investment.

   California’s Uniform Fraudulent Transfer Act has treated
Kowell fairly. Indeed, Kowell actually benefitted from the
equitable concerns embodied in UFTA. Kowell “invested”
$22,858.92 into the scheme; Wallenbrock made payments to
Kowell (including the return of his initial “investment”) total-
ing $73,290.70. The Receiver’s original demand letter inaccu-
rately informed Kowell that he owed $69,546.70, and tried to
pressure him to mail a check for 90 percent of that amount,
or $62,592.03, within 20 days or face consequences. Because
Kowell did not succumb to these tactics and instead sought
protection in federal court, the Receiver was forced to con-
cede that Kowell netted only $50,431.78. Further, the applica-
ble statute of limitations limited Kowell’s actual liability to
$26,396.10, plus pre-judgment interest of $5,159.22, for a
total liability of $31,555.32.

   Thus, comparing the total he received, $73,290.70, with the
amount he must return, $31,555.32, shows that Kowell will be
permitted to retain $41,735.38 of the monies Wallenbrock
paid him—for a net gain of $18,876.46 on his initial invest-
ment of $22,858.92 (calculated as $41,735.38 − $22,858.92).
This represents a total return of approximately 83 percent on
his investment, or, an annualized return, over the period of
investment from 1997 to 2001, of approximately 16 percent.
7870                 DONELL v. KOWELL
Most of the scheme’s 5,200 net losers are likely to recover
only pennies on the dollar of their initial investment.

  The judgment is AFFIRMED.
