The taxpayer realized gains of $1.3 million from periodically placing funds with a rogue ("Lech") who, it was later discovered, had not invested the funds in options trading but instead used them in a ponzi scheme. The taxpayer made periodic payments to Mr. Lech, who would in return issue approximately nine weekly post-dated cheques for (in aggregate ) a larger amount, which he then honoured with the exception of the last such transaction.
In finding that the net gains of the taxpayer were income from a source, Sharlow J.A. stated (at para. 46):
[The taxpayer] is not being taxed because she profited innocently from a Ponzi scheme. She is being taxed because she entered into a series of agreements with Mr. Lech to receive a profit on her investments with him, and she received what she bargained for. The fact that Mr. Lech funded her payments with the proceeds of a Ponzi scheme is irrelevant.
Regarding the taxpayer's contention that Ponzi schemes cannot be a source of income because the are "by their very nature, doomed to collapse," Sharlow J.A. stated (at para. 43):
A Ponzi scheme may well be a source of income for some participants during some part of its existence. This case suggests how that could be so. Hypothetically, if Ms. Johnson had made her payments to Mr. Lech knowing that he would use the money to operate a Ponzi scheme, she would have profited exactly as she did in the years in issue in this case, 2002 and 2003.