For two years rumours have swirled that a syndicator operating in Ireland is a Ponzi scheme. It has given partial financial information to the media to secure good headlines, threatened legal action when newspapers have questioned it and used eyebrow-raising financial engineering in at least one case.

Legal professionals have spoken of "genuine fraud" and forgeries. They said allegations of Ponzi schemes, of the sort run by convicted financier Bernie Madoff, dressed up as legitimate investment syndicates, are "an open secret". However, when the syndicator in question has asked the banks to give it more money it has been accommodated.

Now it faces a new problem. Rumours are swirling around the Four Courts that a slew of people are planning to sue the syndicator for using power of attorney on their behalf to invest in schemes that have suffered heavy losses.

"These things abound at the moment," said solicitor Bill Holohan of Holohan and Associates. "You have a lot of schemes where a syndicator takes in money and, to make things easy, offers power of attorney."

Some of these standardised agreements are so broad in their remit that few limits were placed on what the syndicator could do in the investor's name.

"There have been cases in the courts where [the syndicator] uses the power to borrow beyond the terms of the investor agreement, but with the authority of power of attorney," said Holohan.

Those investors are not alone: other, similar cases are winding their way towards the courts. Power of attorney and its use by investment schemes is set to emerge as a major issue in the coming months, possibly causing millions in further losses for the banks and, in turn, the taxpayer.

The lack of proper paperwork at the banks, and the often shoddy nature of it even when it existed, has already been exposed by Nama. According to legal sources we are now moving into the next phase.

In some cases investors thought recourse was limited to the asset, but it has emerged that this wasn't always included in the terms of the loans agreed with the bank. It happened particularly in relation to capital allowances and the end of the tax year, when "people were rushing things, people thought they'd be in and out quickly", one source said. "You'd have to question the enforceability of that. People trusted them to get it right."

Holohan said banks would have advanced money on the basis of power of attorney because the agent would have made the necessary legal representations. "The bank will sue the grantor, who will have to pay up on demand," he said.

However, in cases where the bank's documentation is poor, the bank may have to back off. Holohan said he knew of one case where an investor's signature had actually been forged. He said it was an "open secret" that some banks did not follow due diligence and that missing signatures and incorrect dates were routine. The impact is obvious.

"If they were told it was non-recourse then its validity has to be questioned. Can the bank rely on it? All of the documents will have to stack up in progress. If one document falls out of the loop, where does the bank stop? Can they rely on the person behind it? These guys are men of straw. The buck should stop there unless they were misrepresented," a source said.

The simple reality is that many people were chasing lower tax bills and simply didn't take the necessary steps to ensure the limits of their exposure. "The rich gave swathes of money to them", often without question and without proper checks and independent legal advice, sources said.

"You have to ask whether the investors should have let somebody sign them up to massive non-recourse facilities."

The view is that banks may settle the cases. "Banks are going to have to take a view on the documents and the use of power of attorney. Were they valid?," one source said. If they find there were mistakes then, once again, with almost all of Ireland's financial system nationalised, it will be the Irish taxpayer left paying for mismanagement by others.