Presenting a live 90-minute webinar with interactive Q&A Ponzi Scheme Clawback Litigation Strategies for Bringing or Defending Trustee Clawback Claims WEDNES DAY, MARCH 14, 2012 1pm East ern | 12pm Cent ral | 11am Mount ain | 10am Pacific Today’s faculty features: Corey R. Weber, Part ner, Ezra Brutzkus Gubner , Woodland Hills, Calif. Ant hony L. Paccione, Part ner, Katten Muchin Rosenman , New Y ork Jesse S . Finlayson, Part ner, Finlayson Williams Toffer Roosevelt & Lilly , Irvine, Calif. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
Conference Materials If you have not printed the conference materials for this program, please complete the following steps: • Click on the + sign next to “ Conference Materials” in the middle of the left- hand column on your screen. • Click on the tab labeled “ Handouts” that appears, and there you will see a PDF of the slides for today's program. • Double click on the PDF and a separate page will open. • Print the slides by clicking on the printer icon.
Continuing Education Credits FOR LIVE EVENT ONLY For CLE purposes, please let us know how many people are listening at your location by completing each of the following steps: • Close the notification box • In the chat box, type (1) your company name and (2) the number of attendees at your location • Click the S END button beside the box
Tips for Optimal Quality S ound Qualit y If you are listening via your computer speakers, please note that the quality of your sound will vary depending on the speed and quality of your internet connection. If the sound quality is not satisfactory and you are listening via your computer speakers, you may listen via the phone: dial 1-888-450-9970 and enter your PIN -when prompted. Otherwise, please send us a chat or e-mail sound@ straffordpub.com immediately so we can address the problem. If you dialed in and have any difficulties during the call, press *0 for assistance. Viewing Qualit y To maximize your screen, press the F11 key on your keyboard. To exit full screen, press the F11 key again.
Fraudulent Transfers: Ponzi Scheme Clawback Litigation in Bankruptcy Strategies for Bringing or Defending Trustee Clawback Claims Sponsored by the Legal Webinar Group of Strafford Publications Anthony L. Paccione, Chair NY Litigation Department, Katten Muchin Rosenman LLP Corey Weber, Partner, Ezra Brutzkus Gubner LLP Jesse S. Finlayson, Partner, Finlayson Williams Toffer Roosevelt & Lilly LLP 5
Introduction “When the financial tide goes out is when you will see who is swimming naked” 6
Threshold Questions What is a “Ponzi Scheme? When does it begin? SIPC Protected? Type of Receiver to Be Appointed 7
Today’s Topics Clawbacks – From the Trustee’s perspective and the Prima Facie case based on Fraudulent Conveyance Clawbacks from a Transferee’s Perspective “Mere Conduit,” Section 546(e) and Other Specific Clawback Defenses 8
TRUSTEE’S CLAWBACK CLAIMS • Preference Claims – Section 547 claims • Fraudulent Transfer Claims – Claims Under the Bankruptcy Code • Section 548 and 550 claims – Claims Under State Statutes • Section 544 and UFTA state law claims 9
PREFERENCE CLAIMS 10
Preference Claims • Transfers in Ponzi schemes are more vulnerable to attack as fraudulent transfers – In re Grafton Partners, L.P., 321 B.R. 527, 532 FN 5 (9 th Cir. BAP 2005) • However, transfers in Ponzi cases can still be recovered as preferences – See In re United Energy Corp , 102 B.R. 757 (9 th Cir. BAP 1989); Danning v. Bozek (In re Bullion Reserve of North America), 862 F.12 1214 (9 th Cir. 1988) 11
Defenses to Preference Claims • Same defenses as to a normal preference claim • But, no ordinary course defense – Henderson v. Buchanan , 985 F.2d 1021, 1025 (9 th Cir. 1993) – In re Bullion Reserve Co. of North America , 836 F.2d 1214, 1219 (9 th Cir. 1988) 12
FRAUDULENT TRANSFER CLAIMS 13
Actual Intent Claims Under the Bankruptcy Code • “The trustee may avoid any transfer (including any transfer to or for the benefit of an insider under an employment contract) of an interest of the debtor in property, or any obligation (including any obligation to or for the benefit of an insider under an employment contract) incurred by the debtor, that was made or incurred on or within 2 years before the date of the filing of the petition, if the debtor voluntarily or involuntarily—(A) made such transfer or incurred such obligation with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made or such obligation was incurred, indebted…” – 11 U.S.C. Section 548(a)(1). 14
Actual Intent Claims Under State Statutes (California) • “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 follows: (1) With actual intent to hinder, delay, or defraud any creditor of the debtor.” – California Civil Code Section 3439.04(a). 15
Actual Intent Claims with a Guilty Plea • Guilty plea in criminal case for the Ponzi scheme principal can conclusively establish actual intent • “[w]e now hold that a debtor’s admission, through guilty pleas and a plea agreement admissible under the Federal Rules of Evidence, that he operated a Ponzi scheme with the actual intent to defraud his creditors conclusively establishes the debtor’s fraudulent intent under 11 U.S.C. section 548(a)(1)(A) and California Civil Code section 3439.04(a)(1), and precludes relitigation of that issue…” Johnson v. Neilson (In re Slatkin) , 525 F.3d 805, 814 (9 th Cir. 2008) 16
Actual Intent Claims with No Guilty Plea • Establish a Ponzi Scheme (the Ponzi Scheme Presumption) – If the Bankruptcy Court concludes that the Debtor operated as a Ponzi scheme, actual intent to hinder, delay or defraud creditors will be established • Donell v. Kowell , 533 F.3d 762, 770 (9 th Cir. 2008) • Barclay v. Mackenzie (In re AFI Holding, Inc.) , 525 F.3d 700, 704 (9 th Cir. 2008) 17
Constructive Fraud Claims Under the Bankruptcy Code • “…(B)(i) received less than a reasonably equivalent value in exchange for such transfer or obligation; and (ii)(I) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation; (II) was engaged in a business or transaction, or was about to engage in business or a transaction, for which any property remaining with the debtor was an unreasonably small capital; (III) intended to incur, or believed that the debtor would incur, debts that would be beyond the debtor’s ability to pay as such debts matured; or (IV) made such transfer to or for the benefit of an insider, or incurred such obligation to or for the benefit of an insider, under an employment contract and not in the ordinary course of business.” – 11 U.S.C Section 548(a)(1)(B). 18
Constructive Fraud Claims Under State Law (California) • “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 follows:… (2) without receiving a reasonably equivalent 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.” – California Civil Code Section 3439.04(a). See also alternate test under Section 3439.05. 19
Constructive Fraud vs. Actual Intent Claims • Constructive fraudulent transfer claims should have the same outcome as actual intent claims, but the burden of proof differs – Donell v. Kowell , 533 F.3d 762, 771 (9 th Cir. 2008) • In addition to differences re burden of proof, constructive fraud claims will likely require an expert witness (e.g., forensic accountant) • If there is no plea agreement, the insolvency tests in constructive fraud claims provide an alternate way to avoid and recover transfers 20
Fraudulent Transfer Claims Under State vs. Federal Law • 2 year pre-bankruptcy petition reach-back under Section 548 • There is normally a longer reach-back under state law – In California, the reach back period is up to 7 years (Cal. Civil Code Section 3439, et seq.) • Statute of limitations – Trustee has 2 years to file a complaint post- bankruptcy 21
Fictitious Profits • General rule is that the Trustee’s recovery is limited to recovery of fictitious profits from net winners • Withdrawals - Investments = Fictitious Profits in most circuits – Donell v. Kowell , 533 F.3d 762, 770 (9 th Cir. 2008) 22
Recommend
More recommend
