Suppliers of good and services (“trade creditors”) generally have no duty to determine whether their customers are operating an illegal enterprise. However a recent Fifth Circuit opinion presents an unprecedented “claw-back” risk facing trade creditors who unknowingly provide goods and services to a “Ponzi-scheme” enterprise.
The Janvey Opinion
This case is the product of yet another dispute in the extensive, multi-billion dollar fraud perpetrated by Tom Petters. In 2005, as the sole board member of Petters Group Worldwide, LLC (“PGW”), Petters directed the acquisition of Polaroid, which operated independently and legitimately as a going concern. In late 2007 and early 2008, Polaroid and other Petters companies began experiencing financial difficulties. In January 2008, PGW approached Ritchie about a loan and the next day, Ritchie loaned $31 million to PGW to pay debts of Polaroid and PGW.
As disclosed recently in a bankruptcy court filing, on January 27, 2015, the Financial Crimes Enforcement Network (“FinCEN”) imposed a $10 million civil money penalty pursuant to the Bank Secrecy Act (the “BSA”) on Trump Taj Mahal Associates LLC. Trump Taj Mahal consented to the imposition of the penalty (subject to the bankruptcy court’s approval) and admitted that its conduct violated the BSA. This $10 million penalty, reported to be the largest BSA penalty ever imposed upon a casino, highlights the government’s ongoing focus on the gaming industry.
Swiss Investigating Magistrate Entitled to U.S. Documents
Although the bankruptcy world has long been acquainted with Ponzi schemes, the courts have not clearly answered the question of how to distribute investors’ funds after a scheme fails – especially in the scenario where certain investors profit. The United States Bankruptcy Court for the District of Utah recently weighed in on the issue in
The U.S. Court of Appeals for the Eleventh Circuit, on Aug. 15, 2014, ordered a bankruptcy court to vacate a final asset sale order almost four years after its entry because of insider misconduct. In re Global Energies, LLC, 2014 WL 3974577 (11th Cir. Aug. 15, 2014).
Clinton County Treasurer v. Wolinsky, 511 B.R. 34 (N.D.N.Y. 2014)
A chapter 7 trustee sought to avoid a property tax foreclosure as a fraudulent transfer and then to recover damages from the foreclosing county. The bankruptcy court agreed that the transfer was a fraudulent conveyance, but awarded only about half of the damages requested by the trustee. Both the county treasurer and the trustee appealed.
Dealing a major blow to the trustee’s efforts to recover fraudulent transfers on behalf of the bankruptcy estate of the company run by Bernard Madoff, Judge Jed S. Rakoff of the United States District Court for the Southern District of New York held in SIPC v. Bernard L. Madoff Investment Securities LLC1 that the Bankruptcy Code cannot be used to recover fraudulent transfers of funds that occur entirely outside the United States.
The Eleventh Circuit’s recent opinion in Wiand v. Lee clarifies longstanding issues relating to an equity receiver’s standing to pursue clawback claims for the benefit of the receivership estate under the Florida Uniform Fraudulent Transfer Act (“FUFTA”). See Wiand v. Lee, 2014 WL 2446084 (11th Cir. Jun.