American Bankruptcy Institute
ATTORNEYS AT LAW
ABI 2012 Caribbean Insolvency Symposium:Ponzi Schemes: Madoff and its Impact
Mark WolfsonFoley & Lardner LLP, Tampa, Florida813.firstname.lastname@example.orgAlissa M. NannFoley & Lardner LLP, New York, New York
1.Bankruptcy Code Section 548(a)(1) – Fraudulent Transfers
548(a)(1)(A) – Actual Fraud
. Section 548(a)(1)(A) allows a trusteeavoid transfers made by debtor with the actual intent to hinder, delay or defraud creditorswithin the 2 year period prior to the bankruptcy petition date. Trustee may recover theentire transfer made by debtor with actual intent, including the defendant’s originalinvestment amount, unless the defendant can affirmatively establish his or her good faith(as discussed below). Trustee need not prove that the transfer was for less than fair valueif actual intent is proven.
See Bayou Superfund LLC v. WAM Long/Short Fund II L.P. (Inre Bayou Group, LLC)
, 362 B.R. 624 (Bankr. S.D.N.Y. 2007);
see also, Sharp Int’l Corp.v. State Street Bank & Trust Co. (In re Sharp Int’l Corp.)
, 403 F.3d 43, 56 (2d Cir. 2005).i.Actual Intent of Transferor Required(1)“Ponzi Scheme Presumption”: as a matter of law, a debtor running a Ponzi scheme possesses actual intent to hinder, delay or defraud.
In re Bayou Group, L.L.C.
, 362 B.R. at 629 (
Balaber-Strauss v.Sixty-Five Brokers (In re Churchill Mortg. Inv. Corp.),
256 B.R 664, 675(Bankr. S.D.N.Y. 2000) (citing
Martino v. Edison Worldwide Capital (In re Randy),
189 B.R. 425, 438 (Bankr. N.D.Ill.1995));
Johnson v. Neilson (Inre Slatkin)
, 525 F.3d 805 (9th Cir. 2008);
Notinger v. Migliaccio (In re Fin. Res. Mortg., Inc., et al.)
, 454 B.R. 6 (Bankr. D. N.H. 2011)(bankruptcy court found the “Ponzi scheme presumption” existed whereavoidance complaint did not allege a “ponzi scheme” by name but the pleading described the debtor’s activities in that way).(a)The Bankruptcy Court for the Southern District of Florida recently found that, in addition to criminal convictions based on operating a Ponzi scheme, criminal plea agreements can be used to establish the “Ponzi scheme presumption” of intent tohinder delay or defraud exists. The court held that the admissionscontained in principal Scott Rothstein’s Information and Plea