Most courts endorse and affirm the use of the "Ponzi scheme
presumption" against recipients of transfers from the Ponzi debtor. These
courts hold that, in an actual fraudulent transfer case, the transferor's
fraudulent intent is presumed if the trustee establishes that the transferor
was perpetrating a Ponzi scheme and that the transfer was made within the scope
of the scheme. See, e.g., Wing v.
Dockstader, 2012 U.S. App. LEXIS 11390 (10th Cir. June 6, 2012); Perkins v. Haines, 661 F.3d 623 (11th
Cir. 2011); Donell v. Kowell, 533
F.3d 762 (9th Cir. 2008); SEC v. Res.
Dev. Int'l, LLC, 487 F.3d 295, 301 (5th Cir. 2007).
The rationale for the broad brush application of a
presumption of actual intent in a Ponzi scheme is that "transfers made in the
course of a Ponzi scheme could have been made for no purpose other than to
hinder, delay or defraud creditors." Bear,
Stearns Sec. Corp. v. Gredd (In re
Manhattan Inv. Fund, Ltd.), 397 B.R. 1, 8 (S.D.N.Y. 2007). Such a
presumption can be a powerful tool in a Ponzi scheme case, as it eliminates the
need to prove actual intent to hinder, delay or defraud by the more customary
"badges of fraud" analysis that uses circumstantial evidence.
Some courts have questioned the broad scope of the Ponzi
scheme presumption. As one court put it, "The Ponzi scheme presumption must
have some limitations, lest it swallow every transfer made by a debtor, whether
or not such transfer has anything to do with the debtor's Ponzi scheme." Kapila
v. Phillips Buick- Pontiac-GMC Truck, Inc. (In re ATM Financial
Services, LLC), Bankr. LEXIS 2394, at *17-18 (Bankr. M.D. Fla. June 24,
2011). The ATM Financial court found that the presumption applies only
to transfers made in furtherance of the Ponzi scheme.
A recent case, however, moves in the opposition direction
and has expanded the application of the Ponzi scheme presumption in a
significant way. In Stoebner v. Ritchie
Capital Management, L.L.C. (In re
Polaroid Corp.), 2012 Bankr. LEXIS 1926 (Bankr. D. Minn. April 30, 2012),
the court applied the presumption of intent to defraud to a transferor who was
not even directly involved in a Ponzi scheme.
The decision arose out of the Petters Ponzi scheme group
of cases. Petters had granted a security interest to the defendants in his
capacity as chairman of Polaroid, and the trustee sought to avoid that transfer
as an actual fraudulent transfer. Polaroid was not, however, directly involved
in Petters' Ponzi scheme. Rather, Petters ran his scheme through Petters
Company, Inc., and other entities. Nevertheless, the court held that the
presumption did apply to the transfer made by Polaroid. The court reasoned:
[Petters'] intent is attributed to the Polaroid
Corporation as transferor, because he controlled that artificial entity. And
the point of the Trustee's theory is that Tom Petters also controlled the whole
structure centering around PCI, through which the Ponzi scheme had been
transacted to the detriment of its final victims.
* * *
The Trustee's expanded conception of the presumption is
premised on common control within a larger structure. When this is the
governing consideration, the automatic inference of fraudulent intent is made
when the person in common control effects the transfer by the entity extrinsic
to the Ponzi scheme, but in order to
further the scheme as it has been maintained through the central entity.
*48-50 (emphasis in original and footnote omitted).
Simply stated, because Petters orchestrated the
challenged transfer to further the Ponzi scheme, the Ponzi scheme presumption
applied, even though the entity that made the transfer was not otherwise involved
in the fraud. "The proof lies in a motivation: a manifest wish by the
controlling person to prolong the imposture of the Ponzi scheme (thus 'furthering'
it), by effecting the transfer by the controlled, related company." Id. at * 51-52.
The court recognized that the creditors that were
prejudiced by Polaroid's grant of the security interest were not creditors or
victims of the Ponzi scheme. Still, it
observed, "that does not mean the basic willingness to prejudice others' rights
In justifying its expanded use of the Ponzi scheme
presumption, and noting that, "There is nothing untoward about using the
presumption in this way," the court in dicta
attempted to leave a back door open to challenge the expanded use of the presumption.
It stated, "The resulting inference, satisfying the intent requirement of the
statute, can always be rebutted by hard proof of contrary intent, i.e., a
credible motivation to make the transfer that is grounded in good economic
reason, as to the transferor-entity." Id.
at *52 (citing Kelly v. Armstrong,
206 F.3d 794, 799, 801 (8th Cir. 2000)).
The problem with this invitation to challenge the
expanded use of the Ponzi scheme presumption in dicta is that the cited case, Kelly
v. Armstrong, is not a Ponzi case, and every other court addressing the
Ponzi scheme presumption has held that it establishes actual fraudulent intent as
a matter of law. See, e.g., Johnson v.
Neilson (In re Slatkin), 525 F.3d
805, 814 (9th Cir. 2008); Hayes v. Palm Seedlings
Partners-A (In re Agric. Research
& Tech. Grp., Inc.), 916 F.2d 528, 534 (9th Cir. 1990); Gredd v. Bear, Stearns Sec. Corp. (In re Manhattan Inv. Fund, Ltd.), 359
B.R. 510, 517-18 (S.D.N.Y. 2007), aff'd
in part and rev'd in part on other grounds sub nom. Bear, Sterns Sec. Corp. v.
Gredd, 397 B.R. 1 (S.D.N.Y. 2007); Terry
v. June, 432 F. Supp. 2d 635, 639 (W.D. Va. 2006); Picard v. Madoff (In re
Bernard L. Madoff Inv. Sec. LLC), 2011 Bankr. LEXIS 3578, at *15 (Bankr.
S.D.N.Y. Sept. 22, 2011); Bauman v.
Bliese (In re McCarn's Allstate Fin.,
Inc.), 326 B.R. 843, 850 (Bankr. M.D. Fla. 2005).
Despite that misstep, however, it seems likely that the court's
conclusion that the trustee can use the Ponzi scheme presumption in seeking to
avoid Polaroid's grant of a security interest to the defendants due to Petters'
intent to further his Ponzi scheme will withstand scrutiny on appeal.
Actual fraudulent transfer claims and the scope of the
Ponzi scheme presumption are addressed in Chapter 2 of The Ponzi Book: A Legal Resource for Unraveling Ponzi Schemes
(LexisNexis 2012) by Kathy Bazoian Phelps and Hon. Steven Rhodes. The
Ponzi Book is available for purchase at www.lexisnexis.com/ponzibook,
and more information about the book can be found at www.theponzibook.com.
Kathy Bazoian Phelps is the co-author of The Ponzi Book: A Legal Resource for Unraveling Ponzi Schemes
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