Can the Purchase of Groceries be “in Furtherance of a Ponzi Scheme?”...

American Bankruptcy Institute Law Review Staff

 

 

Adopting a limited view of the “Ponzi scheme presumption,” the Bankruptcy Court for the Southern District of Florida[1] rejected the trustee’s contention that payments made for groceries were avoidable fraudulent transfers because the purchase of groceries was in furtherance of the Ponzi scheme.[2]  In In re Phoenix Diversified Investment, the debtor purchased $43,384.37 worth of groceries and other personal items over a four-year period from Publix – a grocery store chain.[3] The trustee sought to avoid the transfers under both state fraudulent transfer law[4] and section 548(a) of the Bankruptcy Code (the “Code”).[5] The trustee argued that the so-called “Ponzi scheme presumption” applied.[6]  The presumption allows the court to assume a transfer was made with the “actual intent to hinder, delay, or defraud” if the transfer was made in order to perpetuate a Ponzi scheme or was necessary to the continuance of the scheme.  In its classic application, the presumption allows the trustee to recover payments made to early investors in a Ponzi scheme on the theory that those payments kept the scheme hidden. Publix argued that the Ponzi scheme presumption was not applicable.[7]