Transferee of Fraudulent Transfer From Ponzi Scheme

People who receive distributions of money from Ponzi schemes usually are expected to return the money to a trustee who takes over the operation when the Ponzi organizer files bankruptcy. The trustee usually attempts to “claw back” money distributed to the investors, especially money representing winnings or profits. This recent Florida bankruptcy case produced a slightly different result for a Ponzi investor.

In this case, a trustee sued an investment adviser who invested his own money, his family’s money, and client money in the Ponzi scheme. The Ponzi organizer filed bankruptcy. The bankruptcy trustee sued the financial adviser (defendant) to recover two checks transferring money from the Ponzi organizer to the defendant. One check represented a return on the defendant’s family investment, and the second check was for the client accounts which check was deposited into the defendant’s checking account for distribution to the investor clients.

The trustee sought to recover the two distributions on the theory that they represented fraudulent transfers. The court denied the trustee’s claims. The court used different theories for each of the two payments. As to the return on the defendant’s personal and family investment, the court found that the investment adviser acted in good faith in receiving the funds even through the returns claimed by the Ponzi scheme were unrealistic in hindsight. The money received for distribution to the investors was not a fraudulent transfer because the adviser was acting as a conduit and had no legal right to the funds.

The case shows that people who act in good faith may avoid liability as a transferee of fraudulent transfers in some circumstances. The case 9:10-ap-516 in the Tampa Division of the Middle District of Florida

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