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Castaldi v. Schwartzer (In re: Welscorp, Inc.)

Case Type:
Case Status:
BAP No. NV-23-1031-BGC (9th Circuit, Jul 20,2023) Not Published
The U.S. Bankruptcy Appellate Panel of the Ninth Circuit found a bankruptcy court properly granted summary judgment to a Chapter 7 Trustee who sought to avoid and recover actually fraudulent transfers furthering a Ponzi scheme. Defendants/Appellants did not provide a transcript of the oral ruling referenced in the order granting the motion, hindering the appeal. But the available record supported the conclusion that no material disputes of fact existed. Debtors operated a Ponzi scheme and made transfers to hinder, delay and defraud creditors, and Appellants had no defense to avoidance.
Procedural context:
Because the pro se Defendants/Appellants did not obtain a copy of the transcript of an oral summary judgment ruling referenced in the bankruptcy court's written order granting the motion, the BAP was operating on an incomplete appellate record. Appellants also did not comply with Federal Rule of Bankruptcy Procedure 8014 as their opening brief lacked a statement of facts, standard of review, argument summary, and citations to legal authority. Further, Appellants raised new arguments on appeal. While noting pro se parties "must follow the same rules of procedure that govern other litigants[,]" the BAP exercised its discretion not to summarily dismiss the appeal. Instead, the BAP evaluated the appeal on the merits, explaining "we need only look for any plausible basis upon which the bankruptcy court could have made the decision it did." As to the issues on appeal, the BAP wrote: "It was undisputed that the transfers to the [Appellants] were Debtors' property, and that they were made within two or four years of the petition date. The only dispute was whether Debtors made the transfers with actual intent to hinder, delay, or defraud a creditor." Appellants did not argue on appeal that they took any transfers from Debtors in good faith and for value or reasonably equivalent value.
For over five years, Welscorp, Inc. and related parties (Debtors) "operated an investment scheme that offered investors 250% to 600% returns from a pooled investor fund used to bet on sporting events[,]" raising "at least $29.5 million from 600 investors in more than 40 states[.]" Debtors' betting scheme generally lost money, and when investors received payments "it was frequently with money from other investors, not winnings from sports betting." In other words, Debtors ran a Ponzi scheme, using the money paid in by new victims to pay old victims, broker commissions, and the principals' personal expenses. Appellants William and Karin Castaldi cashed checks for Debtors totaling $889,500 over 18 months. They would keep $50 from each check as "token gas money" and return the remaining cashed funds to Debtors, thereby "converting traceable bank funds into untraceable cash[.]" After involuntary chapter 7 cases were filed against Debtors in the U.S. Bankruptcy Court for the District of Nevada, the Chapter 7 Trustee brought an adversary complaint against the Castaldis, seeking relief for actually fraudulent transfers of investor funds by Debtors to the Castaldis under §§ 544(b)(1), 548(a)(1)(A), 550 and Nevada law. Trustee moved for a summary judgment to avoid the transfers and recover the "token gas money" payments, the $893,150 the Castaldis returned to Debtors after cashing checks, and a $25,000 check Debtors' principal gave the Castaldis on Christmas 2017. The Castaldis contested Trustee's version of the facts in writing but failed to appear for argument on the motion. The bankruptcy court provided an oral ruling granting Trustee's motion at the hearing. It entered a written order that incorporated the oral ruling and stated: "(1) Debtors were operating a Ponzi scheme; (2) Debtors made transfers to the Castaldis with actual intent to hinder, delay, or defraud creditors; (3) the transfers were deemed avoided; and (4) Trustee shall recover from the Castaldis $924,500, plus fees, costs, and prejudgment interest." The Castaldis filed a timely appeal.

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