Wiand v. Lee

Summarized by Paul Avron , Berger Singerman LLP
11 years 9 months ago

Citation:

No. 13-10448 (11th Cir. June 2, 2014)

Tag(s):

Ruling:

The primary holdings were that (i) a transfer made in furtherance of a Ponzi scheme establishes as a matter of law actual intent to hinder, delay or defraud under Florida's version of the Uniform Fraudulent Transfer Act without the need to consider the "badges of fraud," and (ii) entities in receivership are "creditors" required to establish an actually fraudulent transfer because they were harmed when their assets were wrongfully transferred to the detriment of their innocent investors.

Procedural context:

The Eleventh Circuit reveiwed a District Court's grant of summary judgment for the Receiver on his actual fraudulent transfer claim against the recipient of "false profits" deriving from a Ponzi scheme. (The District Court had adopted the recommendation of the Magistrate Judge.)

Facts:

The Receiver sued the recipient of "false profits" from a Ponzi scheme operated by Arthur Nadel--suit was brought on behalf of investors. As with all Ponzi schemes, the one orchestraed by Nadel was based on misrepresentations and use of new investor money to enrich himself and pay promised redemptions to prior investors, and which scheme ultimately collapsed. Investor money was commingled with Nadel's personal accounts. The defendants/appellants received "false profits" of almost $1 million, that is, an amount in excess of what they invested. The Receiver sought to avoid the transfers as fraudulent transfers under Florida's version of the Uniform Fraudulent Transfer Act. The Reciver moved for partial summary judgment that Nadel operated the companies as a Ponzi scheme and, if so, whether each transfer was made with the actual intent to hinder, delay or defraud Nadel's creditors under Fla. Stat. sec. 726.105(1)(a). The Receiver filed a second motion for partial summary judgment on his constructive fraud and unjust enrichment claims, and damages. The Magistrate Judge concluded that Nadel operated a Ponzi scheme and when the receivership entities made distributions to the defendants/appellants and they were avoidable as actually fraudulent transfers under Florida law because they were made with the intent to hinder, delay or defraud creditors. As such, the Magistrate did not address the Receiver's constructive fraud and unjust enrichment claims. The District Court adopted the Magistrate Judge's report and recommendation and entered judgment against the defendants/appellants for the "false profits" received but declined to award prejudgment interest. The Eleventh Circuit affirmed the judgment concluding, in part, that the transfer of receivership funds constituted a transfer of "property of the debtor" requierd Fla. Stat. sec. 726.101(2), and that the transfers were, as a matter of law, made with the actual intent to hinder, delay or defraud creditors. The ELeventh Circuit reversed the denial of prejudgment interest and remanded with directions for the District Court to apply the factors set forth in Blasland, Bouck & Lee, Inc. v. City of North Miami, 283 F.3d 1286, 1298 (11th Cir. 2002).

Judge(s):

Circuit Judges Martin and Anderson, and U.S. District Court Judge Fuller, Middle District of Alabama

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