William F. Perkins, in His Capacity of Int'l Mgmt. Assocs., LLC v. Lehman Bros., Inc. (In re Int'l Mgmt. Assocs., LLC)

563 B.R. 393

IN RE: INTERNATIONAL MANAGEMENT ASSOCIATES, LLC, et al., Debtors.

William F. Perkins, in his capacity as Chapter 11 Trustee of International Management Associates, LLC, and its affiliated Debtors, Plaintiff,

v.Lehman Brothers, Inc.; Oppenheimer & Co., Inc.; J.B. Oxford & Company; Banc of America Securities, LLC; and TD Ameritrade, Inc., Defendants.

Jointly Administered Under Case No. 06–62966

Adv. No. 08–06186

United States Bankruptcy Court, N.D. Georgia, Atlanta Division.

Signed January 10, 2017

Robert E. Shields, Doffermyre, Shields, Canfield & Knowles, LLC, Atlanta, GA, for Plaintiff/Defendants.

Samuel W. Wethern, Doffermyre, Shields, Canfield & Knowles, Atlanta, GA, for Plaintiff.

James S. Rankin, Jr., David G. Russell, Parker, Hudson, Rainer & Dobbs LLP, Emily Zackrison Culbertson, Terry R. Weiss, Greenberg Traurig LLP, Paul M. Alexander, Miller & Martin PLLC, Robert R. Ambler, Adam S. Katz, John A. Thomson, Jr., Womble Carlyle Sandridge & Rice, LLP, Atlanta, GA, Matthew T. Gensburg, Greenberg Traurig, LLP, Chicago, IL, Craig T. Goldblatt, Allison Hester–Haddad, Wilmer, Cutler, Pickering, Hale and Dorr LL, Washington, DC, Dana S. Gloor, Miles & Stockbridge, P.C., Baltimore, MD, for Defendants.

J.B. Oxford & Company, pro se.

ORDER ON SECOND MOTION OF DEFENDANT OPPENHEIMER & CO., INC. FOR SUMMARY JUDGMENT

Paul W. Bonapfel, U.S. Bankruptcy Court Judge

Kirk Wright allegedly operated International Management Associates, LLC ("IMA") and affiliated entities as a Ponzi scheme. Mr. Wright opened a brokerage account with the defendant Oppenheimer & Co. ("Oppenheimer") in the name of IMA and transferred funds of IMA to the account to engage in securities trades.

IMA's Trustee (the "Trustee")¹ alleges that IMA made transfers to the brokerage account in the year preceding its bankruptcy in the total amount of $ 6,640,000 with the actual intent to hinder, delay, or defraud IMA's creditors and seeks to recover them pursuant to 11 U.S.C. § 548(a)(1)(A).² To establish IMA's actual fraudulent intent, the Trustee relies primarily on the so-called Ponzi scheme presumption. The presumption is that "transfers made in furtherance of [a Ponzi] scheme are presumed to have been made with the intent to defraud for purposes of recovering the payments under [§ 548(a)(1)(A) ]." Perkins v. Haines (In re International Management Associates, LLC), 661 F.3d 623, 626 (11th Cir. 2011).

This Order addresses three defenses that Oppenheimer raises in its motion for summary judgment [228] and supporting brief [229].

First, Oppenheimer contends that the Trustee has not produced evidence that IMA made the transfers with the required actual intent to hinder, delay, or defraud creditors. This defense requires the Court to examine the scope of the Ponzi scheme presumption and determine whether it applies in a fraudulent transfer action when, as here, the debtor makes the transfers for contemporaneous and equivalent value to a third party who is not an investor in the scheme and did not participate in it. If the presumption is not available, then the Court must determine whether evidence exists that shows as a matter of fact and law that IMA made the transfers with the actual fraudulent intent that § 548(a)(1)(A) requires.

In Part II, the Court concludes that, under the circumstances here, the transfers as a matter of law were not "in furtherance of" the Ponzi scheme and that, therefore, the Ponzi scheme presumption does not apply. Part II further concludes that, in the absence of the Ponzi scheme presumption, the Trustee's evidence is insufficient as a matter of law to prove that IMA made the transfers with the actual intent to hinder, delay, or defraud creditors.

Oppenheimer's second defense is based on the undisputed fact that the transfers did not diminish IMA's estate or otherwise harm IMA's creditors. IMA's theory is that depletion or diminution of the debtor's estate is an essential element for avoidance of a fraudulent transfer under § 548(a)(1)(A). In Part III, the Court concludes that it must deny summary judgment on this ground because a transfer may be avoidable under § 548(a)(1)(A) even if it was for contemporaneous, equivalent value.

Oppenheimer's third defense is the affirmative defense of § 548(c). Section 548(c) provides a complete defense to Oppenheimer if IMA received value in exchange for the transfers and Oppenheimer received them in good faith. It is undisputed that IMA received value. Part IV explains the Court's conclusion that the undisputed material facts establish that Oppenheimer's conduct satisfies the good faith requirement under a subjective test of good faith that applies here.

The Court will, therefore, grant summary judgment in favor of Oppenheimer based on the absence of evidence to create disputes of material fact with regard to IMA's actual fraudulent intent and Oppenheimer's good faith and will deny summary judgment on its defense that a transfer for equivalent and contemporaneous value cannot be a fraudulent transfer under § 548(a)(1)(A).³

I. Undisputed Material Facts and Contentions of the Parties

The evidence in the record consists of depositions, declarations of fact, expert opinions, and documentary evidence. The parties draw competing inferences from the evidence. Oppenheimer sets forth its version in its Statement of Undisputed Material Facts ("D. SUMF") [228] filed in support of its summary judgment motion. The Trustee sets forth his views in his Response to Oppenheimer's Statement ("T. Response") [242] and in his Statement of Additional Material Facts ("T. SAMF") [240].

This Part summarizes the undisputed facts about IMA, its Ponzi scheme, and its brokerage account with IMA. Later Parts discuss the evidence regarding IMA's intent to defraud (Part II) and Oppenheimer's good faith (Part IV).

Kirk Wright was the principal of IMA and its affiliates who are the Debtors in these consolidated cases. He purported to operate IMA as an investment advisory service that offered investments to clients in hedge funds, structured as limited liability companies or limited partnerships. Mr. Wright solicited investments in the hedge funds from investors with representations that they would receive returns on their capital contributions from the trading activities of the hedge funds.

In reality, beginning in October 1997, Mr. Wright ran IMA and the affiliates as a "Ponzi" scheme until it collapsed in February 2006.⁴ IMA reported fictitious profits to the investors and used capital contributions from later equity investors to pay earlier investors more than their equity investments were actually worth because the profits were fictitious.

The Trustee originally was appointed as the receiver for IMA, first in a state court action filed by investors and then in an action filed by the Securities and Exchange Commission. In his capacity as receiver, he filed Chapter 11 cases on behalf of IMA and its affiliates on March 16, 2006. He became the Chapter 11 trustee in the cases and the Plan Trustee under the confirmed plan in the substantively consolidated cases.⁵ The Trustee has prosecuted over 100 adversary proceedings against investors to recover fictitious profits as fraudulent transfers under 11 U.S.C. § 548(a).⁶

During the operation of the Ponzi scheme, in May 2002, Mr. Wright opened a brokerage account at Oppenheimer in the name of International Management Associates. (D. SUMF ¶ 7; see also D. SUMF ¶¶ 8–19). The Account Agreement granted Oppenheimer a security interest in all property in the account, authorized IMA to buy and sell stocks and options on margin, required IMA to maintain margin levels as required by Oppenheimer, and gave Oppenheimer the right to transfer securities and other property held by it between or among IMA's accounts as Oppenheimer deemed necessary. (D. SUMF ¶ 12). Oppenheimer did not recommend any securities transactions and did not solicit any transactions. (D. SUMF ¶¶ 47–48).

Mr. Wright transferred money to the Oppenheimer account by wire transfer from an IMA bank account at Bank of America (D. SUMF ¶ 32), and Oppenheimer transferred cash withdrawals to an IMA bank account at Bank of America. (D. SUMF ¶ 33). All cash deposits to the account could be used to pay for a securities purchase, to satisfy a margin requirement, to satisfy a maintenance margin, or to reduce a debit balance in the account. (D. SUMF ¶ 26).

From the inception of the account in May 2002 until the collapse of the Ponzi scheme in January 2006, IMA bought securities in the amount of $ 278,365,821.53 and sold securities in the amount of $ 273,933,866.70, for a net loss of $ 4,431,954.83. (D. SUMF ¶ 27). All of the transactions reflected market prices. (D. SUMF ¶ 35).

In the year preceding the bankruptcy filing on March 16, 2006, cash deposits into the Oppenheimer account were $ 6,640,000, and cash withdrawals were $ 4,230,000. (D. SUMF ¶¶ 30, 33). All of the deposits were for one or more of the purposes set forth above. (D. SUMF ¶ 31). At the time of the bankruptcy filing, the balance in the Oppenheimer account was $ 85.96.⁷

Oppenheimer had no actual knowledge of the Ponzi scheme (D. SUMF ¶ 92). It did not know of the false claims Mr. Wright made regarding IMA's investment returns or that the actual amount under investment with IMA was lower than Wright claimed. (D. SUMF ¶ 69). IMA did not use the Oppenheimer name in recruiting new customers (D. SUMF ¶ 57), and no evidence exists that Mr. Wright shared Oppenheimer account statements with IMA's investors or potential investors or discussed the account with any third parties. (D. SUMF ¶ 60).

The Trustee asserts that evidence in the record is sufficient to require application of the Ponzi scheme presumption to establish IMA's actual fraudulent intent. Alternatively, the Trustee contends that issues of material fact exist with regard to IMA's intent. Oppenheimer contends that the presumption does not apply because the transfers were not in furtherance of the Ponzi scheme and that the undisputed...