Rothstein Trustee Files Clawback Actions Against Miami Heat and Florida Panthers

The court-appointed trustee overseeing the liquidation of Scott Rothstein's $1 billion Ponzi scheme recently filed a flurry of preference actions (also known as clawback lawsuits) whose targets included the Miami Heat and Florida Panthers from which nearly $200,000 is sought.  Herbert Stettin, the bankruptcy trustee, filed the suits last week, seeking $156,000 from the Miami Heat and $31,250 from the Florida Panthers.  Stettin filed twenty clawback suits last week alone as he scrambles to comply with Section 546(a)  of the Bankruptcy Code, which requires that all preference actions to be filed within two years of the bankruptcy petition filing date (the "Filing Date").  Rothstein's former law firm, Rothstein Rosenfeldt Adler, P.A. ("RRA"), was placed in involuntary bankruptcy by several creditors on November 10, 2009.

In the clawback suits, Stettin seeks the return of funds transferred from RRA within the 90 days prior to the Filing Date.  Codified in Section 547 of the Bankruptcy Code, the Preferential Payment Rule, as it is known to some, requires a creditor to return funds paid to satisfy existing debts by a debtor who files bankruptcy within ninety days of that transfer.  The ninety-day period is extended to one year in the case of creditors who qualify as an insider.  Several exceptions exist, including when the transfer is made contemporaneously for "new value," or in the course of ordinary business.  

The suits filed by Stettin against the Miami Heat and Florida Panthers (the "Teams") are largely "cookie-cutter" complaints that simply recite the elements required under Section 547 and fail to specify the exact nature of the transfers.  Along with requesting the return of the transfers, Stettin also seeks permission to disallow any claims held by the Teams until the transfers are returned to the bankruptcy estate.

A copy of the Miami Heat complaint is here.

A copy of the Florida Panthers complaint is here.

A copy of the RRA involuntary bankruptcy petition is here.

Michigan Investment Advisor Sentenced to Eight Years in Prison for $4 Million Ponzi Scheme

A federal judge sentenced a Michigan investment advisor to eight years in federal prison for running a Ponzi scheme that defrauded investors out of $4 million.  Keith Epstein, 56, faced up to thirty years in prison after pleading guilty earlier this year to bank fraud charges.  Along with the ninety-seven month prison sentence, Epstein was also ordered to pay full restitution to his victims.

Epstein began soliciting clients in the mid-1990s, convincing individuals to liquidate their legitimate investments and instead place their money with Epstein in "holding accounts."  Epstein promised these investors annual returns ranging from eight to ten percent, and investors were told that funds in the holding accounts would be invested after the market rebounded.  Some investors told authorities that Epstein convinced them to write him checks under $10,000 in order to avoid scrutiny from regulators.  In total, over 20 people invested approximately $7 million with Epstein.  But instead of investing these funds, Epstein transferred funds to his personal bank accounts and used them to make supposed interest payments to investors.  Additionally, Epstein used investor funds for personal expenses including gambling, exotic dancers, and travel.

Epstein previously pled guilty to state charges stemming from the scheme in December 2010.  These charges included three counts of state securities law violations, and one count of writing a nonsufficient funds check of more than $500.  He was sentenced to one year in county jail for those charges, and is set to begin serving his sentence for the federal charges when the state sentence is served.

Judge: Cayman Islands Lawsuit Against Madoff Trustee is Void

A Bankruptcy Court Judge issued a strongly-worded order holding that a lawsuit recently filed in the Cayman Islands against the Madoff trustee was void and could not proceed any further.  Irving Picard, the court-appointed trustee for Bernard L. Madoff Investment Securities ("BLMIS"), sued Maxam Absolute Return Fund, Ltd ("Maxam"), seeking the return of nearly $100 million in fraudulent transfers made in the six years preceding the bankruptcy filing of BLMIS.  After answering that complaint, Maxam then filed an action in the Cayman Islands (the "Cayman Action") seeking a declaration that Maxam was not liable for the transfers.  According to Judge Lifland, that action is forbidden by the Bankruptcy Code and other federal laws, and constitutes a "clear attack on this Court’s exclusive jurisdiction and a blatant attempt to hijack the key issues to another court for determination."

While such an action would normally be allowed, the act of filing for bankruptcy triggered provisions in the Bankruptcy Code that forbid actions by third parties to recover or obtain assets in the bankruptcy estate. Specifically, section 362 of the Bankruptcy Code contains what is known as an "automatic stay" provision that forbids:

the commencement or continuation . . . of a judicial, administrative, or other action or proceeding against the debtor,” or “any act to obtain possession of . . . or to exercise control over property of the estate.

Additionally, BLMIS's membership in the Securities Investor Protection Corporation ("SIPC") resulted in the bankruptcy being subject to the provision of the Securities Investor Protection Act, which contains similar prohibitions.  In the Cayman Action, Maxam sought 

a declaration that Maxam Limited is not liable to the Trustee for either the $25 million Maxam Limited received from Maxam Fund within the period of 90 days prior to the Filing Date or any amounts in excess of the $25 million that Maxam Limited received from Maxam Fund within the period of two years prior to December 11, 2008.

However, according to Judge Lifland, the Bankruptcy Code and SIPA prevent such an action from continuing. Noting that Picard would be forced to essentially relitigate the merits of the clawback lawsuit, Judge Lifland opined that unneeded time, expenses and resources would be expended.  Additionally, the suit interferes with the Bankruptcy Court's exclusive jurisdiction over the property of Madoff's brokerage firm.  Finally, Judge Lifland also noted that the suit violated the Barton Doctrine, which is a judge-created rule that before a court-appointed receiver or trustee can be sued, the petitioning party must first seek leave of the court.  

Under Section 105 of the Bankruptcy Code, a Bankruptcy Court is granted equitable powers to “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of [the Code].” Noting the ramifications should each foreign individual or entity sued by Picard be permitted to seek relief in their own country, Judge Lifland utilized these powers by issuing an injunction preventing Maxam from continuing the Cayman Action.   

A copy of the Order is here.

CFTC Obtains Default Judgment in $38 Million Ponzi Scheme

The United States Commodity Futures Trading Commission announced it had obtained a default judgment and permanent injunction against a North Carolina company accused of operating a $38 million forex Ponzi scheme. Bruce Kramer, now deceased, and Barki, LLC ("Barki"), were the target of a CFTC enforcement action originally filed in March 2009.  According to the consent order, Barki was ordered to pay restitution of $19,960,649 and a civil monetary penalty of $20,944,707, and also received permanent registration and trading bans.  

From June 2004 to February 2009, Kramer solicited customers to invest in Barki, touting his success as an experienced commodities trader and promising to trade foreign currency using a trading system he had developed.  Investors were told that Barki had never had a losing month, that their investments were guarded against losses, and were safer than an investment in equities.  In total, Barki raised approximately $38 million from at least 79 investors.  Of this amount, nearly $18 million was used to trade commodities.  But Kramer did not experience the success represented to investors.  Instead, he sustained losses almost every single month that totaled over $10 million, and withdrew nearly $7 million more that was not distributed to investors. However, investors received regular interest payments representing alleged gains, and were provided fictitious monthly account statements that showed continued growth in their accounts.  The scheme unraveled after Kramer died in February 2009.

The receiver appointed to oversee the distribution of assets to Barki's victims, Joseph W. Grier, III, has made two interim distributions to investors thus far totaling $3,250,369.  

A link to the receiver's website is here.

A copy of the CFTC Complaint filed against Barki is here.

A copy of the consent order is here.

Judge to Stanford Receiver: Stop Looking for Pot of Gold and Start Repaying Investors

“When the U.S. Justice Department has already checked and there’s no pot of gold, then the receiver can stand down,”

- United States District Judge Godbey

The federal judge overseeing the court-appointed receiver tasked with recovering assets of R. Allen Stanford's alleged $7 billion Ponzi scheme recently expressed his desire to see a claims process initiated for the repayment of assets recovered thus far to victims.  Additionally, U.S. District Judge David Godbey expressed concern that receiver Ralph Janvey may be depleting funds that could potentially be distributed to victims by duplicating efforts of the United States Department of Justice, which is also investigating Stanford as it continues to work towards putting Stanford on trial in early 2012. 

As covered by Ponzitracker here, calls have been growing from Stanford victims that Janvey's ongoing crusade to recover assets for victims have accomplished little and instead continue to build the amount of fees paid to Janvey for his efforts.  This concern was echoed by Judge Godbey at a hearing Thursday, who stated he was "concerned the receiver is expending resources that could otherwise be distributed to investors trying to track down missing resources.”  The frustration comes from the search thus far for assets related to Stanford's alleged $7 billion fraud; to date, Janvey and his legal team have recovered approximately $100 million in unrestricted cash.  The Receiver has liquidated nearly all of the saleable assets under its control, and is currently in negotiations with liquidators in Antigua and Barbados to determine the best course to take with Stanford's island properties there.  Additionally, Janvey and his team have filed more than 100 "clawback" lawsuits, which, if successful, could add up to $500 million to that total.  According to Kevin Sadler, the lead attorney representing Mr. Janvey, "we've sued everyone we can find."

Judge Godbey cited the ongoing efforts by U.S. prosecutors, who have won asset freezes on more than $300 million in Stanford-related bank accounts abroad.  Those funds are outside the reach of Janvey's duties, and could possibly be returned to victims through the process of remission, as recently seen in the AdSurfDaily Ponzi scheme and detailed on Ponzitracker here.  Judge Godbey has asked for a plan entailing what it would take to wrap up the search for Stanford's assets and what the initiation of a claims process for investors would cost.   

Previous Ponzitracker coverage of the Stanford Ponzi scheme is here.