The Texas Supreme Court is considering a significant fraudulent transfer case starting from the well-publicized, Allen Stanford’s Ponzi scheme. This commercial litigation case goes back to 2009.
Because of Mr. Stanford’s $7 billion Ponzi scheme, a Texas Court has appointed a receiver for Mr. Stanford and his related entities. What is interesting is that the receiver sued the Golf Channel, and others, claiming almost $6 million Mr. Stanford paid for advertising was a fraudulent transfer under the Texas Uniform Fraudulent Transfer Act (“the Act).
One of the most important issues in the Stanford case is whether the Golf Channel’s commercial litigators could prove an affirmative defense. In other words, that its advertising services were something of “reasonably equivalent value” in return for the transfer. The Fifth Circuit’s (an appellate court) first opinion said, “no.” Value is measured from these creditors’ perspective, not the general marketplace, under the court’s original reasoning. And so, while advertising “may have been quite valuable to the creditors of a legitimate business,” it had “no value to the creditors of a Ponzi scheme.”
Due to the Texas trial lawyer arguments, later the Fifth Circuit took a second look and set aside its original opinion. Then the court agreed that “precisely where the Act draws the line between the various interested parties is the difficult question that Texas courts have yet to answer.” On that basis, the Fifth Circuit sent this question to the Texas Supreme Court, asking what showing of value is sufficient to prove an affirmative defense to a fraudulent transfer claim.
The court’s ruling is expected to clarify the contours of defenses available to innocent trade creditors who deal with businesses that were engaged in fraudulent conduct.
Our business litigators have been involved in several cases dealing with this Act. Given the circumstances the Act can be used as a powerful tool in commercial litigation.
Please contact us if you have any questions in this area or any questions regarding commercial litigation. After all, we are here to help.
Mark A. Alexander
5080 Spectrum Suite 850
Addison, Texas 75001