BY ROBERT LAPOWSKY & JOSEPH H. HUSTON JR.,
SHAREHOLDERS, STEVENS & LEE, P.C.
The recent $162 million settlement
agreed to by Irving Picard, the trustee
for liquidation of Bernard L. Madoff
Investment Securities, and Fred Wilpon,
Saul Katz, and numerous family
members and related entities, including
the New York Mets, garnered plenty of
headlines. Somewhat lost in the shuffle
was the holding by Senior U.S. District
Court Judge Jed S. Rakoff relating to
the good faith defense available to
recipients of transfers made with actual
intent to hinder, delay, or defraud
creditors. That holding could have
significant impact in other “actually
fraudulent” fraudulent transfer cases.
L. Madoff Investment
Securities, LLC v. Katz et al., 462
B.R. 447 (S.D.N. Y. 2011). The main
claims that did survive were avoidance
actions brought under Bankruptcy
Code Section 548(a)( 1)(A), which
allows for avoidance of transfers made
with “actual intent to hinder, delay or
defraud” creditors. The relevant intent is
that of the transferor, not the transferee,
and the intent of the transferor to
hinder, delay or defraud is presumed—
conclusively so, in many circuits—in
the context of a Ponzi scheme.
453 & n. 5. See also SEC v. Resource
Dev. Int’l, LLC, 487 F. 3d 295 (5th Cir.
2007), In re Arctic Research & Tech.
Group, 916 F. 2d 528 (9th Cir. 1990).
recipient of a transfer
made with actual intent to hinder,
delay, or defraud, however, can retain
the transfer to the extent the transferee
received the transfer in good faith
and gave value. 11 U.S.C. § 548(c).
While the trustee sought recovery
against the Wilpon/Katz entities
on a number of theories, many did
not survive the defendants’ motion
to dismiss. Picard, Trustee for the
Because it was conceded that Madoff
was perpetrating a Ponzi scheme,
the trustee’s prima facie case was
established. Picard v. Katz, 462 B.R. at
447, 453. The court found, however, that
value had been given by the Wilpon/
Katz entities in connection with those
transfers, which constituted a return of