Bankruptcy litigators undoubtedly are familiar with the provisions of the Bankruptcy Code that establish the “limitations period” within which a trustee (including, for these purposes, a debtor in possession[1]) must commence actions to avoid transfers as fraudulent conveyances, and the “reach-back period” within which pre-bankruptcy transfers by the debtor may be subject to avoidance under the Bankruptcy Code or incorporated state law remedies. Although these statutes seemingly establish bright-line boundaries for the commencement of avoidance proceedings and for determining the pre-petition period within which transactions may be subject to attack by an avoidance complaint, it is important for practitioners to recognize that neither of these time periods is necessarily as ironclad as statutory language might suggest. Counsel should be aware that the federal courts recognize several important rules that may allow a trustee to expand the limitations and reach-back periods in order to justify late-filed avoidance complaints and to sustain challenges to transfers that otherwise appear to be too remote in time to be subject to avoidance.[2]
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by Adam C. Ballinger
Lindquist & Vennum PLLP; Minneapolis
On Aug. 16, 2011, the U.S, Court of Appeals for the Second Circuit affirmed Hon. Burton R. Lifland’s order that the Securities Investor Protection Act (SIPA) trustee may use the net investment method rather than the last statement method to determine a customer’s net equity under SIPA.[1] Irving Picard, the SIPA trustee for Bernard L. Madoff Investment Securities LLC (BLMIS), is charged with administering claims filed by BLMIS customers who ratably share in a pool of customer property according to their net equity. Picard determined that net equity should be calculated according to the net investment method, which credits the amount of cash deposited by the customer into its BLMIS account, less any withdrawn amounts. Some customers objected to this method and argued they were entitled to a calculation of net equity based on the market value of the securities reflected on their BLMIS customer statements (the “last statement method”). Adoption of the last statement method over the net investment method would benefit those customers who had withdrawn imaginary profits exceeding their initial investment over those customers who had not withdrawn funds before the fraud was discovered.
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The Commercial Fraud Committee is actively soliciting articles for the newsletter. For topic ideas please contact your committee Newsletter Editor, Paul Sinclair, or browse some of your membership benefits - the Bankruptcy Blog Exchange, ABI Daily Headlines and ABI Bankruptcy Brief, Volo and the Asset Sales Database. ABI login required. Guidelines for newsletter articles can be found by clicking here.
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ABI has been busy this summer creating new online products with the goal of saving you time and resources. The newest addition to this lineup is Search - search.abi.org. This new member resource searches more than 2 million keywords across all the ABI information platforms. The search covers every issue of the ABI Journal since 1997 and every ABI Law Review since 1995, in addition to all books, CLE conference materials and other exclusive ABI content. This search feature is also available on your smartphone or tablet.
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This year's Northeast Bankruptcy Conference was in July at the Hyatt Regency in Newport, R.I. At the event there was a session titled "Ponzi Schemes and Avoidance Actions: How Duped Investors May Pay Twice," which used the bankruptcy background, decisions and and liquidation proceedings of a variety of cases as examples to explain a plethora of related topics, including avoidance actions, SIPA (Securities Investor Protection Act) and many more. Panelists included Hon. Mark W. Vaughn, who is a retired U.S. Bankruptcy Judge for the District of New Hampshire in Manchester, Daniel M. Glosband of Goodwin Procter LLP in Boston, Steven M. Notinger of Donchess & Notinger, PC in Nashua, N.H., Irving H. Picard of Baker & Hostetler LLP in New York, Thomas A. Pitta of Lowenstein Sandler of Roseland, N.J. and H. Jeffrey Schwartz of DLA Piper in New York. Click here to view "Ponzi Schemes and Avoidance Actions: How Duped Investors May Pay Twice" educational materials.
The Midwestern Bankruptcy Institute & Consumer Forum included a committee-related session titled "Creditors Gone Wild: Foreclosure Fraud." The session covered topics such as liar's loans and appraisal fraud, and also offered attendees with an in-depth selection of links for further reading. The session was presented by Prof. William K. Black of UMKC School of Law and Economics in Kansas City. Click here to view "Creditors Gone Wild: Foreclosure Fraud" educational materials.
Click here to view all materials related to the Commercial Fraud Task Force Committee.
