Tag: fraudulent transfer

  • Debt Settlement Firms–Fraudulent Transfers

    Posted by

    Adam Levitin

    There's a nice piece about debt settlement companies in the NYTimes.  

    The story left me wondering whether Ms. Robertson, who paid $4,000 to the debt settlement firm without getting any debt relief might have a fraudulent transfer claim against them.  I recognize that it is far from clear whether such a suit would succeed; there is a REV question and an insolvency question at the very least, and the trustee might not want to litigate over what is at most a few thousand dollars in most cases.  Yet especially for no-asset cases, the avoidance action might be the only real value available for creditors.  

    Does anyone know of fraudulent transfer suits being filed against debt settlement firms?  Are trustees or creditors starting to inquire at 341 meetings whether the debtor has been making debt settlement payments?  I'm curious to here whether practitioners have started to account for pre-bankruptcy debt settlement attempts.  

  • AIG Bonuses as Fraudulent Transfers

    Posted by

    Adam Levitin

    We’ve heard Fed Chairman Bernanke and Treasury
    Secretary Geithner say that there are no legal avenues to clawing back the AIG
    bonuses.  I’m not so sure that’s
    true.  What about good old
    fraudulent transfer law?  That’s a
    cornerstone of creditor-debtor law. 
    Would fraudulent transfer law apply?

    Every state in the union has a fraudulent
    transfer law.  But there is also a special (and virtually unknown) federal
    fraudulent transfer statute     just for the United States government, as
    creditor.  The federal government could, of
    course, proceed under a state fraudulent transfer law (I’m not sure which
    state’s law would apply to AIG), but why bother when it could proceed under its
    own law?

    So would the government be able to clawback
    AIG’s bonuses with a fraudulent transfer action? 

    (more…)

  • Lehman 2007 Bonuses?

    Posted by

    Adam Levitin

    Lehman paid out around $5.7 billion in bonuses in 2007. Are those bonuses safe? Maybe not.

    The bonuses might be recoverable as fraudulent transfers—transfers made while insolvent without receiving reasonably equivalent value. (UFTA 5(a)).

    Thus, the key question is whether Lehman was solvent when it paid out the bonuses? (The statute of limitations goes back past 2007, fwiw.) On an equity basis, almost assuredly yes, but on a balance sheet basis, that might be a closer call, depending on how things like MBS and CDOs are valued.

    If Lehman was not solvent when it paid the bonuses, then I think there’s a fraudulent transfer. It’s hard to see how a bonus could ever be paid in exchange for reasonably equivalent value, when an employee has already been paid a salary for their efforts. There are various defenses to FTs, but none would seem to apply here at first blush.

    Of course, it takes a challenge by a creditor whose claim arose before the bonuses were paid, but per the rule of Moore v. Bay (which I am teaching tomorrow), it only takes one of them, owed a single cent, in order to challenge all the bonuses. The lack of a creditor might protect the bonuses, but as creditors look to carve up what’s left of Lehman, the thought of recovering a decent chunk of $5.7 billion is going to look very appealing.