In a recent American Law Journal article, “When Hiding Assets Doesn’t Work: How Mintz Levin Recovered $20M for Cheated Client,” Daniel Pascucci and Joe Dunn detail the extensive efforts used to hold a judgment creditor accountable — 10 years and $20 million later, the case exemplifies the old saying that you can run, but you can’t hide.
Shareholders who received nearly $8 billion from the Tribune Company leveraged buyout (LBO) do not have to give back that money as a constructive fraudulent transfer. Although the possibility remains that the creditors can recover this money through the pending intentional fraudulent transfer claims, which are much more difficult to prove, the Second Circuit recently held that the Bankruptcy Code preempts creditors from recovering under state constructive fraud theories when shareholders receive distributions under securities contracts effectuated through financial institutions.
Lending credence to the old adage “if it’s too good to be true, then it probably is,” the Seventh Circuit Court of Appeals recently held that a secured lender was on inquiry notice of possible fraud by its borrower in impermissibly pledging customers’ assets to secure loans. And the penalty was steep—the Court determined the pledge to be a fraudulent transfer to the lender and the lender’s failure to act upon inquiry notice destroyed the lender’s good faith defense. As a result, the lender’s $300 million secured claim was reduced to a near-worthless general unsecured claim. Continue Reading Turning A Blind Eye Cost Lender Hundreds Of Millions Of Dollars; Inquiry Notice Spoils Lender’s Good Faith Defense In Fraudulent Transfer Case
Working for the Queen of Hearts is a tough gig. A disappointing quarter and she’s quick to the chopping block. And the ‘severance’ she offers – “Off with their heads!” – no thanks.
While (non-Wonderland) corporate layoffs are often less animated, former employees receiving severance payments have their own concerns if the company subsequently files for bankruptcy: some or all of those payments may be recouped by the bankruptcy estate. A recent Tenth Circuit decision addressed this issue, finding that a company’s severance payments to its former president and board member were not recoverable, at least not under the particular facts of the case. The Court did, however, highlight potential pitfalls that could lead to an alternate result.