Category Archives: Conversion

Ponzi Schemes in Bankruptcy

Ponzi Schemes in BankruptcyPonzi Schemes in Bankruptcy. How are Ponzi schemes in bankruptcy handled?

An example is in the case of In re Slatkin, 525 F. 3d 805 (9th cir. 2008). After filing for Chapter 7 relief, the Debtor was charged with crimes in connection with an alleged Ponzi scheme. Pursuant to a plea agreement, he subsequently pled guilty to the charges and was sentenced to prison.

In the plea agreement, he admitted that he operated a Ponzi scheme over a lengthy period. In a fraudulent transfer action, the Trustee sought to avoid transfers from the Debtor to investors, to the extent they exceeded the amount invested (“false profits”). The Bankruptcy Court granted summary judgment to the Trustee, finding that the Debtor’s guilty plea and plea agreement conclusively established that the Debtor had operated a Ponzi scheme from which the actual intent to defraud his creditors would be imputed. The District Court affirmed. Further appeal was taken to the Ninth Circuit.

The Circuit Court also affirmed, finding that once the existence of a Ponzi scheme is established, payments received by investors as purported profits are deemed fraudulent transfers as a matter of law. The Circuit Court further noted that the Debtor was not a “stockbroker” under the Code and, therefore, the Trustee was not barred by section 546(e). The Court also rejected the investors’ argument that the plea agreement should not have been admitted because it was hearsay. The Court found it to be admissible under Federal Rule of Evidence 807. The admissions in the pleas agreement were more probative on issues of Debtor’s intent to defraud than any other evidence the Trustee could procure. The interest of justice would be best served by its admission as evidence. Further, the plea agreement had the equivalent circumstantial guaranties of trustworthiness as a statement covered by Rules 803 or 804.

If you have questions about Ponzi Schemes in Bankruptcy you should seek legal counsel regarding your rights.

For more information about Bankruptcy and Ponzi Schemes  – contact Cynthia Remboldt, at the Remboldt Law Firm at 404-348-4081. FREE consultations can be scheduled by calling 404-348-4081.  Evening and Weekend hours are available to meet with an attorney.  If bankruptcy turns out to be the best way to move forward considering your alternatives, goals and financial challenges, payment plans are available if you need them.

Does a Motion To Dismiss Trump Motion to Convert

Does a Motion To Dismiss trump a Motion to ConvertDoes a Motion To Dismiss trump Motion to Convert?  After being served with the Chapter 13 Trustee’s Motion To Convert the case to Chapter 7, the Debtor filed a Motion To Voluntarily Dismiss the case.

In a recent case, the Trustee opposed the dismissal motion filed by the Debtor, noting that there appeared to be substantial undisclosed, non-exempt assets in his estate. The Debtor asserted that 1307(b) provided him an absolute right to dismiss prior to adjudication of the conversion motion. The Trustee argued that 1307(c) limited the Debtor’s right to dismiss. In re Jacobsen, 378 B.R. 805 (Bkrtcy. E.D. Tex. 2007).

Judge Rhoades noted a split of authority on this issue, with some courts holding that 1307(b) trumps subsection (c) “even where cause exits to convert the case under subsection (c).”

However, the Court found that both the language and policy of the Code require a different finding. If Congress had intended subsection (b) to prevail over subsection (c) it could have included language that the court could convert or dismiss a case “except” as provided in subsections (b) and (e).” Further, the Court found that its 105(a) powers support this reading of 1307. Mandating conversion, rather than dismissal, was in the best interest of the bankruptcy estate. Therefore, a conversion order was necessary to further the purpose of this substantive provision of the Bankruptcy Code.

Does a Motion To Dismiss trump a Motion to Convert – for more information about Bankruptcy and whether you have an option to dismiss your chapter 13 case when the trustee files a motion to convert the case to chapter 7  – contact Cynthia Remboldt, at the Remboldt Law Firm at 404-348-4081. FREE consultations can be scheduled by calling 404-348-4081.  Evening and Weekend hours are available to meet with an attorney.  If bankruptcy turns out to be the best way to move forward considering your alternatives, goals and financial challenges, payment plans are available if you need them.