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A Transfer of a Valueless Asset is Not a Fraudulent Conveyance Under §548

Yip v. Connedx Corp. (In re Gomez), Nos. 13-22713-BKC-AJC, 14-1574-BKC-AJC-A, 2016 Bankr. LEXIS 3955 (U.S. Bankr. S.D. Fla. Nov. 10, 2016)

Debtor Ibes Gomez was allegedly a convicted fraudster. Defendant Connedx Corporation, the primary vehicle of Gomez’s fraudulent operation had zero net value. The Debtor defrauded investors, including the Defendant Lisa M. Madalon, by misrepresenting that several hospitals are allegedly contracting with Connedx and the conservative value of the estimated revenue from those purported contracts was $1.3 million. Madalon fell into the Debtor’s trap. She purchased the Debtor’s stock interest in Connedx for $49,000 and transferred the amount to the Connedx bank account. Maria Yip, as trustee for the estate of the Debtor, brought an adversary action against the Defendants, alleging that Madalon purchased a percentage of the Debtor’s stock interest in Connedx for $49,000.00, but didn’t pay the Debtor anything in exchange. She tendered that payment to Connedx and not the Debtor. So, the Debtor did not receive reasonably equivalent value in exchange for the transfer and hence the alleged transfer of interest in stock was fraudulent under §548.

The Court determined that the transfer of a valueless asset cannot hinder, delay or defraud any creditor of value as it is impossible to receive less than reasonably equivalent value for an asset that has no value. The Court added that in the case at bar, the Debtor received $49,000.00 by accessing and spending the monies from the bank account for personal gain, all for stock worth zero. The value received by the Debtor was significantly in excess to what the Debtor gave up, as he was selling Madalon worthless stock. The Court stated that it would be fundamentally counter to the statutory purpose of the Trustee’s avoidance power for the transfer of the stock and payment to be avoided. The Court reasoned that this would run directly counter to the equitable policies of the Bankruptcy Code to actually compel Madalon to sustain another loss of $49,000.00 in exchange for valueless stock and bind Madalon anew to a transaction where a convicted fraudster duped her.
Further, the Court ruled that the argument, that the payment was made to Connedx and not the Debtor, had no merit. The Debtor personally received the benefit of the stock payment because he spent the entirety of that $49,000.00 for his personal benefit. The Debtor was the sole signatory on the bank account where the stock payment was deposited, and he was the only individual who had access to the funds in that bank account, and he used them for his personal, non-business related expenses. The Court ruled for Madalon holding that the Debtor received more than the value of the worthless stock he transferred to Madalon.