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Fifth Circuit – No Ponzi Clawback From Golf Channel

Janvey v. Golf Channel, Inc., No. 13-11305, 2016 U.S. App. LEXIS 15407 (5th Cir. Aug. 22, 2016)

Stanford International Bank, Ltd. paid $5.9 million to The Golf Channel, Inc., in exchange for a range of advertising services aimed at recruiting additional investors into Stanford’s multi-billion dollar Ponzi scheme. After the scheme was uncovered by the SEC and the District Court seized Stanford’s assets, the court-appointed receiver filed suit under the Texas Uniform Fraudulent Transfer Act (TUFTA) to recover the $5.9 million paid to Golf Channel. The District Court granted Golf Channel’s motion for summary judgment, having determined that although Stanford’s payments were fraudulent transfers under TUFTA, Tex. Bus. & Com. Code §24.005(a)(1), Golf Channel had established the affirmative defense that it received the payments in good faith and for a reasonably equivalent value.

The Fifth Circuit initially reversed the District Court’s judgment, reasoning based on the text of TUFTA, Uniform Fraudulent Transfer Act (UFTA), and binding precedent that the payments to Golf Channel were not for “value” because Golf Channel’s advertising services could only have depleted the value of the Stanford estate and thus did not benefit Stanford’s creditors. Subsequently, in response to the view in Golf Channel’s petition for rehearing that the Supreme Court of Texas might not share the same reading of TUFTA, the Fifth Circuit vacated its opinion in Golf Channel I and sought guidance from the Supreme Court of Texas. The Supreme Court of Texas instructed that; TUFTA’s “reasonably equivalent value” requirement can be satisfied with evidence that the transferee (1) fully performed under a lawful, arm’s-length contract for fair market value, (2) provided consideration that had objective value at the time of the transaction, and (3) made the exchange in the ordinary course of the transferee’s business. The opinion clarified that the “value” inquiry under TUFTA does not depend on “whether the debtor was operating a Ponzi scheme or a legitimate enterprise,” so long as “the services would have been available to another buyer at market rates” had they not been purchased by the Ponzi scheme.

Applying these principles to the case at bar, the Supreme Court of Texas determined that “Golf Channel’s media-advertising services had objective value and utility from a reasonable creditor’s perspective at the time of the transaction, regardless of Stanford’s financial solvency at the time.” The Court reasoned that “had Stanford not purchased Golf Channel’s television air time, the services would have been available to another buyer at market rates.” Accordingly, the transfer was for “value” as viewed from the reasonable creditor’s perspective, even if the advertising services “only served to deplete Stanford’s assets”. Consequently, in accordance with the guidance from the Supreme Court of Texas, the Fifth Circuit vacated its reversal of the District Court’s finding that refused to allow a clawback of approx. $6 million paid to the Golf Channel Inc. in a Ponzi scheme and affirmed the District Court’s decision.