CFO Management Holdings Trustee Sues a New York-Based Brokerage Firm for Fraudulent Transfers

February 17, 2021, Eastern District of Texas – Recently, Trustee David Wallace, for the bankruptcy estate of CFO Management Holdings, LLC and its affiliates (the “Debtors”), brought an action to recover actual and constructive fraudulent transfers worth $1.4 million or the value thereof from a brokerage firm under §§ 548 and 550 of the Bankruptcy Code.

By way of background, Debtors’ principal Phillip Carter purportedly operated a Ponzi scheme and raised over $40 million from over 270 investors in several states through solicitation of real-estate investments by materially misleading statements and omissions. Carter allegedly told investors that they were investing in Carter’s real-estate-development companies and that their investments were backed by hard assets from legitimate real-estate-development projects. However, the statements were materially false and misleading. Promissory notes given to investors were not secured and were in the name of shell companies.

The complaint alleges that the Defendant Eastern Union Funding, LLC received a brokerage fee of $468,000 and $960,000 from the Debtors in the Ponzi scheme. Through its complaint, the Trustee seeks to recover these payments, alleging that they were made for less than reasonably equivalent value. The Trustee alleged that the Debtors did not receive reasonably equivalent value for these transfers. Hence, these alleged transfers are liable to be recovered as actual fraudulent under Sec. 548(a)(1)(A) and constructively fraudulent under Sec. 548(a)(1)(B) of the Bankruptcy Code.

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