452 B.R. 451
Bankr. S.D.N.Y.2011Background
- Gowan, as Chapter 11 Trustee for Dreier LLP, sues Amaranth entities to avoid and recover transfers made during Marc Dreier's Ponzi scheme under NYDCL and Bankruptcy Code §550.
- Transfers were made to Amaranth Partners (initial transferee) more than two years before petition date; trustee seeks actual and constructive fraudulent conveyance, plus attorneys' fees and equitable subordination.
- Amaranth Partners allegedly netted repayment of principal and substantial interest, making it a
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Actual fraudulent conveyance under NYDCL § 276 | Amaranth Partners liable as initial transferee due to Ponzi scheme intent. | Need not show transferee's intent; focus on transferor's intent; lack of direct intent shown against transferee. | Denied as to Amaranth Partners; actual intent shown via Ponzi presumption. |
| Constructive fraudulent conveyance for excess principal | Excess payments beyond principal lack fair consideration. | Repayment of principal discharged antecedent debt; only excess payments require fair consideration analysis. | Counts II–IV survive to the extent of payments in excess of principal; principal repayment dismissed with prejudice. |
| Amaranth LLC as a subsequent transferee | Amaranth LLC likely received funds via Amaranth Partners; substantial connection. | No specific facts showing Amaranth LLC as a subsequent transferee; lack of who/when/how much. | Dismissed with leave to amend. |
| Amaranth Advisors as entity for whose benefit | Advisors benefited from transfers; directed participation and signed documents on behalf of Partners. | Allegations fail to show direct, ascertainable, and quantifiable benefit; mere control or fees insufficient. | Dismissed with leave to amend. |
| Equitable subordination | Premature to determine subordination before proofs of claim filed. | Should adjudicate now; not premature. | Dismissed without prejudice; may be reasserted later. |
Key Cases Cited
- In re Dreier LLP, Patriot Group Opinion, 452 B.R. 391 (Bankr.S.D.N.Y. 2011) (provides two-step framework and Ponzi presumption for actual fraudulent conveyance)
- Sharp Int'l Corp. v. State St. Bank & Trust Co., 403 F.3d 43 (2d Cir. 2005) (test for fair consideration under NYDCL §§ 273–275)
- Nisselson v. Softbank AM Corp. (In re MarketXT Holdings Corp.), 361 B.R. 369 (Bankr.S.D.N.Y. 2007) (liberal pleading standard for actual fraud in bankruptcy contexts)
- Merkin (In re Bernard L. Madoff Inv. Secs., LLC), 440 B.R. 243 (Bankr.S.D.N.Y. 2010) (example of sufficient 'fair notice' with exhibits detailing transfers)
- Enron Creditors Recovery Corp. v. J.P. Morgan Secs., Inc., 407 B.R. 17 (Bankr.S.D.N.Y. 2009) (defining benefit to be direct, ascertainable, and quantifiable)