114 F.4th 1148
9th Cir.2024Background
- Jerrold S. Pressman operated EPD Investment Co., LLC ("EPD"), which was later determined to be run as a Ponzi scheme from 2003 to 2010, eventually collapsing with liabilities far exceeding its assets.
- In 2010, EPD was forced into Chapter 7 bankruptcy, and its trustee (Rund) initiated an adversary proceeding to recover fraudulent transfers made to John Kirkland, who had assigned his interests to the Bright Conscience Trust, for which his wife, Ann Kirkland, was trustee.
- After a bifurcated trial, a jury found EPD to be a Ponzi scheme, but found John Kirkland received payments in good faith and for reasonably equivalent value, insulating him but not Ann from future proceedings.
- Ann Kirkland appealed, arguing that the adverse Ponzi scheme finding would have preclusive effect against her in future proceedings regarding the Trust’s claims.
- Key legal disputes focused on whether the jury should have been instructed that the existence of a Ponzi scheme requires not just objective evidence but also a finding of the operator's subjective intent (mens rea) to defraud.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Was the omission of a mens rea (intent to defraud) instruction in the definition of a Ponzi scheme error? | Ann: Instruction should require finding Pressman knew scheme would collapse. | Rund: Intent to defraud can be inferred from existence of Ponzi scheme; objective criteria are enough. | Instruction was proper; intent can be inferred from objective criteria showing a Ponzi scheme. |
| Should lenders be included as victims of a Ponzi scheme under the jury instructions? | Only "investors" should count; lenders not entitled to profits. | Lenders can also be victims; EPD called its lenders investors and offered above-market returns. | Including lenders as victims is legally correct; instruction not in error. |
| Was the evidence sufficient to support the finding EPD was a Ponzi scheme? | Insufficient; EPD made some legitimate investments. | Sufficient; evidence showed hallmark Ponzi characteristics (fund diffusion, no real profits, false statements). | Sufficient evidence supported the jury's finding. |
| Did the district court abuse its discretion in admitting the Trustee’s expert and charts? | Charts/testimony were prejudicial and unreliable. | Charts were based on admissible business records; objections go to weight, not admissibility. | Admission of expert and exhibits was not an abuse of discretion. |
Key Cases Cited
- Donell v. Kowell, 533 F.3d 762 (9th Cir. 2008) (establishes that mere existence of a Ponzi scheme supports an inference of fraudulent intent in bankruptcy proceedings)
- In re United Energy Corp., 944 F.2d 589 (9th Cir. 1991) (defines elements of Ponzi schemes and application of Ponzi presumption)
- In re First Alliance Mortg. Co., 471 F.3d 977 (9th Cir. 2006) (discusses fraudulent conveyance standards under Bankruptcy Code)
- In re Slatkin, 525 F.3d 805 (9th Cir. 2008) (Ponzi scheme finding supports inference of fraudulent transfers)
- Harper v. City of Los Angeles, 533 F.3d 1010 (9th Cir. 2008) (standard for sufficiency of evidence review in jury trials)
- Grant v. City of Long Beach, 315 F.3d 1081 (9th Cir. 2002) (outlines standard for appellate review of evidentiary rulings)