445 B.R. 206
Bankr. S.D.N.Y.2011Background
- BLMIS operated a massive Ponzi scheme; the SIPA trustee Picard sues the Estate of Stanley Chais and related Moving Defendants for fraudulent and preferential transfers.
- The Complaint seeks avoidance of transfers under the Code and NYDCL, as well as turnover under 542 and disallowance of SIPA claims.
- Defendants move to dismiss under Rule 12(b)(6) as to ten counts, with Count Two (preferential transfers) not challenged.
- The matter involves complex, year-spanning transfers totaling over $1 billion, with Exhibit B detailing dates, amounts, and accounts.
- The court must determine whether the Trustee’s pleadings show plausible actual or constructive fraud and whether turnover claims are viable under SIPA- and Code-based theories.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether trustee pled actual fraud under Code and NYDCL | Picard pled specifics of transfers and Ponzi-era intent | Moving Defendants contend insufficiency under Rule 9(b) for NYDCL/Code claims | Yes; pled with particularity and Ponzi presumptions establish intent |
| Whether trustee pled constructive fraud under Code and NYDCL | Transfers lacked reasonably equivalent value; substantial bad faith alleged | Defendants argue value via restitution of principal; may be innocent investors | Yes for Code; yes for NYDCL with lack of fair consideration and bad faith shown |
| Whether NYDCL six-year look-back and timing were proper | Counts Five–Eight timely under petition-date look-back and 546(a) two-year window | Some transfers pre-dating filing may be untimely under state statute | Counts Five–Eight timely; six-year look-back from filing date applies |
| Whether turnover under 542 is proper in SIPA context | 78fff-2(c)(3) creates a mechanism to recover prepetition transfers in one step | Plain text does not support expansive turnover; in rem limitations exist | Turnover granted in part; Count One denied due to statutory limits under SIPA |
Key Cases Cited
- Am. Tissue, Inc. v. Donaldson, Lufkin & Jenrette Sec. Corp., 351 F. Supp. 2d 79 (S.D.N.Y. 2004) (fraud pleading standards; Rule 9(b) applicability)
- Ashcroft v. Iqbal, 129 S. Ct. 1937 (U.S. 2009) (plausibility standard for pleading a claim)
- Twombly, 550 U.S. 544 (U.S. 2007) (requirements for stating a plausible claim)