Stinson Leonard Street attorney Keith Moheban led a team of attorneys that won an important decision for firm client BMO Harris Bank at the Minnesota Supreme Court Feb. 18, 2015. Construing Minnesota’s Uniform Fraudulent Transfer Act, the Supreme Court rejected the use of the so-called “Ponzi scheme presumption” to prove any aspect of a fraudulent transfer case. Most importantly, the Court ruled that defendants in Ponzi scheme cases may assert the defense that they gave the debtor “reasonably equivalent value” in exchange for the challenged transfer.
Although numerous federal bankruptcy courts have adopted the presumption in Ponzi scheme cases, and have not allowed the “reasonably equivalent value” defense, the Supreme Court held that courts construing Minnesota’s act must follow the plain language of the statute and not add presumptions that have no basis in legislative intent. The decision in this case has been closely watched by many in the banking industry, and is anticipated to have a major impact on Ponzi scheme cases currently pending in the bankruptcy courts.
The case arose from the operation of First United Funding (FUF), an entity that sold loan participations to banks and ultimately was alleged to have operated a Ponzi scheme. A Minnesota bank, later acquired by BMO Harris, loaned money to FUF and was repaid in full. Later, a receiver acting on behalf of banks that were victims of FUF’s alleged Ponzi scheme sought to recover profits obtained on the loans from the banks that had been repaid by FUF, in an purported attempt to “share the pain” of the scheme.
The Court rejected that rationale for the presumption, and reaffirmed that the statute was not intended with that purpose, but instead was intended to allow creditors to reach certain assets of debtor that are placed out reach of creditors in violation of the act.
Members of the team representing BMO Harris included attorneys Pete Schwingler and Katie Devlaminck.
