Ritchie Capital Mgmt., LLC v. Stoebner, No. 14-1154 (8th Cir. 2015)
Annotate this CasePetters purported to purchase and resell electronics. His operations were a Ponzi scheme. In 2005, Petters purchased Polaroid and become Chairman of Polaroid’s board of directors. Polaroid continued to engage in legitimate business. Petters took several million dollars from Polaroid. In 2007-2008, Petters’s companies, including Polaroid, experienced major financial difficulty. Ritchie made short term loans of more than $150 million, with annual interest rates of 80 to 362.1%. Polaroid was not a signatory, although some proceeds were used to repay a Polaroid debt. When the loans were past due, Ritchie demanded collateral. Petters executed a Trademark Security Agreement (TSA) giving Ritchie liens on Polaroid trademarks. Polaroid’s CEO objected to the TSA as impeding Polaroid’s ability to raise needed capital. The TSA did allow Polaroid to grant first-priority trademark liens to secure $75 million in working capital. After the FBI raid, which resulted in Petters’s convictions for mail fraud, wire fraud, and money laundering, and sentence of 50 years in prison, Ritchie accelerated all of the loans. Polaroid filed for bankruptcy and challenged the TSA as an actual fraudulent transfer under federal and Minnesota bankruptcy law, citing the “Ponzi scheme presumption.” The bankruptcy court presumed Petters executed the liens with fraudulent intent, found Ritchie had not received them in good faith and for value, and granted summary judgment. The district court upheld the admission of expert testimony and application of the Ponzi scheme presumption. The Eighth Circuit affirmed.
Court Description: Civil case - Bankruptcy. The Bankruptcy Court did not err in avoiding as fraudulent the transfer of several Polaroid trademarks to the Ritchie parties; while the court would not address the validity or future applicability of the Ponzi scheme presumption in the Eighth Circuit, under a badges of fraud analysis, it was clear that: (1) Polaroid received no value in exchange; (2) the transfer was for the benefit of Tom Petters, and insider engaged in a failing Ponzi scheme; (3) Polaroid was in serious financial difficulties and unable to pay its creditors before and after the transfer; and (4) Polaroid's CEO objected to the transfer. There was sufficient undisputed evidence to support the Bankruptcy Court's conclusion that Tom Petters executed the transfer with intent to hinder, delay or defraud Polaroid's creditors.
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