Not Ponzi Enough — UPDATED

ponziAmong several issues addressed in the complicated bankruptcy appeal of Templeton v. O’Cheskey, the Fifth Circuit considered whether the “ordinary course of business” defense applied to alleged preferential transfers. The Court noted that a “true” Ponzi scheme is one with “operations build on the collection of funds from new investments to pay off prior investors.”  Here, “only a portion of the funds controlled by [Debtor] ([Creditor] estimates 9%) was used to pay Ponzi-like returns to investors,” and the image“record is clear that [Debtor] engaged in substantial legitimate business–owning or controlling approximately 14,000 housing units.”  Therefore, the defense could apply, and these transfers were remanded for further consideration. No. 14-10563 (revised May 12, 2015).

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