•  
• Tweet
•  
•        Print
•  
•         Track Keywords
•  
• 

Law firm K&L Gates pointed out in a client alert that the Maddoff fraud thus far seemed eerily reminiscent of the dramatic fall of the Bayou Funds in August 2005. The Bayou matter involved a multi-year, complex Ponzi scheme, whose perpetrators deceived hundreds of sophisticated investors by regularly issuing falsified account statements certified by bogus auditors. Even though the potential scale of losses in the Madoff scheme seems to dwarf the $450 million at issue in Bayou, the lessons learned in the Bayou bankruptcy proceeding provide instructive guidance to investors and other affected parties as they consider the implications of this latest scandal.

In the Bayou matter, most of the assets that were recovered were obtained through the pursuit of fraudulent transfer claims against investors that had redeemed some or all of their money prior to the commencement of the bankruptcy proceeding. Both the Bankruptcy Code and New York state law, which applied to the Bayou proceeding, provide that a transfer made with actual or constructive intent to hinder, delay or defraud creditors is a fraudulent transfer that can be rescinded. A number of courts have held that each individual redemption payment is presumptively a fraudulent transfer intended to actually hinder, delay or defraud other investors and may be rescinded by creditors or a trustee. Under the Bankruptcy Code, the reach-back provision is two years from the date of commencement of the liquidation proceeding. ......................

To view our full article Click here