By Stephen W. Sather
Barron & Newburger, P.C.
Austin, TX
One of the biggest challenges in unwinding a Ponzi scheme is figuring out who has to give back money and who gets to keep what they have. Since promoters don't advertise the fact they are engaging in a Ponzi scheme, some people who thought they were dealing with a legitimate business end up being sued to recover so-called "fraudulent transfers." The Golf Channel case is a perfect illustration of this problem. Although the Fifth Circuit initially decided that the Golf Channel was ineligible to assert a defense that they provided value in good faith, they have decided to take a mulligan. The panel has withdrawn its initial opinion and has certified the question to the Texas Supreme Court. Janvey v. The Golf Channel Incorporated, No. 13-11305 (5th Cir. 6/30/15)
According to the Court:
For nearly two decades, Allen Stanford operated a multi-billion dollar Ponzi scheme2 through more than 130 affiliated entities centered around Stanford International Bank Limited (Stanford).3 To sustain the scheme, Stanford promised investors exceptionally high rates of return on certificates of deposit (CD) and sold these investments through advisors employed at the affiliated entities. Some early investors received the promised returns, but, as was later discovered, these returns were merely other investors’ principal. Before collapsing, Stanford had raised over $7 billion selling these fraudulent CDs.Opinion, p. 3. In order to get its brand out in front of sports audiences, Stanford purchased $5.9 million of advertising from the Golf Channel.