FILED NOT FOR PUBLICATION JUL 20 2023 SUSAN M. SPRAUL, CLERK UNITED STATES BANKRUPTCY APPELLATE PANEL U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT OF THE NINTH CIRCUIT
In re: BAP No. NV-23-1031-BGC WELSCORP, INC., Debtor. Bk. No. 19-18056-ABL
WILLIAM CASTALDI; KARIN Adv. No. 21-01175-ABL CASTALDI, Appellants, v. MEMORANDUM∗ LENARD SCHWARTZER, Chapter 7 Trustee, Appellee.
Appeal from the United States Bankruptcy Court for the District of Nevada August B. Landis, Chief Bankruptcy Judge, Presiding
Before: BRAND, GAN, and CORBIT, Bankruptcy Judges.
INTRODUCTION
Appellants William and Karin Castaldi appeal an order granting
appellee, chapter 71 trustee Lenard E. Schwartzer ("Trustee"), summary
judgment against them under §§ 544, 548, and 550, and NRS § 112.180(1)(a).
∗ This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential value, see 9th Cir. BAP Rule 8024-1. 1 Unless specified otherwise, all chapter and section references are to the Bankruptcy
Code, 11 U.S.C. §§ 101-1532, all "Rule" references are to the Federal Rules of Bankruptcy Procedure, and all "NRS" references are to the Nevada Revised Statutes. 1 Trustee sought to avoid and recover the debtors' 2 actual fraudulent transfers to
the Castaldis in furtherance of an alleged Ponzi scheme. Because the Castaldis
failed to establish that any genuine issue of material fact existed for trial,
particularly whether the debtors were running a Ponzi scheme, the bankruptcy
court did not err in granting Trustee summary judgment and entering a
judgment against the Castaldis for $924,500. Accordingly, we AFFIRM.
FACTS
A. Events leading to the adversary complaint against the Castaldis
The relevant facts are essentially undisputed. From August 2014 until
shortly before creditors filed their involuntary chapter 7 petitions on December
20, 2019, debtors Welscorp, Inc. and its affiliates and principals (collectively,
"Debtors") operated an investment scheme that offered investors 250% to 600%
returns from a pooled investor fund used to bet on sporting events. Debtors'
principals, John F. Thomas, III (aka Jonathan West, John Rodgers, John Frank,
and John Marshall) and Thomas Becker, claimed to have created a proprietary
sports betting algorithm that was highly accurate in predicting the outcome of
sporting events. 3 Thomas and Becker, through the Debtor entities and the
services of their broker-agents, raised at least $29.5 million from 600 investors
2 Debtors include several entities and their principals: Welscorp Inc.; Einstein Sports Advisory Ltd.; QSA LLC; Wellington Sports Club LLC; Vegas Basketball Club LLC; Vegas Football Club LLC; Boston Biometrics LLC; Sports Psychometrics LLC; ESA Ltd.; No-More- Bad-Hires, Inc.; John F. Thomas, III; and Thomas Becker. 3 In 1991, Thomas and Becker were convicted of felony money laundering and
conspiracy arising from another fraudulent scheme. Thomas used the alias "Jonathan West" during the time Debtors ran their sports betting investment scheme, perhaps to prevent investors from discovering his past conviction. 2 in more than 40 states with their "low-risk, high-yield" sports betting
investment scheme. The individual investors deposited amounts ranging from
less than $10,000 to over $500,000. Debtors did not do any vetting of their
investors to determine if they were accredited and could survive a financial
loss. Many investors were unsophisticated and placed a substantial percentage
of their net worth (including savings and retirement accounts) with Debtors.
Debtors promised their investors "absolute security and instant
liquidity," compounding returns that grow "a quadrillion times faster" than
investments by Warren Buffet, or total growth of funds "a quintillion-fold."
The investor agreements set forth how Debtors would grow the investor's
initial investment to a target amount. Once the target was reached, the investor
could cash out and get 50% of the target amount; Debtors would get the other
50%. An investor could also choose to roll over some or all the earnings into a
new agreement.
Prospective investors were lured into investing through personalized
access to a website that provided them with "demonstrations" of how their
potential investment would grow over time. After committing money to
Debtors, the investors' login credentials allowed them to monitor bets and
track their individual "winnings" online.
The websites, however, contained incorrect, falsified, or mismanaged
accounting information. For example, on February 11, 2017, investors were
shown that their accounts increased by $5,344,262, but betting slips from that
day showed they earned only $105,782.50. On May 12, 2018, investors were
3 shown that betting generated $60.5 million in profits, but betting slips from
that day showed only $119,536.40 in actual winnings. Many investors chose to
reinvest their "winnings" because they were impressed with the rate of growth
they saw in their personalized spreadsheets on the website. In reality, Debtors'
sports betting activity generally lost money. Thomas and Becker never
achieved the winning rates represented to investors.
When investors demanded payment, Thomas and Becker would say they
had the funds but often claimed they could not pay for a host of reasons, such
as the winnings were in cash and they could not deposit large amounts of cash
into bank accounts for fear of being prosecuted for money laundering or other
crimes. Most, if not all, investors were not paid out the full balance shown in
their online accounts, and many were not paid back anything at all, even their
initial investments, despite their accounts reflecting much higher amounts. If
an investor was paid, it was frequently with money from other investors, not
winnings from sports betting. There was evidence that some of these investors
were paid because Debtors' brokers suggested that doing so could lead to a
larger amount of new money coming in. The investor agreements did not
disclose any use of investor funds other than for betting, and investors did not
know their funds were being used to pay returns to other investors – i.e., Ponzi
payments – or being used by Debtors' principals for personal expenses and for
payment of broker commissions.
The Castaldis met Thomas in 2011 through a mutual friend. They were
check cashers for Debtors. Between them, the Castaldis cashed at least 127 of
4 what they characterized as "petty cash"4 checks for Debtors. In return, the
Castaldis kept $50 from each check for "token gas money" compensation. Mr.
Castaldi also received a check for $25,000, signed by Becker on December 25,
2017, which contained in the memo portion the words "Merry Christmas".
Except for the $50 gas money allowance per check and the $25,000 payment,
the Castaldis returned the funds from the cashed checks to Debtors.
In August 2019, the Securities and Exchange Commission ("SEC") filed a
civil action against Debtors and some associated brokers in the District of
Nevada, alleging multiple securities violations. The SEC alleged that Debtors
conducted little sports betting and used only a small portion of investor funds
for betting. Instead, investor funds were misappropriated to fund Thomas and
Becker's personal lifestyles, pay commissions to brokers and agents, or make
Ponzi payments. The SEC alleged that, in total, Thomas and Becker spent more
than 85% of investor funds on something other than betting. In addition, none
of Debtors' investment offerings were registered with the SEC, and none of
Debtors' named salespersons were registered securities brokers.
The SEC also obtained an injunction to enjoin Debtors from any further
investment activities and to freeze their monies and assets. In support, the SEC
submitted a declaration from Deborah Russell, a long-time staff accountant in
the SEC's Division of Enforcement. Based on her extensive review of Debtors'
bank records and her reconstruction of Debtors' books and records, Russell
opined that Debtors were running a Ponzi scheme. Russell concluded that, at
4 The "petty cash" checks totaled $899,500 over the course of 18 months. 5 most, $4,480,847.07 (or 15%) of the nearly $30 million Debtors raised from
investors may have been used for betting activities on behalf of investors.
Russell further concluded that at least $11,616,332.72 of the $13,222,296.55 paid
to investors (88%) was in Ponzi payments. Thomas and Becker asserted their
Fifth Amendment rights during questioning at their depositions, failing to
answer even basic questions about their enterprise.
Ultimately, Debtors defaulted in the SEC civil action and final judgments
of default were entered against them in April 2021. The default judgments
enjoined Thomas and Becker from selling securities in the future and ordered
them to disgorge over $8 million of illegal profits and pay a civil penalty of $4
million. The Ninth Circuit Court of Appeals affirmed the default judgments in
June 2022.
The state of Oregon also prosecuted Becker and some of the Debtor
entities for state securities violations involving two investors. In 2018, Becker
signed a consent order admitting to the violations. He was fined $35,000.
In October 2020, a grand jury indicted Thomas and Becker for thirteen
counts of wire fraud and conspiracy to commit wire fraud in connection with
the sports betting investment scheme, which was described in the indictment
as a "Ponzi scheme." Those criminal charges are still pending.
B. Adversary complaint against the Castaldis
Trustee filed an adversary complaint against the Castaldis, seeking to
avoid and recover what he alleged were Debtors' actual fraudulent transfers of
investor funds under §§ 544(b)(1), 548(a)(1)(A), 550 and NRS § 112.180(1)(a).
6 Trustee alleged that Debtors' sports betting investment scheme was a Ponzi
scheme and that the Castaldis, as check cashers, were among the highest paid
transferees in the fraud. Between December 11, 2017 and May 6, 2019, Mr.
Castaldi received transfers totaling $897,500 and Mrs. Castaldi received
transfers totaling $45,000 in exchange for their check cashing services which
Trustee alleged perpetuated Debtors' Ponzi scheme.
The Castaldis admitted to receiving $50 per cashed check for gas money,
but denied receiving any other funds from Debtors or that Debtors were
running a Ponzi scheme. The Castaldis maintained that Trustee could not
recover the gas money funds because they were made in exchange for value
and the Castaldis received them in good faith.
Trustee then moved for summary judgment ("MSJ"). The MSJ was
supported by a statement of undisputed facts, which in turn was supported by
numerous documents, including evidence demonstrating (1) that Debtors'
sports betting investment scheme was a Ponzi scheme, (2) the amount of
checks cashed by the Castaldis, and (3) the Castaldis' admissions that they had
no documents to corroborate any of their allegations, communications, or
financial transactions with or relating to Debtors and their activities. Trustee
argued that the transfers were made by Debtors with actual intent to defraud
existing and future investors in furtherance of their Ponzi scheme. The
Castaldis were compensated for directly enabling the fraudulent and wrongful
use of investor funds, similar to the payment of commissions to brokers for
soliciting investment.
7 Trustee asserted that the $893,150 the Castaldis effectively took from
investors by withdrawing and returning the untraceable cash to Debtors had
not been located or accounted for, which implied that the money was lost in
Debtors' sports betting scheme or removed for concealment. Trustee argued
that he could recover these funds from the Castaldis as immediate transferees.
Trustee argued that he could recover the $31,350 retained by the Castaldis as
final transferees. In total, the Castaldis were the final or immediate transferees
of $924,500. Trustee argued that the Castaldis had no affirmative defense to the
transfers under the Bankruptcy Code or Nevada law; they did not give value
or reasonably equivalent value in exchange for the transfers, and they lacked
good faith.
Trustee's expert accountant, Marc Ross, reviewed accountant Russell's
declaration and the "tens of thousands of pages" of supporting documentary
evidence from the SEC's litigation against Debtors. Ross also conducted his
own independent investigation. While Ross conceded that he could not review
Russell's privileged work product, he did not doubt the validity of her
conclusions. Ross shared Russell's opinion that Debtors were running a Ponzi
scheme that defrauded their investors out of millions of dollars and allowed
them to fund lavish lifestyles for Thomas and Becker and their families. Ross
opined that approximately $5.9 million (or 20%) of the nearly $30 million
raised from investors may have been placed on actual bets, either for the
benefit of the investors or Debtors' principals, and the vast majority of funds
returned to investors as "winnings" were actually funded by Ponzi payments;
8 there was no evidence of deposits of "winnings" into Debtors' bank accounts
that would have accounted for payment of any significant returns to investors.
Ross opined that Debtors could not have done sufficient betting to pay the
returns promised by the contracts and represented on the websites.
The Castaldis opposed the MSJ. They did not file a statement of
undisputed facts or properly respond to Trustee's statement as required by
local rule. They did, however, file a declaration from Thomas. The Castaldis
disputed Trustee's assertion that Debtors ran a Ponzi scheme. Given Debtors'
real-time betting system, the Castaldis argued that there was "no way" Debtors
"could have faked their results or past-posted their betting picks," and the
testimony would show that Debtors could not have falsified their winnings
since investors were able to monitor how their investments were utilized
through a website and a mobile app.
The Castaldis disputed Russell's "Ponzi scheme" opinion and took issue
with her calculations for the total investor deposits for 2014. They also argued
that, in the SEC default judgments, the Nevada District Court did not make a
specific finding that Debtors were operating a Ponzi scheme. The Castaldis
claimed that they were unaware of any fraud by Debtors, and that their check
cashing services provided "reasonably equivalent value." The Castaldis further
claimed that the Merry Christmas check was not a gift but was for the
repayment of two $10,000 loans (plus interest) they made to Thomas in May
and June of 2015. Thomas corroborated the Castaldis' assertion about the
loans. Thus, argued the Castaldis, value was given for that transfer as well.
9 In reply, Trustee argued that the Castaldis had failed to show that any
genuine issue of material fact was in dispute as to Debtors' Ponzi scheme.
Instead, they offered an "alternate-universe" explanation of Debtors'
investment scheme, in which there was "no way" gambling returns could have
been faked. Trustee argued that the Castaldis' contention was implausible,
especially against the plain evidence of Debtors' finances and known gambling
results. Trustee argued that Debtors did not misrepresent their betting picks;
they misrepresented the profit they generated, the effectiveness of their betting
strategy, and the amount of betting performed and returns actually won. It
was entirely possible for Debtors to have transparent, high-win-rate picks and
still commit sports-betting fraud. The Castaldis had offered no other evidence
or argument that might support a claim that Debtors were not actually
engaged in fraud.
Trustee disputed the Castaldis' contentions about the Merry Christmas
check being a gift or that reasonably equivalent value was given if it was a
loan. Assuming it was a loan, it was admittedly personal loans to Thomas. Yet,
the Merry Christmas check was drawn against the account of one of the Debtor
entities and signed by Becker. Hence, investor funds were used to pay off these
personal loans. Repayment of the Thomas loans with investor funds did not
reduce any of the Debtor entities' obligations, but instead increased the gap
between their obligations and their ability to pay. Satisfaction of a personal
debt with misappropriated investment funds, argued Trustee, gave no
conceivable reasonably equivalent value to Debtors. Further, it was not
10 plausible that the words "Merry Christmas" would be written on a loan
payment.
After a hearing at which the Castaldis failed to appear, the bankruptcy
court entered its oral ruling granting the MSJ in its entirety. The Castaldis did
not order a transcript. The court's written order incorporated its oral ruling by
reference and stated that: (1) Debtors were operating a Ponzi scheme;
(2) Debtors made transfers to the Castaldis with actual intent to hinder, delay,
or defraud creditors; (3) the transfers were deemed avoided; and (4) Trustee
shall recover from the Castaldis $924,500, plus fees, costs, and prejudgment
interest. This timely appeal followed.
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b)(2)(H). We have jurisdiction under 28 U.S.C. § 158.
ISSUE
Did the bankruptcy court err when it granted summary judgment in
favor of Trustee?
STANDARDS OF REVIEW
We review the appeal of a summary judgment ruling de novo.
Stadtmueller v. Sarkisian (In re Medina), 619 B.R. 236, 240 (9th Cir. BAP 2020),
aff'd, No. 20-60045, 2021 WL 3214757 (9th Cir. July 29, 2021). Under de novo
review, we view the evidence in the light most favorable to the nonmoving
party to determine whether the moving party was entitled to judgment as a
matter of law because no genuinely disputed issues of material fact needed to
11 be tried. Wolkowitz v. Beverly (In re Beverly), 374 B.R. 221, 230 (9th Cir. BAP
2007), aff'd in part, dismissed in part, 551 F.3d 1092 (9th Cir. 2008). "When the
material facts are not in dispute, our only function is to determine whether the
bankruptcy court correctly applied the law." Patow v. Marshack (In re Patow),
632 B.R. 195, 202 (9th Cir. BAP 2021) (citation omitted), aff'd, No. 21-60051, 2022
WL 2256325 (9th Cir. June 23, 2022).
DISCUSSION
A. Incomplete appellate record
The Castaldis had the burden of filing an adequate record to allow
review of the order they appeal. Drysdale v. Educ. Credit Mgmt. Corp (In re
Drysdale), 248 B.R. 386, 388 (9th Cir. BAP 2000). Although we ordered them to
do so, the Castaldis failed to order and submit a transcript of the bankruptcy
court's oral ruling granting the MSJ. When findings of fact and conclusions of
law are made orally on the record, a transcript of those findings is mandatory
for appellate review. McCarthy v. Prince (In re McCarthy), 230 B.R. 414, 416-17
(9th Cir. BAP 1999). The lack of the transcript hinders our appellate review.
In addition, their opening brief does not contain a statement of facts,
standard of review, summary of the argument, or any citations to legal
authorities. See Rule 8014. Moreover, they attempt to raise issues on appeal
that were not presented to the bankruptcy court. Despite their pro se status,
the Castaldis must follow the same rules of procedure that govern other
litigants. Warrick v. Birdsell (In re Warrick), 278 B.R. 182, 187 (9th Cir. BAP 2002).
12 Based on the Castaldis' noncompliance with the rules and their failure to
provide a sufficient record, we can dismiss the appeal or summarily affirm the
bankruptcy court's ruling. Kyle v. Dye (In re Kyle), 317 B.R. 390, 393-94 (9th Cir.
BAP 2004), aff’d, 170 F. App'x 457 (9th Cir. 2006). However, before summarily
affirming or dismissing, we may exercise our discretion and consider whether
an informed review can be conducted with the incomplete record provided. Id.
Here, we will exercise our discretion to examine what record we have been
provided, keeping in mind that we need only look for any plausible basis upon
which the bankruptcy court could have made the decision it did. In re
McCarthy, 230 B.R. at 417. "If we find any such basis, then we must affirm." Id.
We find such basis here.
B. Summary judgment standards
Civil Rule 56(a), applicable here by Rule 7056, provides that summary
judgment is appropriate when "there is no genuine dispute as to any material
fact and the movant is entitled to judgment as a matter of law." A dispute over
material facts is genuine where a reasonable jury could return a verdict for the
nonmoving party based on the evidence presented. Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 248 (1986).
Once the movant has come forward with uncontroverted facts entitling it
to relief, the burden shifts to the nonmovant to establish that there is a specific
and genuine issue of material fact for trial. See Celotex Corp. v. Catrett, 477 U.S.
317, 322 n.3 (1986). The nonmovant "may not rely on denials in the pleadings
but must produce specific evidence, through affidavits or admissible discovery
13 material, to show that the dispute exists." Barboza v. New Form, Inc. (In re
Barboza), 545 F.3d 702, 707 (9th Cir. 2008) (citation omitted). Conjecture,
surmise or "metaphysical doubt" by the nonmovant of the movant's assertions
will not defeat a summary judgment motion. See Matsushita Elec. Indus. Co. v.
Zenith Radio Corp., 475 U.S. 574, 586 (1986). The nonmovant's evidence must be
probative. Gertsch v. Johnson & Johnson, Fin. Corp. (In re Gertsch), 237 B.R. 160,
165 (9th Cir. BAP 1999). Even in cases where intent is at issue, summary
judgment may be appropriate if the nonmovant rests merely upon conclusory
allegations, improbable inferences, and unsupported speculation. Id.
In deciding whether material factual issues exist, the court must resolve
all ambiguities and draw all reasonable inferences against the moving party.
Matsushita Elec. Indus. Co., 475 U.S. at 587-88. However, the court is required to
do so only in circumstances where a fact specifically averred by the moving
party is contradicted by specific evidence submitted in opposition to the
motion. Lujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 888 (1990). If a motion for
summary judgment is properly supported and the nonmovant does not set
forth specific facts showing a genuine issue for trial, summary judgment must
be entered. Civil Rule 56(a); Rule 7056.
C. The bankruptcy court did not err in granting summary judgment.
With actual fraudulent intent, the elements for an avoidance action are
essentially the same for federal law and Nevada law (both statutes use the
"hinder, delay or defraud" language). To prevail on his fraudulent transfer
claims, Trustee had to show that:
14 (1) Debtors transferred an interest in property to the Castaldis; (2) Debtors transferred the property during the applicable lookback period – two years prior to the petition date for § 548, and four years prior to the petition date for NRS § 112.180(1)(a); and (3) Debtors made the transfer with actual intent to hinder, delay, or defraud a present or future creditor.
§ 548(a)(1)(A); NRS § 112.180(1)(a); § 544(b)(1) (authorizing trustee to avoid
fraudulent transfers under state law); Leonard v. Coolidge (In re Nat'l Audit Def.
Network), 367 B.R. 207, 218-19 (Bankr. D. Nev. 2007). "[T]he required intent to
hinder, delay or defraud is the debtor's; no collusion with the transferee is
necessary." In re Nat'l Audit Def. Network, 367 B.R. at 221. It was undisputed
that the transfers to the Castaldis were Debtors' property, and that they were
made within two or four years of the petition date. The only dispute was
whether Debtors made the transfers with actual intent to hinder, delay, or
defraud a creditor.
Trustee asserted that Debtors were running a Ponzi scheme with their
sports betting enterprise and that the transfers to the Castaldis were made in
furtherance of that scheme. The Ninth Circuit has defined a Ponzi scheme as:
an arrangement whereby an enterprise makes payments to investors from the proceeds of a later investment rather than from profits of the underlying business venture, as the investors expected. The fraud consists of transferring proceeds received from the new investors to the previous investors, thereby giving other investors the impression that a legitimate profit making business opportunity exists, where in fact no such opportunity exists.
Hayes v. Palm Seedlings Partners-A, L.P. (In re Agric. Rsch. & Tech. Grp., Inc.), 916
15 F.2d 528, 531 (9th Cir. 1990).
"Transfers made in furtherance of Ponzi schemes have achieved a special
status in fraudulent transfer law." Plotkin v. Pomona Valley Imps., Inc. (In re
Cohen), 199 B.R. 709, 717 (9th Cir. BAP 1996). The mere existence of a Ponzi
scheme is sufficient to establish the debtor's actual intent to hinder, delay, or
defraud creditors under § 548(a)(1) or a state's equivalent fraudulent transfer
statute. Johnson v. Neilson (In re Slatkin), 525 F.3d 805, 814 (9th Cir. 2008);
Barclay v. Mackenzie (In re AFI Holding, Inc.), 525 F.3d 700, 704 (9th Cir. 2008);
Hayes, 916 F.2d at 534-35; In re Cohen, 199 B.R. at 717. And once the existence of
a Ponzi scheme is established, payments received by the transferee that exceed
his or her initial investment are deemed to be fraudulent transfers as a matter
of law. See In re Slatkin, 525 F.3d at 814. That is because the source of the so-
called "profits" received by the transferee is "a theft by the debtor from other
investors." Id. at 815 (cleaned up).
In support of his position that Debtors were running a Ponzi scheme,
Trustee set forth uncontroverted evidence from accounting experts Russell and
Ross that only 15% to 20% of the nearly $30 million Debtors raised from
investors may have been used for betting activities on their behalf, and that the
vast majority of the money paid to investors was in Ponzi payments. Other
than denying that Debtors were running a Ponzi scheme, the Castaldis did not
present an affidavit or any other admissible evidence specifically challenging
any of the facts Trustee set forth supporting a Ponzi scheme. Trustee's
evidence demonstrated the existence of a Ponzi scheme, and the Castaldis
16 failed to produce any specific evidence, through affidavits or admissible
discovery materials, that created a genuine issue of material fact as to that
issue.
On appeal, the Castaldis challenge some of the evidence Trustee
submitted to prove that Debtors were running a Ponzi scheme, and they argue
that the bankruptcy court erred in determining that this evidence was
uncontroverted or supportive of a Ponzi scheme. First, they challenge the
evidence Trustee submitted from the SEC. Though difficult to decipher, the
Castaldis appear to argue that the SEC's failure to make Russell available for
deposition or provide them with any documents created a genuine dispute of
material fact that Debtors were running a Ponzi scheme. For starters, the
Castaldis did not raise this argument in opposition to the MSJ. Further, their
argument is not well-taken. The Castaldis never made a request to the SEC
that Russell be made available for deposition or that the SEC turn over
documents supporting Russell's opinion.
Second, the Castaldis challenge the SEC default judgments and argue
that the bankruptcy court erred in finding that they supported Trustee's claim
Debtors were running a Ponzi scheme, when default judgments lack res
judicata effect. The Castaldis are unable to cite in the record where the court
made this finding because they failed to submit a transcript of the court's oral
ruling. In any event, the SEC default judgments were only some of the
evidence supporting Trustee's claim of a Ponzi scheme. Trustee's accountant,
Ross, reviewed the SEC's evidence and conducted his own investigation and
17 also concluded that Debtors were running a Ponzi scheme. The Castaldis did
not challenge Ross's opinion or offer anything to the contrary.
Next, the Castaldis argue that the bankruptcy court erred in finding that
Thomas's declaration submitted in support of their opposition to the MSJ was
not credible. Again, the Castaldis are unable to cite where in the record the
court made this purported finding because they failed to submit a transcript of
the court's oral ruling. We assume what they mean is that the court
determined that Thomas's declaration failed to raise a genuine issue of
material fact. Thomas stated that the Merry Christmas check to Mr. Castaldi
was for the repayment of two $10,000 loans the Castaldis made to him in 2015.
Thomas also stated that the Castaldis returned the remainder of funds from
the cashed checks to Debtors, which was undisputed. We agree that the
Thomas declaration failed to raise a genuine issue of material fact. Whether the
Merry Christmas check was for the repayment of a loan or a gift to the
Castaldis, stolen investor funds were used to pay it. Thus, its fraudulent nature
remained the same.
The Castaldis next argue that the bankruptcy court erred in determining
that they were a "net winner" when it determined in another case involving a
check casher for Debtors that she was not. Again, the Castaldis are unable to
cite where in the record the court made this purported finding because they
failed to submit a transcript of the court's oral ruling. Further, the outcome in
another individual's case does not compel the same outcome in this one, nor
have the Castaldis explained why it should. Finally, the term "net winner"
18 refers to a "lucky" Ponzi investor who received more in Ponzi payments than
what was initially invested. In re Slatkin, 525 F.3d at 815 (citing Scholes v.
Lehmann, 56 F.3d 750, 753 (7th Cir. 1995)). By their own admission, the
Castaldis were not investors; they were independent contractors who cashed
checks for Debtors.
Next, the Castaldis argue that the bankruptcy court erred in ordering
settlements and judgments in all of Trustee's adversary proceedings against
transferees of Debtors' property because he failed to present any evidence of a
Ponzi scheme. Not only do the Castaldis lack standing to challenge orders
entered in other parties' cases, their argument lacks merit. As noted above,
Trustee provided a plethora of evidence demonstrating that Debtors were
running a Ponzi scheme.
Finally, the Castaldis argue that Trustee and his counsel should be
referred to the "Law Board" and possibly disbarred for lying to the bankruptcy
court, running a sham, and shaking down defendants, when they knew they
had no evidence of a Ponzi scheme and could not win at trial. Vitriol aside,
Trustee and his counsel had evidence of a Ponzi scheme and proved its
existence on summary judgment, thereby eliminating the need for a trial.
There are defenses to an actual fraudulent transfer under both § 548 and
Nevada law. Section 548(c) and NRS § 112.220(1) provide that such transfers
are not avoidable against a transferee who took in good faith and for value or
reasonably equivalent value. § 548(c) (value); § NRS 112.220(1) (reasonably
equivalent value). Once Trustee met his burden of showing that the transfers
19 to the Castaldis were made with the requisite intent, it was the Castaldis'
burden to prove the existence of good faith and, as applicable, value and
reasonably equivalent value. In re Nat'l Audit Def. Network, 367 B.R. at 224.
The Castaldis do not raise this issue on appeal. We can only assume the
bankruptcy court determined that they failed to show there were any triable
issues of fact regarding value or reasonably equivalent value or their good
faith for the transfers. Even if the Castaldis could show good faith, they cannot
show value or reasonably equivalent value. Transfers from a Ponzi scheme
given in exchange for value, where that value is solely participation in or
continuation of a Ponzi scheme, are made without reasonably equivalent value
required to defend against liability. Hoffman v. Markowitz, 746 F. App'x 641, 642
(9th Cir. 2018) (holding that referral fees paid in exchange for referring others
to the Ponzi scheme do not constitute "reasonably equivalent value") (citing
Warfield v. Byron, 436 F.3d 551, 555, 560 (5th Cir. 2006)).
Although the Castaldis were not brokers and did not solicit investors,
their check cashing services enabled and perpetuated Debtors' fraudulent
scheme for the last 18 months of the operation by converting traceable bank
funds into untraceable cash, and that cash has never been accounted for. The
$50 they kept from every cashed check for gas money is analogous to fees paid
for a referral service that gives no reasonably equivalent value in a Ponzi
scheme. The same is true for the cash they returned to Debtors, which the
Castaldis do not dispute on appeal. Lastly, even assuming that the Merry
Christmas check was a repayment of loans the Castaldis made to Thomas, it
20 was drawn against one of the Debtor entity accounts and signed by Becker.
Satisfaction of Thomas's personal debts from non-personal funds gives no
conceivable reasonably equivalent value to Debtors.
There were no triable issues of fact that: (1) Debtors operated a Ponzi
scheme; (2) the transfers were made to the Castaldis with actual intent to
hinder, delay, or defraud Debtors' creditors in furtherance of that scheme and
were avoidable under the Bankruptcy Code and Nevada law; and (3) the
Castaldis had no defense to avoidance of the transfers. Accordingly, the
bankruptcy court did not err in granting Trustee summary judgment.
CONCLUSION
For the reasons stated above, we AFFIRM.