Texas Supreme Court Agrees to Hear Golf Channel Ponzi Scheme Question
In 2012, R. Allen Stanford, a former financier and professional sports sponsor, was convicted of various fraud, money laundering, and conspiracy charges based on his role as the head of massive Ponzi scheme. His more than $7 billion certificate of deposit fraud landed him in prison for 110 years. Since that time, a court-appointed receiver has been attempting to recover the money from various sources.
While the fraud was ongoing, it got so large that Stanford used mass marketing to get the word out about his investment “opportunity.” One of Stanford’s entities became the title sponsor for the “Stanford St. Jude’s Championship” – a PGA event. As a title sponsor of the event, The Golf Channel offered the Stanford entity advertising packages. Through this package, at a cost of $5.9 million, the entity received 682 commercials annually, among other things. This was paid for with proceeds from the certificate of deposits.
In his attempt to recover the fraud monies, the court-appointed receiver sued The Golf Channel under Texas’ Uniform Transfer Act which allows a bankruptcy creditor to void fraudulent transfers. However, a person/entity that receives the money can prevent this by showing the money was accepted in good faith and was given for something of reasonably equivalent value. Based on this, the trial court granted summary judgment to The Golf Channel. And, in March, 2015, the Fifth Circuit agreed that the money was taken in good faith. However, finding the money provided no value to the creditors, the court reversed.
The Golf Channel urged the Fifth Circuit to reconsider its decision arguing its decision could have far-reaching consequences on those who unknowingly provide services to Ponzi schemes. Rather than re-deciding the matter itself, the Court certified a question to the Texas Supreme Court. The Fifth Circuit asked the court to define “value” under the act. Specifically, the court seeks an answer to whether market value is enough, or must it be value to the creditors. On Friday, July 17, 2015, the Texas Supreme Court agreed to hear the issue.