By: Scott B. Riddle, Esq.

Perkins, as Chapter 11 Trustee for International Management Associates, Inc. v. Crown Financial, LLC, Adv. No. 06-6421, 2007 Bankr. LEXIS 1566 (Bankr. N.D. Ga. March 7, 2007)(Mullins).  Debtor was a hedge fund that the Trustee contends was operated as a fraudulent Ponzi Scheme (see here, here and here for prior posts about Kirk Wright and IMA). Prior to the debtor’s bankruptcy petition, the debtor and defendant were engaged in litigation which resulted in a settlement in January 2006.  Pursuant to the terms of the settlement, the debtor paid the defendant $590,000. 

The Trustee filed an adversary, alleging that the payment was a fraudulent transfer under Bankruptcy law and Georgia state law as the defendant took the payment knowing that the debtor was operated as a Ponzi scheme.  The defendant filed a motion to dismiss based upon failure to plead fraud with particularity, or for a more definite statement. 

The Court denied the Motion.  The complaint alleged that a settlement was reached in the state court action, the approximate date of the payment and the source of funds of the payment.  Importantly, in their pleadings, the defendant was able to identify the specific transaction.  Thus, the complaint was sufficient to allow the defendant to answer and defend the claim.  For the same reasons, the Court denied the motion for more definite statement.

 The court also denied the defendant’s motion to strike immaterial matters, such as the Trustee’s recitation of the history and operation of IMA.  The allegations may be relevant to establishing fraud or a Ponzi scheme.