1119( 5th Cir. 1993). In a Chapter 11 case, a fiscal agent was appointed to pursue avoidance actions on behalf of creditors. In a case where payments were made for fuel to try to keep a failing commuter airline affiliate afloat, the fiscal agent argued that the only value that can be considered in analyzing“ reasonably equivalent value” is“ property actually received.” The Fifth Circuit rejected what it called this“ narrow approach” and found that“ the benefits flowing to [ the debtor ] from keeping [ the airline affiliate ] in operation is likewise value for purposes of Section 548.” Id. at 1127. Consequently, the Court found that any fuel payments made while the affiliate airline was still in operation constituted reasonably equivalent value.
The Eleventh Circuit addressed this issue in yet another Ponzi scheme in the case In re Fin. Fed. Title & Tr., Inc., 309 F. 3d 1325( 11th Cir. 2002). This involved over $ 1 million paid in commissions for services of an individual in soliciting investors over an 18-month period. Following the reasoning of Universal Clearing House and rejecting the caselaw relied on by the Bankruptcy and District Courts to the contrary, the Eleventh Circuit reversed the lower courts and adopted the objective standard. Id. at 1331-32. The Court remanded the case for a determination of the value of the services provided. Id. at 1333.
The Fifth Circuit then took the issue up again in Warfield v. Byron, 436 ֿF. 3d 551( 5th Cir. 2006), and reaffirmed its subjective view of“ reasonably equivalent value.” This case involved a Ponzi scheme that was subject to a SEC receivership, not a bankruptcy, where the receiver sued two investors who received far more from the scheme than they invested under the Uniform Fraudulent Transfer Act. Addressing the question of reasonably equivalent value, the Court said:
“ The primary consideration in analyzing the exchange of value for any transfer is the degree to which the transferor’ s net worth is preserved.” Id. at 560. Consequently, while the transferee had provided broker services for the company, the Court noted that“[ i ] t takes cheek to contend that in exchange for the payments he received, the [] Ponzi scheme benefitted from his efforts to extend the fraud by securing new investments.” Id.
Then, in a twist, in Janvey v. Golf Channel, Inc., 834 F. 3d 570( 5th Cir. 2016), the Fifth Circuit addressed this question not under Section 548 of the Bankruptcy Code, but under the Texas Uniform Fraudulent Transfer Act( TUFTA) in a receivership commenced against a Ponzi scheme enterprise by the SEC. In this case, the recipient was an advertising company who was paid nearly $ 6 million for advertising services which furthered the company’ s fraudulent scheme. Id. at 571. Since the issue of how to determine value arose under state law, the Court certified the question to the Texas Supreme Court. Rejecting the argument that the transfer must confer value on the debtor, the Texas Supreme Court set the following test for determining value:
TUFTA’ s“ reasonably equivalent value” requirement can be satisfied with evidence that the transferee( 1) fully performed under a lawful, arm’ s length contract for fair market value,( 2) provided consideration that had objective value at the time of the transaction, and( 3) made the exchange in the ordinary course of the transferee’ s business.
Id. at 572( quoting Janvey v. Golf Channel, Inc., 487 S. W. 3d 560, 564( Tex. 2016)).
The Fifth Circuit distinguished its earlier decision in Warfield v. Byron, 436 F. 3d 551,
continued on page 17
15