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It’s widely known that avoidance actions to claw back fraudulent transfers can be filed after the typical four-year limitations period has expired under most states’ versions of the Uniform Fraudulent Transfers Act (or the new Uniform Voidable Transactions Act) by invoking the “discovery rule” in those statutes. Under the discovery rule, the limitations period may be tolled where the transfer was made with the debtor’s intent to defraud creditors and the transfer (or in many states, its wrongful character) was not reasonably discoverable 12 months before the bankruptcy petition was filed.

A string of recent email and media account scams[1] remind us that fraudsters are constantly looking for gullible victims, whether lawyers or clients, to scam in seemingly legitimate schemes. Folks in financial distress are excellent targets. Here are several examples to watch for and to caution clients against.

Client in Distress

In a recent decision, the U.S. Bankruptcy Court for the Eastern District of Michigan held that a chapter 11 debtor may pay an unsecured claim in full prior to confirmation in order to moot the creditor’s objection to the debtor’s plan of reorganization and allow confirmation of the plan.

In the case of Irving H. Picard, Trustee v. Frank J. Avellino, et al. (In re Bernard L. Madoff Investment Securities LLC), the trustee filed an amended complaint asserting 13 counts to, in sum, avoid preferential and fraudulent transfers and subsequent transfers against multiple defendants and to subordinate and disallow certain defendants’ claims.[1] The trustee served as both the trustee for the liquidation of the estate of Bernard L. Madoff Investment Securities LLC (BLMIS) and the estate of Bernard L.

Since 2009, I have served as a bankruptcy trustee for the estate of Kevin Carney, a Ponzi fraudster. Carney stole over $10 million from close to 200 people, most of whom were people of modest means.

The victims of this Ponzi scheme have received a lot of help from the Internal Revenue Service. Not only did the IRS subordinate its claim in the estate, but thanks to a favorable revenue procedure, victims will be able to treat most of their Ponzi scheme losses as losses owing to casualty or theft.

Have you ever had the unfortunate experience of losing a smartphone? Has your car ever been taken for a joy-ride? Has your home been burglarized? Fortunately, in the digital age we have the benefit of sophisticated technology and software applications that can be used to track down the whereabouts of our prized possessions. We also often rely on law enforcement to help find and recover our lost and stolen property.