October 15, 2018, Florida – The Debtors namely, Providence Financial Investment, Inc. and Providence Fixed Income Fund, LLC operated a Ponzi scheme that defrauded over 400 investors of approximately $64 million. The primary perpetrator of the Ponzi scheme, Anthony Buzaneli, was found guilty of the fraud and convicted of perpetrating the Ponzi scheme. The trustee, Maria Yip sought to recover commission payments made by the Debtors to Defendant, Wilton Perez as an “originator” – the one who introduced investors to the Debtors to sell the promissory notes as investments. The Defendant received commission payments from the Debtors in the amount of $256,263.43, for investor funds that he brought to the Debtors. The commissions were paid in 19 transfers from June 25, 2013, through April 17, 2016, while the Debtors were perpetrating the Ponzi scheme.
While the parties did not dispute the preceding or the insolvency of the Debtor at the time of the alleged transfers to Defendant, the Plaintiff asserted that the Defendant knew or should have known of the Ponzi scheme and, therefore, cannot establish good faith and value. The Defendant contended that he had no control over the Debtor’s business affairs and no knowledge of Debtors’ business operations or misconduct. The Defendant asserted that he earned his commissions according to a valid contract he had with the Debtors.
The Trustee alleged that the Defendant knew Buzaneli was not paying investors when requested, and that the Debtors were having “liquidity” problems. The Trustee relied on several e-mails between Defendant and Buzaneli to prove Defendant knew or should have recognized these signs as indicating the operation of a Ponzi scheme. The Trustee also asserted that the fact that the Defendant invested $50,000 of his funds with the Debtors reiterates that the Defendant was aware of the Debtors’ “liquidity” problems.
Upon review, the Court found that the Defendant was not aware of the Debtors’ Ponzi scheme operation while he was working to obtain investors for the Debtors. The Court stated that although the emails between the Defendant and Buzaneli indicate the Defendant knew that the Debtors had a liquidity problem, that did not prove that the Defendant knew the Debtors were operating a Ponzi scheme. The Court stated that the emails showed that the Defendant knew that Debtor’s cash reserves were insufficient to meet the redemption demands of the investors, but they did not show that the Defendant knew that the inability to pay the redemptions was the result of the operation of a Ponzi scheme. The Court was not persuaded by the testimony that Defendant’s $50,000 contribution if indeed made, demonstrated that the Defendant knew of the Ponzi scheme.
On the next issue, the Court relied on the analysis in Merrill v. Allen (In re Universal Clearing House Company) and ruled that the Defendant’s services did constitute “value” in consideration for the commissions he received, pursuant to 11 U.S.C.S. 548(c), because the Defendant produced investors who paid approximately $1.1 million to the Debtors. As a result, the Defendant was contractually due to receive a commission from the Debtors. Thus, the Court held that the Defendant received the commission payments for value and in good faith.
However, the Court also held that although the Defendant’s services provided value to the Debtors, the commission payments were excessive. The Court found that the Defendant was to be paid commissions ranging from 6.5% to 7.5% per annum, depending on the period of each contract, whereas he received about 23% as commissions on the investor funds. Accordingly, the Court held that since the evidence indicated that the commissions paid were over the value of the Defendant’s broker services for which the Debtors contracted, the trustee was entitled to avoid and recover the excess 16% in commission payments that exceeded the approximate 7% contract rate
Yip v. Perez (In re Providence Fin. Invs., Inc.), Nos. 16-20516-BKC-AJC, 16-20517-BKC-AJC, 17-1156-BKC-AJC-A, 2018 Bankr. LEXIS 3193 (Bankr. S.D. Fla. Oct. 15, 2018)