The opinion of the court was delivered by: Honorable Edward J. Lodge U. S. District Judge
MEMORANDUM DECISION AND ORDER
Pending before the Court in the above-entitled matter are cross motions for summary judgment and a motion to strike Defendant's motion for summary judgment. Having fully reviewed the record, the Court finds that the facts and legal arguments are adequately presented in the briefs and record. Accordingly, in the interest of avoiding further delay, and because the Court conclusively finds that the decisional process would not be significantly aided by oral argument, this matter shall be decided on the record before this Court without oral argument.
Plaintiff R. Wayne Klein ("Klein" or "Receiver") was appointed as a receiver over the assets of Trigon Group, Inc. ("Trigon") and Daren Palmer ("Palmer"). It appears at this stage in the litigation it is undisputed that Palmer was running a "ponzi scheme" from investments made in Trigon as early as 2002 and continuing through 2008.
"A Ponzi scheme is an arrangement whereby an enterprise makes payments to investors from the proceeds of a later investment rather than from profits of the underlying business venture, as the investors expected. The fraud consists of transferring proceeds received from the new investors to previous investors, thereby giving other investors the impression that a legitimate profit making business opportunity exists, where in fact no such opportunity exists." Agricultural Research and Technology Group, Inc., v Palm Seedlings Partners--A, 916 F.2d 528, 531 (9th Cir. 1990) (citing Cunningham v. Brown, 265 U.S. 1, 44 (1924)).
The Court takes judicial notice that due to his activities in the ponzi scheme, Palmer was convicted of fraud and money laundering and received a sentence from this Court of 96 months imprisonment, three years supervised release, 200 hours community service, $29,842,731 in restitution and $200 special assessment. See United States v. Palmer, Crim. Case No. 11-130-E-EJL, Dkt. 23.
The Receiver filed the Complaint in this action seeking to recover monies from Doyle Beck ("Beck") that the Receiver maintains were paid from Trigon assets but for which Beck gave no value to Trigon. Beck maintains he never made an investment in Trigon and he merely made a personal loan to Duane Yost ("Yost") in the amount of $500,000 with an interest rate of 20% on or about October 4, 2006. There is no written documentation concerning the loan. Beck claims he had known Yost for several years and that Yost told Beck he was using the loan proceeds to invest in ventures including with Yost's brother-in-law, Palmer. Beck did not put any restrictions on how Yost was to use the loan proceeds. Yost asked Beck to make the check for $500,000 out to "Yost Enterprises."
Between April and November 2007, Beck received a total of $605,000 from Yost or entities controlled by Yost which represented a principal payment and interest payments on the loan. Beck was repaid the principal loan amount and interest by Yost on checks drawn on one of the entities controlled by Yost, not Trigon. Beck claims to have no knowledge of the specific activities of Palmer, Trigon or Yost. Beck claims he had no knowledge of the source of the monies Yost used to repay the loan and to pay the interest owed on the principal.
Yost filed an affidavit in this case indicating that the $500,000 he received from the loan from Beck made out to Yost Enterprises was then deposited $100,000 to Centurian, LLS; $152,000 to Yost Development; $100,000 into Yost Enterprises; and $175,000 into Yost Leasing. Yost says he ultimately invested the entire $500,000 through "book entries."
The Receiver maintains that he has been unable to trace the investment by Yost of the $500,000 in loan proceeds. While there may have been "book entries" made by Yost, the Receiver does not show any of the loan proceeds actually being received by Trigon. The Receiver maintains that Yost was very involved in Trigon and the ponzi scheme being run by Palmer and speculates that Yost may have been running his own ponzi scheme with his own investors and Trigon investors. The Receiver maintains Yost's knowledge and involvement in the fraudulent activities of Trigon prevents any monies received by Yost or entities he owned or controlled from being legitimate transferees of Trigon monies.
The fact that Yost was investing via "book entries" instead of actual deposits of monies seems to indicate that Yost was very involved in Trigon's activities.
The Receiver has traced the monies used to repay the loan and all the interest payments (except the one on April 3, 2007 for $50,000) back to monies Yost received from Trigon. Therefore, the Receiver seeks to have $555,000 ($605,000 less the one interest payment not traced back to Trigon in the amount of $50,000) returned from Beck to the innocent investors of Trigon since Trigon did not receive $555,000 in value from either Yost or Beck.
Beck claims Yost was an initial transferee so that any monies he received from Yost or Yost entities are not voidable transfers as he took the payments in good faith and for a reasonably equivalent value. Klein argues Beck cannot raise the good faith defense as Yost was an insider in the Trigon ponzi scheme. Alternatively, the Receiver argues even if there was no actual fraudulent transfer, there was a constructive fraudulent transfer as no reasonable value was provided to Trigon for the $550,000 paid to Yost (and then to Beck) and a constructive fraudulent transfer does not have a good faith defense.
The extent of Yost's involvement and investment in Trigon is discussed by the Receiver in his affidavit, but the affidavit of Yost does not detail his involvement and merely indicates he ...