Golf Channel May Want Mulligan in Fifth Circuit Fraudulent Transfer Ruling

The U.S. Court of Appeals for the Fifth Circuit recently overturned a lower court decision in Janvey, Receiver for Stanford International Bank Limited, et al v. The Golf Channel Incorporated, requiring the Golf Channel to return almost $6 million it received in advertising revenue from the now-defunct Stanford International Bank to the bank’s receiver.

Stanford purchased television advertising from The Golf Channel for approximately $6 million in 2006. In 2009, the Securities and Exchange Commission (“SEC”) uncovered Stanford’s multi-billion dollar Ponzi scheme operation and filed suit in the Northern District of Texas. The district court appointed a receiver, which targeted The Golf Channel ad purchase as a fraudulent transaction that delivered no value to Stanford creditors.

The district court granted summary judgment to The Golf Channel, which introduced evidence at trial of the market value of the advertising as proof of value rendered. In its March 11, 2015, ruling, the Fifth Circuit reversed the district court decision, saying that the market value of the advertising was irrelevant. The court said that, as a matter of law, advertising purchased in order to extend a Ponzi scheme could not provide value to Stanford creditors and was thus fair game for clawback by the receiver.

The court faulted The Golf Channel for not providing any evidence “that its services preserved the value of Stanford’s estate or had any credibility from the creditors’ perspective. Golf Channel only brought forth evidence showing the market value of its services. This was insufficient to satisfy its burden under the Texas Uniform Fraudulent Transfer Act (TUFTA) of proving value to the creditors.”

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