Klein v. McGraw
Filing
55
FINDINGS OF FACT AND CONCLUSIONS OF LAW and Final JUDGMENT in favor of R. Wayne Klein against Forres McGraw in the amount of $123,598.00, with post-judgment interest accruing at the legal rate, plus the Receiver's costs incurred in bringing this lawsuit. Case Closed. Signed by Judge Bruce S. Jenkins on 4/14/14. (jmr)
FILED
U . OlSTRICT COURT
MANNING CURTIS BRADSHAW
& BEDNAR LLC
David C. Castleberry [11531]
dcastleberry@mc2b.com
136 East South Temple, Suite 1300
Salt Lake City, UT 84111
Telephone (801) 363-5678
Facsimile (801) 364-5678
ZUI~
APR 15 A II: 13
DISTRICT Of UTAH
Attorneys for PlaintiffR. WAYNE KLEIN, the
Court-Appointed Receiver of u.s. Ventures, LC,
Winsome Investment Trust, and the assets ofRobert
J. Andres and Robert L. Holloway
UNITED STATES DISTRICT COURT
DISTRICT OF UTAH
R. WAYNE KLEIN, the Court-Appointed
Receiver of U.S. Ventures LC, Winsome
Investment Trust, and the assets of Robert J.
Andres and Robert L. Holloway,
~POSEtrFINDINGS OF FACT,
CONCLUSIONS OF LAW, AND FINAL
JUDGMENT
Plaintiff,
Case No. 2:l2-cv-00102-BSJ
vs.
FORRES McGRAW,
Judge Bruce S. Jenkins
Defendant.
This matter came before the Court on a motion for summary judgment (the "Motion")
filed by the Plaintiff R. Wayne Klein, court-appointed receiver for US Ventures LC, Winsome
Investment Trust, and the assets of Robert J. Andres and Robert L. Holloway (the "Receiver") on
February 20,2014, doc. no. 52. The deadline for Defendant Forres McGraw ("McGraw") to file
any memorandum in opposition to the Motion was March 24, 2014, but no opposition was filed.
Therefore, the Court granted the Motion on April 1,2014, and hereby enters the following
findings of facts and conclusions of law as set forth below:
{00628175.DOCX I}
FINDINGS OF FACT
1.
The Receiver was appointed as receiver for US Ventures LC ("US Ventures"),
Winsome Investment Trust ("Winsome"), and the assets of Robert J. Andres and Robert L.
Holloway on January 25,2011 in connection with an action filed by the Commodity Futures
Trading Commission (the "CFTC") against U.S Ventures, LC ("US Ventures") in the United
States District Court for the District of Utah, Case No. 2:11CV00099 BSJ ("CFTC Action").
U.S. Ventures Operated as a Ponzi Scheme
And Was Insolvent at the Time of the Transfers to McGraw
2.
US Ventures, which was operated by Robert L. Holloway ("Holloway") operated
as a fraudulent Ponzi scheme before the Receiver's appointment and was operating as a Ponzi
scheme at the time of the transfers at issue. See Declaration of R. Wayne Klein ("Klein Decl. "),
attached as Exhibit 1 to the Motion, ~~ 2-43.
3.
U.S. Ventures was insolvent throughout its operations, including when it made the
transfers at issue to McGraw. ld.
4.
Holloway admitted in contemporaneous email correspondence that he was lying
to people "ever [sic] single day" in connection with U.S. Ventures, and Holloway also
recognized that he could "go to jail" for his role in U.S. Ventures and repeatedly noted his stress
and fears of being caught and losing money in the scheme. See a true and correct copy of
February 28,2006 email from Robert Holloway, attached as Exhibit 3 to the Motion; see also
Excerpts from November 30,2009, Deposition of Robert Holloway, in SEC v. Novus
Technologies LLC, United States District Court for the District of Utah, Case No. 2:07-cv-00235,
attached as Exhibit 4 to the Motion.
5.
McGraw received $123,598.00 in transfers from US Ventures between December
19,2005 and April 2, 2007. See Klein Decl. at ~ 45, Exhibit 1 to the Motion. Indeed, McGraw
{OO628175.DOCX /}
2
admits that the payments he received "can be derived from bank records already in Plaintiff's
possession." Responses at Response to Interrogatory No.2, Exhibit 6 to the Motion.
McGraw's Services Provided to US Ventures Did Not Provide Value
But Only Furthered the Ponzi Scheme
6.
McGraw provided no value to U.S. Ventures for the funds he received from U.S.
Ventures. McGraw claims that the services he provided included that he "prepared a spreadsheet
template program" and "prepared lengthy, detailed spreadsheets" for Holloway and U.S.
Ventures that detailed the alleged trading gains from U.S. Ventures' activities and that were sent
to investors. See Responses at Response to Interrogatory No.4, attached as Exhibit 6 to the
Motion.
7.
Instead of providing value to U.S. Ventures or its investors, McGraw's services
only furthered the effect of the Ponzi scheme by creating account statements that were based on
false information and that were then sent to U.S. Ventures investors.
McGraw Cannot Show that He Received Transfers
From U.S. Ventures in Good Faith
8.
McGraw knew or should have known that U.S. Ventures was a fraudulent Ponzi
scheme and he did nothing to investigate the business of U.S. Ventures, as is required to make a
good faith showing when one is on notice of indicia of fraud.
9.
For example, on September 25,2005, McGraw agreed to act as U.S. Ventures'
CFO, putting him in a position to know about and have fiduciary responsibilities to look into
U.S. Ventures' fraud. See Email exchange September 25,2005 between Forres McGraw and
Bob Holloway, attached as Exhibit 8 to the Motion, where Holloway stated in an email sent at
12:03 p.m., "1 would like to formally ask you to help me as CFO" and in an 4:25 p.m. email
McGraw responded to Holloway by writing, "Sure to all".
(00628175.DOCX f}
3
10.
On October 30,2005, Robert Holloway requested that McGraw prepare daily
return statements showing a 10% return for U.S. Ventures investments. McGraw responded the
next day suggesting that a daily return document would not be wise, as it would require U.S.
Ventures to also show a 30% loss on a particular day and that "people will freak out when they
see a 30% loss." See October 30 and 31, 2005 e-mail exchange between Forres McGraw and
Bob Holloway, attached as Exhibit 9 to the Motion. Thus, McGraw was aware of the drastic
returns and losses that U.S. Ventures was purportedly making and was involved in planning
ways to hide these facts from investors.
11.
Holloway also asked that McGraw report a $0 change in U.S. Ventures accounts
on October 31, 2005 when the trading actually resulted in a loss. When McGraw asked why he
was to report $0 when there was actually a loss, Holloway stated that "we lost and have to carry
losses ourselves." Id. McGraw recognized that "withholding that information from them could
be a huge liability. II Id. Despite this known concealment of a loss, the next day McGraw
prepared calculations showing a 772% gain for U.S. Ventures over the prior 365 days. See
November 1, 2005 email chain between Forres McGraw and Bob Holloway, attached as Exhibit
10 to the Motion.
12.
On December 5, 2005, McGraw sent Holloway an email concerning Holloway'S
practice of using funds he had told investors were in "reserve" to trade. See December 5,2005
email from Forres McGraw to Bob Holloway, attached as Exhibit 11 to the Motion. McGraw
pointed out that if Holloway used such funds to trade, they were not truly in reserve,
demonstrating McGraw's knowledge of Holloway's misrepresentations to investors. Id.
13.
On February 3,2006, McGraw sent Holloway an email discussing potential
verification that "the returns reported on David's report are accurate." February 3,2006 email
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4
from Forres McGraw to Bob Holloway, attached as Exhibit 12 to the Motion. McGraw noted
that such verification would "get off track if they want to verify that the beginning balance
reported to account holders ties to the balance in the bank. Which, of course, it doesn't." Id.
McGraw's suggestion to resolve this problem was to "explain this by describing it as an unfunded
loss reserve." Id.
14.
On February 21,2006, McGraw had an exchange with Holloway regarding a
meeting with Matt Striggles, an acquaintance of McGraw, regarding the U.S. Ventures
investment. See February 21, 2006 email exchange between Forres McGraw and Bob Holloway,
attached as Exhibit 13 to the Motion. Holloway was concerned and asked n[h]ow can we talk to
him without pulling up skirt?" Id. McGraw noted that he has "set the stage" with Striggles "by
telling him that you were eating the losses." !d. McGraw then suggested that "[i]f you have an
unfunded loss reserve, you just have to convince him that the loss was the result of something
that cannot happen again." Id.
15.
On February 21,2006, Holloway sent McGraw additional communications
demonstrating the fraudulent nature of U.S. Ventures and Holloway'S trouble keeping the fraud
going. In those communications, Holloway made such comments as "[p ]lease send me a gun to
eat" and "I cannot deal with losses. I can't sleep, I am up until 4 or 5 am staring at ceiling. BFW
allover. .. only I did it." February 21,2006 email exchange between Bob Holloway and Forres
McGraw, attached as Exhibit 14 to the Motion.
16.
On March 2, 2006, McGraw wrote to Holloway to infonn him that McGraw had
changed the U.S. Ventures trading reports to show a "null" entry when an account had no
earnings for a day, thus causing the reports for days of no earnings or losses to "not reduce the
{00628175.DOCX I}
5
daily average." March 2,2006 email exchange between Bob Holloway and Forres McGraw,
attached as Exhibit 15 to the Motion.
17.
In an April 9, 2006 email, McGraw noted that U.S Ventures was providing "the
best return available on the planet," despite his knowledge that he was manipulating the reports
not to show losses. April 9, 2006 email from Forres McGraw to Bob Holloway, attached as
Exhibit 16 to the Motion.
18.
On June 22, 2006, McGraw had an email exchange with Holloway explaining
McGraw's desire to set up "distribution rules" for u.s. Ventures, demonstrating McGraw's direct
participation in U.S. Ventures'management. See June 22,2006 email exchange between Forres
McGraw and Bob Holloway, attached as Exhibit 17 to the Motion. Holloway responded to
McGraw's inquiry by stating "[w]hat do you mean rules ... " fd.
19.
On October 1,2006, Holloway sent an email indicating that he intended to have
McGraw set up an offshore bank account for the "fees" Holloway was taking from his U.S.
Ventures activities. See October 1, 2006 exchange involving Bob Holloway, Arnel Cruz, and
Forres McGraw, attached as Exhibit 18 to the Motion.
20.
On October 7, 2006, Holloway sent McGraw an email outlining Holloway'S plan
to "catch up" on $17 million that was lost from the U.S. Ventures accounts; Holloway told
McGraw that he "[w]ould like to know what breakdown is to project covering my ass and doing
real audit deaL" October 7,2006 email from Bob Holloway to Forres McGraw, attached as
Exhibit 19 to the Motion; see also March 10,2007 email exchange between Bob Holloway and
Forres McGraw, attached as Exhibit 20 to the Motion (Holloway to McGraw stating "I will be
able to catch up and do loss reserve easy within a month with no more investments").
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6
21.
On November 23, 2006, Holloway sent McGraw a draft email he planned to send
to Robert Andres regarding the failing state of the U.S. Ventures scheme. Holloway's email
noted that Chase bank had frozen U.S. Ventures funds, but that he had moved some funds to a
different bank so that he could continue to use them. He then stated:
Not that the above matters much but the trading program has gotten so far off
track to what I originally planned I am finding myself wishing I had not done at
all. The idea of me ever playing golf again much less playing the senior tour in a
year is completely gone. I don't ever sleep, I am doing this almost round the
clock, my marriage is completely stressed, and I feel I am anchored to the damn
computer. I don't think I have ever been so exhausted or frustrated in my entire
life.
I originally wanted this set up as a way for me to trade my own funds, give my
family a secure future, and be able to have quality time doing my stuff and
spending time with lorraine. I have made some big mistakes along the way, made
to many exceptions, and feel like a mouse on one of those wheels turning round
and round. There is no possibility that my physical or mental state is going to
hold up long range under this pressure. Dealing with yesterdays bs, having to hire
an attorney to get funds back (could not even make payroll, plus they took every
dime out of everyone of my employees account that had a chase account going
into thanksgiving) and dealing with this because someone else is just the start.
November 23,2006 email from Bob Holloway to Forres McGraw, attached as Exhibit 21
to the Motion.
22.
On November 16,2006, McGraw made a suggestion that unmistakably identifies
u.s. Ventures as a Ponzi scheme and demonstrates his knowledge of that fact.
McGraw
suggested that U.s. Ventures implement a rule to "allow withdrawals only when and ifnew
money comes in to replace it." November 16,2006 email from Forres McGraw to Bob
Holloway, attached as Exhibit 22 to the Motion.
23.
On November 29,2006, Holloway sent to McGraw an email from Robert Andres
regarding a potential investment Andres was soliciting. November 29,2006 email chain
{00628175.DOCX /}
7
between Bob Holloway and Forres McGraw, attached as Exhibit 23 to the Motion. Holloway
asked McGraw for advice on how best to secure the investment, as the investors were asking for
documentation of U.S. Ventures' past performance. Id. McGraw explained that n[t]here is no
past performance to release or audit. We need to move some money over to USVII NOW and
start generating a track record. You can move my mother-in-Iaws over for that matter, but we
have to do it now.n Id. McGraw noted that moving funds from other investors into the account
that was soliciting the new funds would create the false impression of past performance and
accurate records, stating "[g]ood move my mother-in-Iaws and kyles accounts over. This is good
because they are small and should be easy to fund USVII account with the whole principal. This
way the USVII bank account and the trading account balance will reflect exactly the proper
amount. Ifwe do it now, we may get 90 days' worth of track record before we show them." Id.
24.
In fact, McGraw's mother-in-law never invested in U.S. Ventures. McGraw has
testified that he lied to Holloway by telling him an investment of funds came from his mother-in
law when in fact he now claims it was his own money. When asked why he lied to Holloway
about this, McGraw testified: "I didn't want it to appear as a conflict and it was easier for me to
say that it was someone else's investment than -- because I didn't want him to ask me for more
money, I wanted to see how the investment worked out." McGraw Depo. at 69:8-17, attached as
Exhibit 5 to the Motion; see also Excerpts from June 14,2011 deposition of Forres McGraw in
the case of c.F. T C. v.
u.s.
Ventures at al., Civil Action No.2: ll-cv-00099, United States
District Court for the Northern District of Texas-Dallas Division ("McGraw CFTC Depo."),
attached as Exhibit 24 to the Motion at 214: 14-22 ("Yeah. And that was actually not my mother
in-law, but I didn't want him to know it was my money").
{00628175.DOCX /}
8
25.
On December 12, 2006, McGraw sent Holloway a text message stating that one of
McGraw's associates "figured out how to skirt securities classification of notes. we'll have to do
it out ofthe bahamas." Holloway responded "on way to airport to nassau." See Text Message
Log, attached as Exhibit 28 to the Motion, at 8; see also id. at 6 (messages from Holloway to
McGraw "was 700k down last night at top," "up now," "have u dont[sic] firday?" "if not leave it
out," "it will be carry," and from McGraw to Holloway "its done").
26.
On February 15, 2007, Holloway sent McGraw an email informing him that
Holloway expected to receive a $190,000,000 investment shortly and to discuss how to use those
funds. February 15,2007 email exchange between Bob Holloway and Forres McGraw, attached
as Exhibit 29 to the Motion. McGraw noted that the investment would help them to "pull this
out." Id. Holloway suggested using the funds to "catch up" a U.S. Ventures account and
suggested that they move funds from the account of a large client to a different account "to
reduce loss balance." Id.
27.
On February 27,2007, Holloway sent McGraw an email stating that "we are
screwing up people[sic] lives with out[sic] incompetence" and stating that "[i]fwe don't send out
5 reports next week it will be closed out and we will be completely out of business and I will be
injaiL" February 27,2007 email from Bob Holloway to Bryan Bailey and Forres McGraw,
attached as Exhibit 30 to the Motion.
28.
McGraw repeatedly confirmed that the e-mail addresses and signature blocks used
in these communications between Holloway and him were his. See, e.g., McGraw Depo. at 75:6
8,75:20-23,83:14-84:1,92:21-93:2,95:4-6, 104:17-23, 118:18-21, 121:15-18, 145:24-146:3,
attached as Exhibit 5 to the Motion. He also testified that he had no reason to believe that
someone else would have been using these email addresses or to doubt that they were actually
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9
sent and received as indicated. See McGraw CFTC Depo. at 87:17-25, attached as Exhibit 24
(testifying that McGraw had no reason to believe that someone else was using his email address
or sending emails on his behalf), 190:13-17 (testifying that McGraw has no reason to doubt the
emails were sent and received by him and Holloway).
29.
McGraw also provided testimony demonstrating his knowledge that U.S.
Ventures' was conducting fraudulent activities. McGraw CFTC Depo. at 23:3-24:17, attached as
Ex. 24 to the Motion; see also McGraw Depo. at 26:7-29:4, attached as Exhibit 5 to the Motion.
For example, the nature of U.S. Ventures' payments to McGraw should have put him on notice
that its activities were not legitimate. McGraw testified that he had no contract with U.S.
Ventures, never agreed to any specific amount of payment for his services, and didn't even
discuss payment with Holloway. Id. Instead, Holloway would simply pay McGraw varying
amounts each week with no apparent basis or method for determining the amount of payments,
which McGraw conceded was "kind of strange," but also noted that Holloway "paid well." Id.
30.
McGraw also testified that a report he prepared for U.S. Ventures showing a daily
average return of .84% was "higher than - than you can get now, its higher than you could have
gotten then." McGraw Depo. at 40:2-14, attached as Exhibit 5 to the Motion.
31.
McGraw provided additional testimony showing that he was on notice of U.S.
Ventures' improper conduct, including testifying that Holloway and U.S. Ventures "changed
their distribution rules all the time," that Holloway often claimed that significant new
investments would be coming in when they did not, and that U.S. Ventures "did not send 1099s
or do any reporting." McGraw Depo. at 102:23-103:2; 116:1; 165:9-10, attached as Exhibit 5 to
the Motion.
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10
32.
Despite this stark evidence that unrealistic returns were being reported,
misrepresentations, inconsistent payments, and illegal activity, McGraw did nothing to
investigate the source of U.S. Ventures' funds or its activities. See McGraw Depo. at 34:8-20,
Ex. 5 ("Q. And you didn't do any inquiry as to how they - how U.S. Ventures was generating its
returns for its investors? A. No"), 41 :1-3 ("Q. How often did you talk with Robert Holloway
about these returns ofhis investments? A. I generally didn't. I just got a number from him,
plugged it in and did my calculation. ")
{OO628175.DOCX I}
11
CONCLUSIONS OF LAW
1.
U.S. Ventures made the transfers at issue to McGraw "with actual intent to hinder,
delay, or defraud any creditor of" Winsome, as defined under the Uniform Fraudulent Transfer
Act ("UFTA"), because U.S. Ventures operated as a Ponzi scheme at the time the transfers were
made. Utah Code § 25-6-5(1)(a). See s.E.c. v. Madison Real Estate Group, L.L.c., 647 F.
Supp. 2d 1271, 1279 (D. Utah 2009) ("Under the UFTA, a debtor's actual intent to hinder, delay,
or defraud is conclusively established by proving that the debtor operated as a Ponzi scheme."
(quotation omitted)).
2.
Demonstrating that a transfer was received in good faith and for reasonably
equivalent value is an affirmative defense to an actual fraudulent transfer, and the burden is on
Defendant to prove both the element of good faith and the element of value. Wing v. Apex
Holding Co., No. 2:09-CV-00022, 2009 WL 2843343, *5 (D. Utah Aug. 27,2009) ("whether a
defendant took payments from [the Ponzi scheme receivership entity] in good faith and for
reasonably equivalent value is an affirmative defense ....").
3.
The good faith and reasonably equivalent value components of this affirmative
defense are separate issues that must be independently established by a recipient asserting this
defense. Id.
4.
With respect to the first element, the Tenth Circuit has held that, in the context of
a Ponzi scheme, good faith "should be measured objectively and that if circumstances would
place a reasonable person on inquiry of a debtor's fraudulent purpose, and a diligent inquiry
would have discovered the fraudulent purpose, then the transfer is fraudulent." In re M&L Bus.
Mach. Co., Inc., 84 F.3d 1330, 1338 (10th Cir. 1996) (quotation omitted and emphasis in
original). In other words, n[a] transferee who reasonably should have known of a debtor's
{00628175.DOCX I}
12
insolvency or ofthe fraudulent intent underlying the transfer is not entitled" to a finding of good
faith. Id. at 1336.
5.
Here, the record shows that McGraw knew or should have known of U.S.
Ventures' insolvency and fraud and that he made no inquiry regarding that fraudulent conduct.
The fact that McGraw participated in dozens of communications in which Holloway and others
demonstrate that they were fraudulently covering up losses at U.S. Ventures, running a Ponzi
scheme, and that they were concerned about their illegal conduct. These include emails stating
that "people will freak out when they see a 30% loss," that Holloway wanted McGraw to "send
[him] a gun to eat," that Holloway made "big mistakes," that Holloway "will be in jail," and that
McGraw's associate "figured out how to skirt securities classification of notes." McGraw
participated in drafting reports and in conceiving strategies to hide those losses, such as failing to
report trading days that lost money, moving funds from one account to another to hide losses,
and using investments from new investors to pay old investors.
6.
McGraw did not simply prepare spreadsheets, but was directly involved in U.S.
Ventures' operations. He suggested accounting losses to an "unfunded reserve," created
"distribution rules," proposed funding withdrawals with later investors' money, agreed to act as
U.S. Ventures' CFO, wanted to transfer his "mother-in-Iaw's" funds to create the appearance of
past performance, prepared U.S. Venture reports to "equal null'! on days without gains to hide
losses, and helped open an offshore account for Holloway. McGraw was also plainly aware that
U.S. Ventures was reporting unrealistic returns, including returns of 772% in a year, noting that
U.S. Ventures was giving "the best return available on the planet," and preparing a report
showing returns that he recognizes were not achievable at the time ofthe report. McGraw was
also paid with fraudulently obtained funds in a sporadic manner at no set salary, without a
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13
contract, and without ever discussing an agreed payment amount. Further demonstrating
McGraw's knowledge of the impropriety of U.S. Ventures, he lied to Holloway in claiming that
funds he invested were from his mother-in-law rather than his own because he believed investing
his own money would create a conflict of interests and because he did not want Holloway asking
him for money
7.
Despite these many indications of McGraw's notice and knowledge that U.S.
Ventures was a fraudulent operation, McGraw did nothing to investigate the propriety of the
reports he was making and the funds he was receiving. Instead, he simply reported whatever
unrealistic numbers Holloway told him to report and continued to assist Holloway in hiding
losses without ever investigating the legality of the operation. McGraw cannot demonstrate that
he conducted a "diligent inquiry" regarding u.s. Ventures' fraud. In re M&L Bus. Mach. Co., 84
F.3d at 1338. Therefore, he is not entitled to a finding of good faith.
8.
In Wing v. Williams, 2011 WL 891121, the court addressed a situation where, like
McGraw, the defendant claimed to have provided reasonably equivalent value to a Ponzi scheme
and therefore argued he was entitled to assert the "good faith" defense. The court agreed with
the defendant in Williams, and its reasoning makes clear why McGraw cannot avail himself of
the good faith defense. Specifically, the court in Williams found that the defendant acted in good
faith because he "was never an officer, manager, employee or investor with any [Ponzi] entity,"
"did not give accounting advice," "believed that each of the projects were real, viable
enterprises" based on authenticated documentation he was provided, "had no reason to question"
the work of accounting firms that processed the entities' financial disclosures, "earned his regular
fees," "was not an insider," and "was not an investor." ld. at *4-6. The court also noted that
there was no evidence of "too-good-to-be-true interest rates, bounced checks, implausible
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14
explanations, and post-dated payment checks." In contrast, McGraw, inter alia, invested his own
funds in U.S. Ventures but lied about the source of those funds because he did not want the Ponzi
scheme operator to ask him for more money and he was concerned about a conflict of interest,
suggested that U.S Ventures create new accounts for trading as a means of hiding the history of
prior losses, urged Holloway to create an "unfunded loss reserve," was paid in irregular amounts
and irregular intervals, was aware of unrealistic returns, and was included on multiple
communications in which Holloway made statements providing significant reason to believe that
U.S. Ventures operated as a Ponzi scheme. Accordingly, McGraw did not receive the transfers
at issue in good faith and, therefore, he is not entitled to assert the good faith defense.
9.
With respect to the second element, the question of whether value is received is
answered from the perspective of the tort creditors of Winsome, its defrauded investors. In re
Jordan, 392 B.R. 428, 441 (Bankr. D. Idaho 2008) ("Whether a debtor received a reasonably
equivalent value is analyzed from the point of view of the debtor's creditors, because the function
of this element is to allow avoidance of only those transfers that result in diminution of a debtor's
... assets."); see also Donell v. Kowell, 533 F.3d 762, 767 (9th Cir. 2008) (explaining that, in a
Ponzi scheme, the Ponzi scheme operator is the "debtor," and each good faith investor in the
scheme who has not regained his initial investment is a "tort creditor"). In other words, the
question is not whether Defendant "gave reasonably equivalent value; it is whether [U.S.
Ventures] received reasonably equivalent value." In re Lucas Dallas, Inc., 185 B.R. 801, 807
(9th Cir. 1995).
10.
The only value McGraw claims to have provided in exchange for the transfers at
issue is preparing certain spreadsheets related to U.S. Ventures' investors and purported returns
{00628175.DO(X I}
15
and losses on U.S. Ventures' trading, and that he may also have received payments from U.S.
Ventures as returns on an investment he made with U.S. Ventures.
11.
The reports McGraw provided to U.S. Ventures did not provide any value to the
investors of U.S. Ventures, and these reports only served to further U.S. Ventures' fraudulent
activities. Such services that further a fraudulent venture cannot satisfy the requirement of
providing reasonably equivalent value. See Wing v. Holder, No. 2:09-CV-118, 2010 WL
5021087, *2 (D. Utah Dec. 3,2010) (rejecting argument that defendant provided reasonably
equivalent value to Ponzi entity by referring investors because he had "received money for
essentially prolonging the fraud of and on the [Ponzi] entities"). Also, any investment made by
McGraw was minimal in comparison to the total amount of money he was paid by U.S.
Ventures.
12.
Therefore, because the transfers to McGraw at issue were made by U.S. Ventures
while it operated as a Ponzi scheme, because U.S. Ventures did not receive reasonably
equivalent value from McGraw in exchange for these transfers, and because McGraw did not
receive the transfers in good faith, the Court holds that the transfers at issue were actual
fraudulent transfers under Utah Code Ann. § 25-6-5(1)(a).
13.
A transfer can also be avoided as a constructive fraudulent transfer if (1) "the
debtor made the transfer ... without receiving reasonably equivalent value in exchange" and (2)
the transferor could not pay its debts as they became due. Utah Code Ann. § 25-6-5(1)(b).
14.
As discussed above, U.S. Ventures did not receive reasonably equivalent value in
exchange for the transfers at issue.
{OO628175.DOCX /}
16
15.
Proof of U.S. Ventures operating as a Ponzi scheme also shows that it "intended
to incur, or believed or reasonably should have believed that [it] would incur, debts beyond [its]
ability to pay as they became due. n Donell, 533 F 3d at 770.
16.
Therefore, the Court holds that the transfers at issue were constructively
fraudulent under Utah Code Ann. § 25-6-5(1)(b)
17.
Because the Court finds that transfers may be avoided as actual or constructive
fraudulent transfers, the Court declines to decide the issue of whether McGraw is liable on the
unjust enrichment claim made by the Receiver.
18.
Therefore, the Motion for Summary Judgment filed by the Receiver is
GRANTED.
19.
Accordingly, judgment is hereby entered against Defendant and in favor the
Receiver in the amount of$123,598.00, with post-judgment interest accruing at the legal rate,
plus the Receiver's costs incurred in bringing this lawsuit.
IT IS SO ORDERED.
1 ....
DATEDthis~dayof~
,2014.
BY THE COURT:
JudgbBTUCe:J illS
{0062817S.DOCX /}
17
,-
CERTIFICATE OF SERVICE
I hereby certify that I caused a true and correct copy of the foregoing PROPOSED
FINDINGS OF FACT, CONCLUSIONS OF LAW, AND FINAL JUDGMENT to be served
in the method indicated below this 14th day of April, 2014, addressed as follows.
HAND DELIVERY
_LU.S.MAIL
OVERNIGHT MAIL
FAX TRANSMISSION
~_E-MAIL TRANSMISSION
USDC ECF NOTICE
Forres McGraw
5427 Preston Haven Dr.
Dallas, TX 75229
forres@outlook.com
Defendant pro se
lsi David C. Castleberry
{00628175.DOCX /}
18
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