AUSTIN, Texas (CN) - The receiver for R. Allen Stanford's $7 billion Ponzi scheme cannot demand the return of $6 million paid to The Golf Channel for advertising, which had "reasonably equivalent value" under Texas law, the Texas Supreme Court ruled Friday.
The ruling is the first time the high court has weighed in on the notorious Ponzi scheme that involved the sale of phony certificates of deposits.
Stanford, 65, was sentenced in 2012 to 110 years in federal prison after being convicted in Houston Federal Court of 13 of 14 counts of conspiracy, wire fraud and mail fraud.
Since his appointment, receiver Ralph Janvey has tried to recover investor money by filing several dozen lawsuits against defendants including the Miami Heat basketball team, New Orleans-based law firm Adams & Reese, Baton Rouge-based law firm Breazeale Sachse & Wilson, the University of Miami, Texas A&M University, the PGA Tour, the ATP tennis tour, and several Stanford-entity investors, members and officers.
Janvey sued The Golf Channel in 2011 in Dallas Federal Court.
A three-judge panel with the Fifth Circuit ruled last year that the channel must return the $6 million because it provided "no value to the debtor's creditors." Stanford signed a two-year advertising agreement in 2006 that provided for 682 commercials per year, live coverage of a championship tournament for which Stanford was a title sponsor and promotion of Stanford's products and brand.
The New Orleans-based appeals court later vacated the ruling on rehearing and sent a certified question to the Texas Supreme Court, asking the high court to define the term "reasonably equivalent value" from the "creditor's viewpoint" to establish an affirmative defense under the Texas Uniform Fraudulent Transfer Act. A transfer cannot be subject to clawbacks under the act if the recipient provides something of "reasonable equivalent value" and takes the money in good faith.
Justice Eva Guzman's 35-page opinion concluded something of "reasonable equivalent value" was provided due to evidence that "the transferee (1) fully performed under a lawful, arm's-length contract for fair market value, (2) provided consideration that had objective value at the time of the transaction, and (3) made the exchange in the ordinary course of the transferee's business."
Guzman was not persuaded by Janvey's argument that the advertising services provided had no value to creditors because they "would only attract new investors, and enable the Ponzi scheme to continue and thrust it further into insolvency."
"We hold the Texas Uniform Fraudulent Transfer Act does not contain separate standards for assessing 'value' and 'reasonably equivalent value' based on whether the debtor was operating a Ponzi scheme," she wrote. "Transactions for consumable goods and services may deplete a debtor's leviable assets, but that factor alone does not render the exchange valueless."
The Golf Channel had argued that using Janvey's value analysis would "wreak economic havoc if good-faith merchants are required to forfeit their earnings" unless they can prove the transfer gave some kind of secondary or residual benefit or did not further the debtor's insolvency.
The Fifth Circuit previously ruled in 2012 that several Republican and Democratic political committees must return over $1.6 million in Stanford contributions to Janvey.
Janvey's attorney, Kevin Sadler with Baker Botts in Palo Alto, California did not immediately respond to an email message requesting comment Friday afternoon.
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