The Wall Street Journal's Law Blog commented on a news wire service story about the receiver for the bankrupt Bayou funds trying to recover money from investors who were paid out from the insolvent scheme. According to the news wire service, "Bayou filed lawsuits against former investors who allegedly received fictitious profits and an inequitably large return of their principal investments. Marwil said that he expects that "Bayou will file additional suits against the remaining former investors to recover proceeds of fraudulent conveyances for the benefit of innocent investors who have received little, if anything, from Bayou." (my emphasis)
The WSJ Law Blog, complains, perhaps only in jest that "So imagine you're a former investor in Bayou who had no idea the fund was a fraud but luckily cashed out of your investment just before the house of cards collapsed. You received a nice return on your investment and used it to, say, make that down payment on the country house you always wanted. Now, investors who got burned are coming after you, asking you to give your principal investment and profits back so they can be redistributed equally to all Bayou investors. Oy."
This is demonstrates yet another aspect of improper due diligence in what turns out to be a scam or fraud. If you don't lose your money right off the bat, then the aggrieved bankrupt estate is going to come after you on the theory that the estate was insolvent when it transferred the money to you, so back it goes to be shared with the all the other unfortunate souls. It will be interesting to see how this plays out in the Courts.
In the case of Neulan Midkiff, the receiver actually got money not just from and innocent investor, but from an innocent bystander. Neulan Midkiff purchased a home for a $1 million, but financed it with ill gotten gains, and renovated it with money equally tainted. Ultimately, Neulan Midkiff defaulted on his payments to the vendor, being in jail and all. The innocent vendor had to pay the receiver back almost $300,000 to get their house back - now that is really annoying.
fraudulent conveyances,
blog,
house of cards,
country house,
principal investments,
insolvent,
bankrupt,
collapsed,
lawsuits,
Bayou Funds
The other day, Peter Lattman, at the WSJ Blog, declared himself amazed at the amount of fees lawyers pull out of a bankrupt company, for example in "the Chapter 11 case of Delta Airlines. As debtor counsel, Marshall Huebner and his team at Davis Polk & Wardwell have rung up a healthy bill themselves. A bankruptcy judge yesterday approved Davis Polk's $10.3 million fee application for 4 1/2 months of work on the case."
