Jay Peak Receivership: Effective Defense of Fraudulent Transfer Actions

 

Vermont State House building Jay Peak EB-5 scandal

Immigration lawyers who practice in the EB-5 industry need to be aware that the Jay Peak receivership litigation is substantially more than just a black eye for the industry, and a problem for the investors who invested in the latest tranches of Jay Peak projects.  While those in the latest tranches lost their investments and the immigration benefits, what is just beneath the surface is far more problematic.  It directly and drastically affects those who invested in earlier tranches, received returns on their investments, and are currently living their American Dreams blissfully unaware of what may happen to them in the near future.

The Receiver and Claw-Back Action

One of the receiver’s obligations is to deconstruct the fraud, and pursue an equitable result for the creditors of the receivership estate.  Meeting this obligation requires a balancing of the creditors’ rights to fair distributions and paying the administrative expenses of the receivership estate; meaning, bringing money back into the estate from similarly situated investors in order to more equally distribute the funds among the entire investor class.  This is likely to take the form of fraudulent transfer claw-back actions against those who were repaid on their investment.  It is unlikely to matter to the receiver in determining whom to sue whether repaid investors were paid out of operating profit or by virtue of new investor funds; though this may be highly important to the ultimate outcome of individual cases.  Every Ponzi scheme, including Jay Peak, enters the claw-back action stage soon after the receiver (or bankruptcy trustee) wraps his or her mind around what really took place.  Further, receivers cast a wide net, and pursue everyone who received repayment within the previous six years, using the Uniform Fraudulent Conveyances Act as their means to replenish the estate.

Jay Peak Waterpark

When the Uniform Fraudulent Conveyance Act litigation begins, immigration attorneys and regional center operators with whom investors may have had contact should expect to receive many phone calls from confused immigrants for whom they procured green cards, asking what the lawsuit means.  The first and most important response must be, “obtain a lawyer who understands and has defended multiple fraudulent conveyance actions, preferably one who understands EB-5 and investment based immigration.” 

As with all lawsuits, responding timely is of the utmost importance.  Fraudulent conveyance defense is highly specialized, and requires a firm understanding of financial transactions, funds tracing and a well-designed systematic approach to the litigation in order to elicit the right information.  The concept is often confusing to the layman because it appears as though she or he is being sued for fraud, when in fact it is the fraud of a third party that has ensnared the defendant.  

The Complexities of Ponzi Schemes

Ponzi schemes complicate the defense further, because the defense must be separated into the defense of the action as regards any return of principal and the defense of the action as regards the investor’s return on investment.  For an excellent example of the complex and intellectually challenging nature of defending such actions in the context of a Ponzi scheme one need look no further than the Bernie Madoff bankruptcy proceeding.  Such lawsuits are vexatious by their very nature, but must be systematically and rigorously defended.  

Charging Bull on Wallstreet for Ponzi Schemes

More importantly, within the context of a Ponzi scheme, it is highly important that all defendants coordinate their defenses.  The matter will not proceed as a single action, but rather as many actions against individual defendants.  This puts the receiver at a distinct advantage in that he will be able to use the testimony of the various defendants in the many actions to elicit information that may lead to more pointed questioning of other defendants.  Additionally, the receiver and his legal team will methodically proceed with discovery in a manner that maximizes the likelihood of obtaining information from the many defendants that can be broadly used either at summary judgment or at trial against all defendants.

The EB-5 Industry

In the Jay Peak case, it will be important to see the defense through the glasses of the EB-5 industry.  While the case can be reduced to a simple Ponzi scheme, which the receiver will likely try to do, the nuances of how these investments were structured, how they were sold, and the fact that real, solid and meaningful economic activity played a role in the returns is of greater importance.  All of this information is available because of how EB-5 investments are structured.

Oppenhuizen Law Firm, PLC has over a decade of experience defending fraudulent conveyance actions, and has the depth of knowledge in the EB-5 industry to provide deep, knowledgeable and meaningful counsel to any investor who finds himself or herself ensnared in the Jay Peak fraudulent conveyance trap.  We ask that you consider our firm when you receive calls from former clients seeking advice as to why they have been sued long after completing the process of obtaining their green cards.

Oppenhuizen Law Firm, PLC prides itself on building lasting personal relationships with its clients.  Each client will receive the individual time and attention he or she needs to ensure that the client fully understands the case, potential defenses, strategy moving forward, and has a clear picture of expected attorney fees and costs.  James R. Oppenhuizen will travel to your client’s location to discuss defense, answer any and all questions your client has, and then allow him or her to make a decision as to whether to retain the firm’s services.

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