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Bankr. E.D.N.C.: Nationwide Recovery Judgment v. Tyndall- Pleading Standards for Allegations of Fraud

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By Ed Boltz, 7 March, 2024

Summary:

National Judgment Recovery ("NJR")  brought an action to determine  that the $93,159.71  fraudulent conveyance judgment against Tyndall,  as a "net winner"  in the ZeekRewards  pyramid scheme case,  was nondischargeable under  11 U.S.C. § 523(a)(2)(A) as actual fraud.

After permitting NJR to amend its original complaint to avoid a motion to dismiss,  the bankruptcy court found that the amended complaint finding did adequately allege "actual fraud."  Following NJR v. Sheppard,  the bankruptcy court  held that was not,  however,  sufficient as NJR failed to :allergy facts that would show [Tyndall] fraud with the requisite fraudulent intent."  Neither the amended complaint  nor the underlying judgment  (attached)  sufficiently alleged that  Tyndall "helped create the Ponzi scheme or materially furthered and aided its advancement."   Nor was the "impossibly high"  rate of return alone a sufficient badge of fraud. This contrasts with NJR v. Reefe,  where the defendant was shown to have clearly "built the base for her part of the pyramid... using knowingly fraudulent means."

Commentary:

This case is certainly useful  for people that end up filing their own bankruptcies  in the wake of fraudulent conveyance actions against them by Trustees  in other cases,  since here  Tyndall had at least one badge of fraud  with the related  stink of a Ponzi scheme.  Most other cases are far more innocently cases where someone accepted funds from a soon-to-be debtor.   Chapter 7 Trustees might be mindful of this in negotiating settlements of these potential actions and Chapter 13 Trustees,  when making demands that Debtors fund  plans to compensate creditors  for transfers should also  factor this into any Best Interest of the Creditors analysis.

It would also be interesting to hear from any of the dozens of North Carolina attorneys involved in  the underlying Zeekerewards case,  why it was handled as a federal receivership  rather than as an involuntary bankruptcy case.  Whether there remains any real discussion in the NCBA Bankruptcy Section community is perhaps the real impediment to such conversion.

 

To read a copy of the transcript, please see:

Blog comments

Attachment
Document
njr_1st_complaint_attachment_compressed_2.pdf (828.19 KB)
Document
nationwide_judgment_recovery_v._tyndall.pdf (176.3 KB)
Category
North Carolina Bankruptcy Cases
Eastern District

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