UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA RECEIVER S RESPONSE TO DOT ANDERSON S MOTION FOR SUMMARY JUDGMENT

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1 CASE 0:11-cv SRN-FLN Document 227 Filed 01/11/12 Page 1 of 52 UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA R.J. Zayed, in his Capacity as Court-Appointed Receiver for Trevor G. Cook et al., v. Petitioner, Case No: 011-cv-1042 SRN/FLN David Buysse, Steven and Pamela Cheney, Walter Defiel, John Dzik, Terry Frahm, Steven and Jenene Fredell, William Harris, Michael and Jennifer Heise, Michael and Cynthia Hillesheim, Larry Hopfenspirger, Steven Kautzman, James McIntosh, George and Karen Morisset, Reynold Sundstrom, and Dot Anderson, Respondents. RECEIVER S RESPONSE TO DOT ANDERSON S MOTION FOR SUMMARY JUDGMENT i

2 CASE 0:11-cv SRN-FLN Document 227 Filed 01/11/12 Page 2 of 52 TABLE OF CONTENTS INTRODUCTION... 1 I. FACTS... 3 A. The Ponzi Scheme... 3 B. Anderson s Investment in the Ponzi Scheme... 4 C. When She Learned that Cook and Oxford Had Been Accused of Fraud, Anderson Asked Grzybowski to Try to Get Her Money Out D. Nobody Other Than Anderson Could Close an Account After the Star Tribune Story Broke... 9 E. The Receivership F. The Criminal Cases G. This Action II. ARGUMENT A. Summary Judgment Cannot Be Granted to Anderson on the Receiver s Fraudulent Transfer Claim The Uniform Fraudulent Transfer Act The Transfer to Anderson Was Made with Actual Fraudulent Intent a. The Ponzi Scheme Presumption b. Basel Group LLC Was Part of Cook s Ponzi Scheme c. The Transfer to Anderson Was Made Pursuant to the Ponzi Scheme d. Even if the Ponzi Scheme Presumption Does Not Apply, Cook Acted with Actual Fraudulent Intent e. Even if the Ponzi Scheme Presumption Does Not Apply, the Transfer to Anderson Was Fraudulent as a Matter of Law Under Minn. Stat f. Anderson s Other Arguments Are Immaterial to the Receiver s Fraudulent Transfer Claim B. Summary Judgment Cannot Be Granted on Anderson s Good Faith Defense Legal Standards Related to Good Faith a. Burden of Proof i

3 CASE 0:11-cv SRN-FLN Document 227 Filed 01/11/12 Page 3 of 52 b. Inquiry Notice c. Diligent Inquiry Anderson Did Not Act in Good Faith a. Anderson Was on Inquiry Notice b. Anderson Does Not Cite Any Affirmative Facts that Support Her Alleged Good Faith Anderson s Failure to Investigate Is Fatal to Her Good Faith Defense Bayou IV Is Not Analogous to the Circumstances of this Action Chief Judge Davis Order Clarifying that His Asset Freeze Order Did Not Apply to Attorneys Fees Is Not Relevant to Anderson s Lack of Good Faith C. The Receiver Has Standing to Bring a Fraudulent Transfer Claim D. Summary Judgment Cannot Be Granted to Anderson on the Receiver s Unjust Enrichment Claim This Court s Order Denying Anderson s Motion to Dismiss Squarely Rejected the Argument that as a Matter of Law the Respondents Are Entitled to a 100% Return of Their Principal In the Context of a Ponzi Scheme, the Rights of the Parties Are Not Governed by Any Valid Contract a. Agreements Signed by Investors in Ponzi Schemes Do Not Bar Recovery on an Unjust Enrichment Claim b. The Receiver s Unjust Enrichment Claim Is Not Precluded by the Purported Agreements Signed by Anderson c. Anderson Is Not Entitled to 100% of the Funds They Received This Court Has Recognized that the Rights of All Investors in this Scheme Are Governed by Equity, Not Contract The Receiver Has Stated a Claim for Unjust Enrichment and Has Shown Damages CONCLUSION ii

4 CASE 0:11-cv SRN-FLN Document 227 Filed 01/11/12 Page 4 of 52 TABLE OF AUTHORITIES Cases Alpha Real Estate Co. v. Delta Dental Plan 671 N.W.2d 213 (Minn. Ct. App. 2003) Armstrong v. Collins No. 01-cv-2437, 2010 U.S. Dist. LEXIS (S.D.N.Y. Mar. 24, 2010)... 13, 25, 30 Boston Trading Group, Inc. v. Burnazos 835 F.2d 1504 (1st Cir. 1987) Cunningham v. Brown 265 U.S. 1 (1924)... 12, 14, 16 Dev. Specialists, Inc. v. Hamilton Bank, N.A. 250 B.R. 776 (Bankr. S.D. Fla. 2000)... 24, 25, 27, 28, 30 Donell v. Kowell 533 F.3d 762 (9th Cir. 2008)... 12, 16, 17, 40 Goldberg v. Chong No. 07-cv-20931, 2007 U.S. Dist. LEXIS (S.D. Fla. July 11, 2007) Hays v. Adam 512 F. Supp. 2d 1330 (N.D. Ga. 2007)... 39, 40 In re Armstrong 285 F.3d 1092 (8th Cir. 2002)... 23, 24, 25, 26 In re Bayou Group, LLC 439 B.R. 284 (S.D.N.Y. 2010)... 27, 33, 34, 35 In re Bonham 229 F.3d 750 (9th Cir. 2000) In re CEP Holdings No , 2010 Bankr. LEXIS 1145 (Bankr. N.D. Ga. Jan. 5, 2010) In re Davis No GWE, 2011 Bankr. LEXIS 4762 (Bankr. W.D. Tenn. Oct. 5, 2011) In re Hannover Corp. 310 F.3d 796 (5th Cir. 2002) In re Hedged-Investments Assocs. 84 F.3d 1286 (10th Cir. 1996) In re Hill 342 B.R. 183 (Bankr. D.N.J. 2006)... 25, 29 i

5 CASE 0:11-cv SRN-FLN Document 227 Filed 01/11/12 Page 5 of 52 In re Indep. Clearing House 77 B.R. 843 (D. Utah 1987)... 13, 39 In re M&L Bus. Mach. Co. 59 F.3d 1078 (10th Cir. 1995) In re M&L Bus. Mach. Co. 84 F.3d 1330 (10th Cir. 1996)... 24, 25, 31, 40 In re Manhattan Inv. Fund. Ltd. 397 B.R. 1 (S.D.N.Y. 2007)... 16, 25 In re Sharp Int l Corp. 403 F.3d 43 (2d Cir. 2005) In re Sheetex, Inc Bankr. LEXIS 1189 (Bankr. M.D. Ga. Sept. 20, 1999) In re Sherman 67 F.3d 1348 (8th Cir. 1995)... 23, 24, 25, 26, 29, 30, 36 In re Slatkin 525 F.3d 805 (9th Cir. 2008)... 12, 23 In re United Energy Corp. 944 F.2d 589 (9th Cir. 1991) In re World Vision Entm t, Inc. 275 B.R. 641 (Bankr. M.D. Fla. 2002) Jobin v. Cervenka 194 B.R. 496 (D. Colo. 1996) Jobin v. McKay 164 B.R. 657 (D. Colo. 1994) Nat l Credit Union Admin. Bd. 133 F.3d 1097 (8th Cir. 1998) Perkins v. Hegg 3 N.W.2d 671 (Minn. 1942) Quilling v. Stark No. 05-cv-1976, 2007 U.S. Dist. LEXIS 8695 (N.D. Tex. June 19, 2006); Rucker v. Steelman 619 S.W.2d 5 (Tex. Civ. App. 1981) Scholes v. Lehmann 56 F.3d 750 (7th Cir. 1995)... 12, 14 SEC v. Brown 643 F. Supp. 2d 1077 (D. Minn. 2009)... 12, 40 ii

6 CASE 0:11-cv SRN-FLN Document 227 Filed 01/11/12 Page 6 of 52 SEC v. Byers 637 F. Supp. 2d 166 (S.D.N.Y. 2009) SEC v. Cook No. 3:00-cv-7272-R, 2001 U.S. Dist. LEXIS 2601 (N.D. Tex. Mar. 8, 2001) SEC v. Edwards 540 U.S. 389 (2004) SEC v. Res. Dev. Int l LLC 487 F.3d 295 (5th Cir. 2007) Smith v. Suarez 417 B.R. 419 (Bankr. S.D. Tex. 2009) Sterling Capital Advisors, Inc. v. Herzog 575 N.W.2d 121 (Minn. App. 1998) TCS Holdings, Inc. v. Onvoy, Inc. No , 2007 U.S. Dist. LEXIS (D. Minn. Aug. 1, 2007)... 38, 41 Terry v. June 432 F. Supp. 2d 635 (W.D. Va. 2006) Thompson v. Schiek 171 Minn. 284 (Minn. 1927) Warfield v. Byron 436 F.3d 551 (5th Cir. 2006)... 11, 12, 14, 23, 25 Statutes Minn. Stat , 17, 18, 19, 20, 21, 23 iii

7 CASE 0:11-cv SRN-FLN Document 227 Filed 01/11/12 Page 7 of 52 INTRODUCTION Dot Anderson invested with Trevor Cook and what she believed to be Oxford. She made the investment through her grandson, who worked for Cook. In July 2009, Anderson read in the Star Tribune that Cook and Oxford had been sued for fraud and misrepresentation after a group of investors was unable to withdraw money. The article noted that the Court had taken the unusual step of freezing several of Cook s bank and investment accounts as a result of the plaintiffs allegations. Knowing that her money was with Cook and Oxford, Anderson called her grandson to see whether it was possible to get her money out. He said he would try. He succeeded. On July 15, 2009, Cook directed his assistant to wire $102,000 to Anderson from one of the accounts that had not yet been frozen. Just hours later, Judge Ann Montgomery issued a second Order in the investors lawsuit, which froze Cook s remaining accounts. Anderson is the only investor in this Ponzi scheme who was able to close her account after news of the fraud broke. Anderson seeks summary judgment on (1) the Receiver s fraudulent transfer claim and (2) the Receiver s unjust enrichment claim. Her motion must be denied. Proof of a Ponzi scheme conclusively establishes there was actual fraud behind the transfer to Anderson. Here, it is indisputable that Cook was running a Ponzi scheme when he transferred money to Anderson, that the account he used to make the transfer was part of the scheme, and that the transfer was made pursuant to the scheme. The Ponzi scheme presumption, universally accepted by federal courts, applies; Cook acted with actual fraudulent intent when he sent the money to Anderson. The transfer to 1

8 CASE 0:11-cv SRN-FLN Document 227 Filed 01/11/12 Page 8 of 52 Anderson was therefore fraudulent under the Minnesota Uniform Fraudulent Transfer Act ( MUFTA ). The transfer to Anderson must therefore be voided unless she can show that she took the funds in objective good faith. She cannot. Anderson quite understandably wanted her money out from a program that was alleged to be fraudulent and unable to pay back other investors. However, under the circumstances of the transfer she received, Anderson has not and cannot meet her burden to demonstrate that she took the funds in objective good faith. Anderson also cannot show, as a matter of law, that she was not unjustly enriched by the money that Cook wired to her. Anderson claims a contractual right to the funds, but the agreements she relies on were procured by fraud and are void. Even if they were somehow found to be valid, Anderson s contractual rights are no stronger than those of the hundreds of other investors who, like Anderson, read about the fraud and asked for their money out, but unlike Anderson, received nothing. Either way, Anderson was unjustly enriched because Cook gave her money that equated to 100% of her purported account value, while everyone else who asked was denied. 2

9 CASE 0:11-cv SRN-FLN Document 227 Filed 01/11/12 Page 9 of 52 I. FACTS A. The Ponzi Scheme. In June 2009, Anderson invested in a sham foreign currency trading program that Cook and others had been running for years. 1 Although the name of the program varied over time, its key selling points were consistent: segregated accounts and guaranteed 10 12% return, 2 which Cook said he generated by capturing split-second differentials in the currency market. 3 These same features were pitched to Anderson. 4 Cook and his co-conspirators stole at least $194 million from Anderson and other would-be investors. The currency trading program these people thought they were investing in did not exist. What Cook did trade generated losses of approximately $68 million. 5 The rest of the money was used to prop up the scheme and fund the personal interests of Cook and his cohorts. 67 B. Anderson s Investment in the Ponzi Scheme. Anderson invested in the Ponzi scheme through her grandson, Grant Grzybowski ( Grzybowski ), who she knew worked for Cook and his Oxford company. 8 1 Declaration of Marlee A. Jansen in Support of Receiver s Motion for Summary Judgment ( Jansen ), Ex. 1 at 1; Ex. 33 at 3. The Jansen Declaration and accompanying exhibits are on file at Docket No Jansen Ex. 1 at 2; see also Ex. 2, Jansen Ex. 4 at Jansen Ex. 184 at 6; Ex. 182 at 13; Ex. 13 at Jansen Ex. 7, Jansen Ex. 4 at (i); Jansen Ex. 2, 38; Ex. 7, See Jansen Ex. 2 at Jansen Ex. 182 at 12. 3

10 CASE 0:11-cv SRN-FLN Document 227 Filed 01/11/12 Page 10 of 52 Grzybowski gave Anderson a brochure and told her she would earn a 10.5% return there was no mention of any risk. 9 He told her she would be investing with Oxford. 10 In June of 2009, Anderson made what she thought was a $100,000 investment with Cook and Oxford through her grandson. 11 She paid an additional $2,000 as an upfront sales charge to make the investment. 12 At all times Anderson believed she was investing with Cook and Oxford. 13 Anderson signed a Management Agreement with Oxford Global Partners. 14 In the Oxford agreement, Anderson acknowledged that she would pay the 2% entry fee, as well as a deferred sales charge of up to 4% if she closed her account within 4 years of opening it. 15 Anderson also appointed Oxford Global Partners as her sole attorney-in-fact regarding her account. 16 At Cook s direction, Grzybowski also had Anderson sign a Customer Agreement with an entity called Basel Institutional and a Customer Order Authorization and Limited Power of Attorney granting Cook and Oxford Global Partners authority to trade in a Basel account. 17 Her investment was made with a $102,000 cashier s check drawn on TCF Bank and paid to the order of Basel International Id. at 13, Id. at Id. at Id. at 43; Jansen Ex. 184 at 5 (specifying a 2% entry fee ); Jansen Ex. 186 (same). 13 Id. at 12, 18, 21, 23, 28, 36, 40, 46, Jansen Ex Id. 16 Jansen Decl Jansen Ex. 185 & 186; Jansen Ex. 13 at 65 65, Jansen Ex

11 CASE 0:11-cv SRN-FLN Document 227 Filed 01/11/12 Page 11 of 52 Anderson s check was deposited in an Associated Bank account in the name of Basel Group LLC. 19 Basel Group LLC was nothing more than a name on this bank account used in Cook s Ponzi scheme; it was never formally organized under the laws of any state. 20 The account was opened on June 8, 2009, with Patrick Kiley ( Kiley ) and Julia Smith as signators. 21 Although not a signator on the Basel Group LLC account, Cook controlled the money going in and out of it. 22 He also had a stamp bearing Kiley s signature, which allowed him to personally make deposits, transfers, and withdrawals. 23 Over $850,000 of money from investors, including Anderson, was comingled in the Basel Group LLC account at Associated Bank. 24 Over $500,000 of investor funds were directly deposited there. 25 An additional $350,000 of investor funds were transferred in from Oxford Global FX LLC. 26 None of this money was ever traded. Rather, it was used to pay for the radio show that Kiley used to advertise the fraudulent currency program, to pay Kiley s attorneys fees, to wire to Basel Institutional in Cyprus, and to pay Anderson. 27 None of these payments were ever returned Declaration of Scott J. Hlavacek in Support of Receiver s Motion for Summary Judgment ( Hlavacek ), Ex. II, at pp The Hlavacek Declaration and accompanying exhibits are on file at Docket No Declaration of Peter M. Kohlhepp in Support of Receiver s Responses to Respondents Motions for Summary Judgment ( Kohlhepp ), 47 and Ex. 27; Jansen Ex. 2 at Jansen Ex. 191, Ex. 2 at 5(a). 22 Jansen Ex. 2 at 6, Ex. 13 at and 68 69, Ex Jansen Ex Hlavacek Ex. I; Jansen Ex. 2 at 15, 58, and 200; see also Jansen Ex. 8 at 123 ( Q: Was [Anderson s money] being co-mingled with other investors money? A: Yeah. All the money was co-mingled. ). 25 Hlavacek Ex. I; Jansen Ex. 2 at 58, Ex Hlavacek Ex. I; Jansen Ex. 2 at 5, 15, and Hlavacek Ex. I. 5

12 CASE 0:11-cv SRN-FLN Document 227 Filed 01/11/12 Page 12 of 52 C. When She Learned that Cook and Oxford Had Been Accused of Fraud, Anderson Asked Grzybowski to Try to Get Her Money Out. On July 7, 2009, a group of investors who had tried without success to get their money back from Cook filed a lawsuit against him, Oxford and others, alleging fraud and mismanagement of the purported foreign currency investment program (the Phillips lawsuit ). 29 On July 8, 2009, Cook warned Grzybowski that there would be an article about the suit in the paper the following day. 30 On July 9, 2009, the Minneapolis Star Tribune published the first in a series of stories about the lawsuit, its allegations, and the defendants. 31 The article explained that the plaintiffs had invested over $5 million in Cook s currency arbitrage program, which guaranteed instant liquidity and promised annual returns of %, but that when they tried to withdraw their money in the spring of 2009, they were unable to do so. 32 Grzybowski s phone immediately blew up with calls from concerned investors. 33 Cook would not give Grzybowski a straight answer about what was going on, why these people weren t getting their money back. 34 Investors flooded the Cook companies with calls 35 and written demands for their money. 36 Their efforts were futile Id. 29 Jansen Ex Jansen Ex. 13 at Kohlhepp Ex Id. 33 Jansen Ex. 13, at Id. at Jansen Ex Jansen Ex Jansen 26 and Ex

13 CASE 0:11-cv SRN-FLN Document 227 Filed 01/11/12 Page 13 of 52 Anderson knew she, too, was invested with Cook. 38 When she read the Star Tribune article in regards... to the Ponzi scheme, 39 she immediately called Grzybowski, explaining, I think you know why I m calling... I just read the article in the paper. 40 Anderson asked Grzybowski: Is it possible to get my investment back? 41 Grzybowski said he would try. 42 He explained to Anderson that if he were able to close her account, she would be charged the 4% early withdrawal fee. 43 She said she understood and to proceed anyway with withdrawing her $100,000 investment. 44 Grzybowski had Anderson sign a withdrawal form, which was dated July 14, 2009, and turned it in to Cook. 45 Cook knew Anderson was Grzybowski s grandmother. 46 He had also loaned Grzybowski at least $272, in April 2009 so that Grzybowski could buy the house that his grandfather (Anderson s husband) had built. 47 On July 15, 2009, Cook directed his assistant, Julia Smith, to send two wires totaling $102,000 to Anderson from the Basel Group LLC account at Associated Bank. 48 The wires equaled the entire amount Anderson had sent to Cook, including the account 38 Jansen Ex. 182 at Id. at Jansen Ex. 13 at Jansen Ex. 182 at Id. 43 Jansen Ex. 13 at Jansen Ex. 13 at 185, Ex. 182 at 49 and Jansen Ex. 13 at 113, 123 and 139; Declaration of Adam S. Huhta Containing Confidential Documents In Support Of Motion for Summary Judgment ( Huhta ), Ex. 14. The Huhta Declaration and accompanying exhibits are on file at Docket No Jansen Ex. 8 at 122; Kohlhepp Ex. 21 at Jansen Ex. 13 at 28 29; Jansen Ex. 182 at Jansen Ex. 192, Ex

14 CASE 0:11-cv SRN-FLN Document 227 Filed 01/11/12 Page 14 of 52 set-up fee. The 4% early redemption fee that Grzybowski told Anderson would be charged was not deducted. 49 Cook called Grzybowski to make sure that the wires got through. 50 They had but it was incredibly close. Starting on July 7, 2009, when the Phillips lawsuit was filed, the Court began freezing bank accounts that were known to belong to Cook and his companies. 51 As the investigation unfolded, new accounts were discovered and frozen. Effective at 4:15 p.m. on July 15, 2009 hours after Cook directed Anderson s wires to be sent Judge Ann Montgomery extended the freeze to cover all accounts belonging to Cook at Associated Bank. 52 Grzybowski told his grandmother that he was able to get money for her, but he would not have been able to do so had he acted just hours later. 53 Grzybowski conceded that Anderson got special treatment. 54 D. Nobody Other Than Anderson Could Close an Account After the Star Tribune Story Broke. Anderson was the only investor to get any money out of the Basel Group LLC account at Associated Bank. 55 Indeed, Anderson was the only investor in Cook s scheme who was able to close her account after the July 9, 2009 Star Tribune article was published Jansen Ex Jansen Ex. 13 at Jansen Ex Jansen Ex Jansen Ex. 182 at 55; Jansen Ex Jansen Ex. 13 at Hlavacek Ex. I. 56 Jansen Ex. 13 at

15 CASE 0:11-cv SRN-FLN Document 227 Filed 01/11/12 Page 15 of 52 Anderson mistakenly asserts that [t]he Phillips received a $52,500 distribution from the Receivership Entities on July 8, 2009 after they filed their lawsuit against Cook and others, and within a week of Anderson s request to close her account, but have not had to disgorge those funds. 57 This is false the transaction actually occurred on June 8, The circumstances of this transaction, as well as the fact that it occurred before the lawsuit was filed, was clearly explained during the depositions of Howard and Sharon Phillips, in which Anderson s counsel participated. 58 Anderson persists in making this factually incorrect statement despite having been corrected multiple times. 59 E. The Receivership. On November 23, 2009, the SEC and CFTC brought suit against Cook, Patrick Kiley, and various companies run by them. 60 The SEC later filed a separate case against Jason Bo-Alan Beckman and his companies for their role in the Ponzi scheme. 61 Chief Judge Davis appointed the Receiver to take control of all of the defendants estates, 57 Memorandum of Law in Support of Respondent Dot Anderson s Motion for Summary Judgment ( Br. ), Docket No. 189, at See Declaration of James R. Magnuson In Support of Lender Respondents Motion for Summary Judgment ( Magnuson ), Ex. 31 at 58 59, 61 and Ex. 30 at 33 35, 100; see also Ex. 31 at Exhibit 5 to the Phillips Deposition (showing $52,500 in withdrawals on June 2009 statement). 59 Docket No. 180 at 3 & n.1; Jansen Ex , 56; Jansen Ex , 115; Kohlhepp Ex CFTC v. Cook et al., 09-cv-3332 (D. Minn. 2009); SEC v. Cook et al., 09-cv-3333 (D. Minn. 2009). 61 SEC v. Beckman et al., 11-cv-574 (D. Minn. 2011). 9

16 CASE 0:11-cv SRN-FLN Document 227 Filed 01/11/12 Page 16 of 52 thereby converting their assets to Receiver Estates. 62 The Receiver s mandate is to recover the money Cook stole for equitable distribution among Cook s victims. 63 To-date, the Receiver has determined that 725 investors lost over $158 million to this Ponzi scheme. 64 Their recovery has paled in comparison to the losses, amounting to less than three cents on the dollar. 65 F. The Criminal Cases. Cook pleaded guilty to charges stemming from his role in the Ponzi scheme; he is now serving a 25-year prison sentence. 66 Charges have also been filed against his coconspirators. Chris Pettengill, one co-conspirator, has pleaded guilty to the fraud; he awaits sentencing. 67 The trial against Kiley and others is scheduled to begin on April 19, G. This Action. On July 20, 2010, Chief Judge Davis entered an Order allowing this summary proceeding to be filed. 69 Chief Judge Davis found that the Receiver Estates, including Basel Group LLC, had been used to perpetrate a Ponzi scheme and that all assets transferred by Cook and the Receiver Estates through 2009 were transferred pursuant to 62 Jansen Ex. 26 at 1 2, Ex. 27 at See Jansen Ex. 28 at Jansen Ex. 11 at Jansen See Jansen Ex. 1, Ex Jansen Ex Jansen Ex. 6; Ex Jansen Ex

17 CASE 0:11-cv SRN-FLN Document 227 Filed 01/11/12 Page 17 of 52 the scheme. 70 On July 23, 2009, the Receiver filed this action to recover the transfer to Anderson. 71 II. ARGUMENT A. Summary Judgment Cannot Be Granted to Anderson on the Receiver s Fraudulent Transfer Claim. 1. The Uniform Fraudulent Transfer Act. Minnesota has adopted the Uniform Fraudulent Transfer Act ( UFTA ). Minn. Stat (2009). Under the actual fraud provision of Minnesota s UFTA, a transfer is fraudulent if the debtor made the transfer or incurred the obligation... with actual intent to hinder, delay, or defraud any creditor of the debtor[.] Minn. Stat (a)(1). The knowledge or intent of the transferee is irrelevant in establishing fraudulent intent. Warfield v. Byron, 436 F.3d 551, 559 (5th Cir. 2006). If the creditor carries the burden of proving actual fraud, then the burden shifts to the transferee to prove good faith. 2. Cook Made The Transfer o Anderson with Actual Fraudulent Intent. Cook s fraudulent intent is established as a matter of law by the Ponzi scheme presumption. Even setting aside the presumption, the undisputed facts show that Cook acted with actual intent to defraud when he transferred money to Anderson knowing that his scheme was hopelessly insolvent. 70 Id. at Docket No

18 CASE 0:11-cv SRN-FLN Document 227 Filed 01/11/12 Page 18 of 52 a. The Ponzi Scheme Presumption Applies. Under the UFTA and the parallel bankruptcy statute, proof of a Ponzi scheme conclusively establishes that transfers pursuant to the scheme were made with actual intent to hinder, delay, or defraud. See e.g., Donell v. Kowell, 533 F.3d 762, 770 (9th Cir. 2008); In re Slatkin, 525 F.3d 805, 814 (9th Cir. 2008); Warfield, 436 F.3d at 558; In re M&L Bus. Mach. Co., 59 F.3d 1078, (10th Cir. 1995); Scholes v. Lehmann, 56 F.3d 750, 757 (7th Cir. 1995). This Ponzi scheme presumption has been consistently applied by all federal courts that have considered it, including this one. 72 Brown, 643 F. Supp. 2d at Chief Judge Davis also adopted the presumption, finding that all assets transferred from or by any Receivership entity through November 2009, were transferred pursuant to the Ponzi scheme. 73 Anderson focuses on typical fraudulent transfer scenarios those involving debtors engaged in legitimate enterprises that become insolvent. 74 But, as Anderson concedes, the Ponzi scheme presumption operates as an exception to the conventional fraudulent transfer analysis. 75 The reason for the exception is that Ponzi schemes, unlike most other entities and enterprises, are insolvent from inception. Cunningham v. Brown, 265 U.S. 1, 7 8 (1924). Transfers by the Ponzi scheme operator to investors are made with fraudulent intent because the operator must know all along, from the very nature of his activities, that investors at the end of the line will lose their money. In re Indep. 72 Docket No. 108 at 11 ( By definition, transfers pursuant to [a] Ponzi scheme are fraudulent transfers. ). 73 Jansen Ex Br. at Br. at

19 CASE 0:11-cv SRN-FLN Document 227 Filed 01/11/12 Page 19 of 52 Clearing House, 77 B.R. 843, (D. Utah 1987) (emphasis added); see also Quilling v. Stark, No. 05-cv-1976, 2007 U.S. Dist. LEXIS 8695, at *2 (N.D. Tex. June 19, 2006); Terry v. June, 432 F. Supp. 2d 635, (W.D. Va. 2006). b. Basel Group LLC Was Part of Cook s Ponzi Scheme. Anderson argues that Cook intended to run Basel Group LLC legitimately, suggesting that despite the fraudulent nature of everything else he did, the Basel Group LLC account was somehow different. 76 The undisputed facts show that the Basel Group LLC was simply one of the many tools of Cook s fraud. Cook commingled investor money in the Basel Group LLC account, just as he did in his other accounts. Some investor money was directly deposited there, while other funds were transferred in from another Cook account, held in the name of Oxford Global FX LLC. 77 Investor money that was pooled in the Basel Group LLC account was used to prop up the larger scheme. It was used to pay an earlier investor (Anderson) as well as for illegitimate, non-investment purposes including attorneys fees, marketing costs, and transfers to other companies. 78 Notwithstanding Cook s professed intentions, these transactions inextricably link the Basel Group LLC account and associated transactions to the Ponzi scheme. Armstrong v. Collins, No. 01-cv-2437, 2010 U.S. Dist. LEXIS 28075, at *6 (S.D.N.Y. Mar. 24, 2010) (applying the Ponzi scheme presumption because despite [the Ponzi scheme operator s] professed intention to run Ashbury as a legitimate hedge fund,... he instead used it for unlawful purposes ); see 76 Br. at Hlavacek Ex. I; Jansen Ex. 2 at 15, 58, and 200, Ex Hlavacek Ex. I, Ex. II. 13

20 CASE 0:11-cv SRN-FLN Document 227 Filed 01/11/12 Page 20 of 52 also In re Bonham, 229 F.3d 750, 759 n.1 (9th Cir. 2000); In re Agric. Research & Tech. Group, Inc., 916 F.2d 528, 536 (9th Cir. 1990). c. The Transfer to Anderson Was Made Pursuant to the Ponzi Scheme. Anderson claims that her transfer is not subject to the Ponzi scheme presumption because it was not in furtherance of the scheme. 79 Her argument misstates material facts and is wrong as a matter of law. Anderson incorrectly asserts that there is no evidence that Basel was insolvent [at the time of the transfer]. 80 But debtors operating Ponzi schemes are, by definition, insolvent. See, e.g., Cunningham v. Brown, 265 U.S. 1, 8 (1924) (explaining that Charles Ponzi was always insolvent, and became daily more so, the more his business succeeded. ); Warfield v. Byron, 436 F.3d 551, 558 (5th Cir. 2006) ( [A] Ponzi scheme... is, as a matter of law, insolvent from its inception. ); Scholes v. Lehmann, 56 F.3d 750, 755 (7th Cir. 1995) (Posner, J.) (explaining that fraudulent corporations were insolvent from the outset ). Moreover, insolvency does not mean zero assets; it means having liabilities that exceed assets. Bank records plainly show that when Cook directed the transfer to be made to Anderson, the Basel Group LLC account had a cash balance of $404,725.00, but liabilities to investors totaling $504, In other words, a deficit of $99, With the transfer to Anderson, that deficit doubled. 79 Br. at Br. at Hlavacek Ex. I. 14

21 CASE 0:11-cv SRN-FLN Document 227 Filed 01/11/12 Page 21 of 52 Anderson also asserts that at the time of the transfer, account withdrawals were [being] regularly processed. 82 This is demonstrably false. At least 166 investors tried unsuccessfully to withdraw their money from Cook s scheme during the summer of This includes at least 152 investors who submitted the requisite withdrawal forms or sell direction letters. 84 Of the hundreds of withdrawal requests that were received in July, only Anderson s was honored. 85 Anderson then goes so far as to argue that Cook subjectively did not intend to further his Ponzi scheme with the transfer to Anderson. 86 The undisputed facts belie the self-serving testimony of Cook, the mastermind of a $200 million Ponzi scheme. Cook used other investors money to pay Anderson, knowing full well that the Basel Group LLC account was insolvent. Cook used the commingled funds in the Basel Group LLC account, as he did with co-mingled funds in other accounts, to further the fraud. And the law does not cut off the Ponzi scheme presumption at the moment new investments stop coming in. Courts can and have applied the Ponzi scheme presumption to transfers occurring after new investor money has stopped coming in. SEC v. Res. Dev. Int l LLC, 487 F.3d 295, , 303 (5th Cir. 2007). The cases Anderson cites to support her argument against the Ponzi scheme presumption miss the point. Two actually apply the presumption, and note only in dicta the possibility that certain transfers, such as those to legitimate third party service 82 Br. at 7, Jansen and Ex. 25, Ex. 13 at Jansen 24 and Ex Jansen 26 and Ex. 25, Ex. 188; Hlavacek Ex. I. 86 Br. at

22 CASE 0:11-cv SRN-FLN Document 227 Filed 01/11/12 Page 22 of 52 providers like employees providing custodial services, may be outside the scope of the presumption. See In re World Vision Entm t, Inc., 275 B.R. 641, 657 (Bankr. M.D. Fla. 2002); In re Manhattan Inv. Fund. Ltd., 397 B.R. 1, 11 (S.D.N.Y. 2007). A third declined to apply the presumption, but did so because the transfer was made to an employee of the Ponzi scheme operator and thus may have been compensation for legitimate services. In re Sheetex, Inc., 1999 Bankr. LEXIS 1189, at *51 (Bankr. M.D. Ga. Sept. 20, 1999). These three cases stand for the unremarkable proposition that courts occasionally hesitate to apply the presumption to transfers to third-party, arms-length providers of goods and services. This contrasts sharply with transfers to investors, where courts have applied the presumption without exception. Anderson s other legal arguments are similarly unavailing. Anderson argues that each transfer must be considered independently and that the proper focus of a fraudulent transfer inquiry is on the transfer itself, not the overall business practices of the Debtor. 87 But in the case of a Ponzi scheme, the overall business practices of the debtor are highly relevant. Courts uniformly presume that transfers pursuant to a Ponzi scheme are fraudulent precisely because the debtor s overall business practice is to operate at a constant loss, maintaining the outward appearance of legitimacy only through fraudulent practices. See Cunningham v. Brown, 265 U.S. 1, 7 8 (1924). The transfer to Anderson was part of that business practice it was only one of many fraudulent transfers of later investors money to earlier investors. E.g., Donell, 533 F.3d at Br. at

23 CASE 0:11-cv SRN-FLN Document 227 Filed 01/11/12 Page 23 of 52 (applying the Ponzi scheme presumption and explaining that under the actual fraud theory, the receiver may recover the entire amount paid to the winning investor, including amounts which could be considered return of principal. ). 88 The undisputed facts establish that the transfer to Anderson was made pursuant to Cook s scheme, and thus fraudulent as a matter of law: (i) the Basel Group LLC account was part of Cook s scheme Cook used it to collect, commingle, and divert investors money to illegitimate, non-investment purposes; (ii) Cook knew that both his scheme generally, and Basel Group LLC specifically, was insolvent at the time he made the transfer to Anderson; and (iii) money Anderson received consisted of money taken from earlier investors. 89 Anderson s argument fails on both the law and the facts and she has failed to show that she is entitled to summary judgment as to the Receiver s fraudulent transfer claim. d. Regardless of the Ponzi Scheme Presumption, It Is Indisputable that Cook Transferred Money to Anderson With Actual Fraudulent Intent. The transfer to Anderson is fraudulent under Minn. Stat (a)(1), even without the Ponzi scheme presumption because there is direct evidence of Cook s intent to defraud. He directed that $102,000 be sent to Anderson from an account (and overall 88 Payments of amounts up to the value of the initial investment are not, however, considered a return of principal, because the initial payment is not considered a true investment. Donell, 533 F.3d at See supra Part II.A.2.b. 17

24 CASE 0:11-cv SRN-FLN Document 227 Filed 01/11/12 Page 24 of 52 scheme) that he knew to be insolvent and that he knew consisted of other people s money. 90 The fact that there were no new investments after the transfer to Anderson does not undermine the direct evidence of Cook s actual intent to defraud. No new investments were made after the transfer to Anderson not because Cook had a change of heart and decided to stop defrauding people, but rather because the Phillips lawsuit had been widely publicized, spooking potential investors, and most of Cook s bank accounts had been frozen by the Court s Orders. 91 Because the evidence shows that Cook had actual intent to defraud when he made the transfer to Anderson, the Court should deny Anderson s motion for summary judgment as to the Receiver s fraudulent transfer claim. e. The Transfer to Anderson Was Fraudulent as a Matter of Law Under Minn. Stat Even if the Court declines to apply the Ponzi scheme presumption, and concludes that there is no direct evidence of Cook s actual fraudulent intent in transferring $102,000 to Anderson from an account just hours before it was ordered to be frozen, the circumstances were replete with badges of fraud compelling an inference of actual fraudulent intent. Minn. Stat (b). The badges of fraud recognized by Minnesota law are as follows: 90 Jansen Ex. 192, Ex. 1, Ex. 4; Hlavacek Ex Kohlhepp Ex. 19, Ex. 20; Jansen at 23 26, Exs , Ex. 20, Ex

25 CASE 0:11-cv SRN-FLN Document 227 Filed 01/11/12 Page 25 of 52 (1) the transfer or obligation was to an insider; (2) the debtor retained possession or control of the property transferred after the transfer; (3) the transfer or obligation was disclosed or concealed; (4) before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit; (5) the transfer was of substantially all the debtor s assets; (6) the debtor absconded; (7) the debtor removed or concealed assets; (8) the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred; (9) the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred; (10) the transfer occurred shortly before or shortly after a substantial debt was incurred; and (11) the debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor. Minn. Stat At least factors (1), (4), (7), and (9) weigh strongly in the Receiver s favor; only (2) and (8) even arguably weigh in Anderson s favor. There is no evidence in the record as to the remaining factors. The circumstances under which Anderson received payment make clear that the transfer was to an insider. Minn. Stat (b)(1). Anderson invested in Cook s scheme through her grandson, Cook s employee and confidant. Cook knew Anderson was Grzybowski s grandmother; of all of the withdrawal forms Grzybowski submitted, Anderson s was the only one that was honored. Cook went so far as to call Grzybowski to confirm that Anderson got the transfer. Most importantly though, Anderson was the only investor who received money equivalent to the full balance of her account in the month of July Grzybowski conceded that Anderson got special treatment Jansen Ex. 13 at

26 CASE 0:11-cv SRN-FLN Document 227 Filed 01/11/12 Page 26 of 52 Under these circumstances, a reasonable jury would certainly conclude that the transfer was to an insider. When Anderson received the transfer, the debtor, Cook, had also been sued. Minn. Stat (b)(4). Anderson tries to brush aside this factor with the unsupported assertion that Basel had not been sued. 93 But that statement misses much of the story. As explained in Part I.B, Cook controlled the Basel account, even though he was not a signatory on the account. By the time the transfer to Anderson was made, the Phillips and other defrauded investors had sued Cook, all companies controlled by him that they were aware of, and had named Kiley (who also was a signatory on the Basel account) as an involved individual in their complaint. 94 Judge Montgomery s July 15, 2009 Temporary Restraining Order froze any Associated Bank account over which [Cook] exercise[d] any control, which included the Basel Group account. 95 Indeed, at the time the transfer to Anderson was made, Cook and Grzybowski told Anderson that if she had asked for her money only six hours later, she would not have been able to get it out. 96 It is also undisputed that Cook removed or concealed other assets before or around the time he made the transfer to Anderson. Minn. Stat (7). For example, Cook made cash withdrawals of $60,000 and $600,000 on June 24, 2009 and July 2, 2009, respectively. 97 Cook transferred at least $2,124,874 to gambling entities between June 93 Br. at Jansen Ex Jansen Ex. 21 at Jansen Ex. 182 at 55; Jansen Ex Kohlhepp Ex

27 CASE 0:11-cv SRN-FLN Document 227 Filed 01/11/12 Page 27 of 52 25, 2009 and July 6, Cook stashed assets, including a luxury automobile, several hundred thousand dollars in cash, and a bunch of different gold, silver coins in a storage facility rented in his brother s name shortly after the SEC s visit to the Van Dusen Mansion. 99 Cook also hid cash in the walls at an associate s residence 100 and transferred over $60,000 to his brother on July 15, Finally, Cook and his entities were insolvent at the time the transfer to Anderson was made. Cook has admitted to running a Ponzi scheme, which by definition is insolvent from inception. 102 And, as explained in Part II.A.2.c., the Basel account itself was insolvent when Cook gave money to Anderson. Each of factors (1), (4), (7), and (9) show clearly Cook s actual intent to defraud when he made the transfer to Anderson. Anderson has pointed to no evidence at all on the issue of whether the transfer to Anderson was disclosed or concealed. Minn. Stat (b)(3). At best, the remaining two factors identified by Anderson, factors (2) and (8), weigh only weakly in favor of Anderson. Under these circumstances, a reasonable fact-finder would certainly conclude that Cook had actual intent to defraud indeed, that is the only reasonable conclusion. 98 Id. 99 Jansen Ex. 8 at Id. 101 Kohlhepp Ex Jansen Ex

28 CASE 0:11-cv SRN-FLN Document 227 Filed 01/11/12 Page 28 of 52 f. Anderson s Other Arguments Are Immaterial to the Receiver s Fraudulent Transfer Claim. Anderson argues that fraudulent transfer statutes are not intended to void preferences. 103 In doing so, she relies entirely on three cases dealing with non-ponzi scheme fact scenarios. See Boston Trading Group, Inc. v. Burnazos, 835 F.2d 1504 (1st Cir. 1987); In re Sharp Int l Corp., 403 F.3d 43 (2d Cir. 2005); Thompson v. Schiek, 171 Minn. 284 (Minn. 1927). And in each case, the transferor merely paid back a debt incurred before the alleged fraudulent activity began. Boston Trading Group, 835 F.2d at 1510; In re Sharp, 403 F.3d at 55; Thompson, 171 Minn. at 287. But more importantly, her argument misses the point that the transfer is voidable under the UFTA because of the fraudulent intent behind it, not the preferential nature of it. So long as actual intent to defraud is established, a transfer is fraudulent under the UFTA just like any other transfer pursuant to a Ponzi scheme, regardless of whether it is also preferential. See, e.g., Smith v. Suarez, 417 B.R. 419, 443 (Bankr. S.D. Tex. 2009) (applying the Ponzi scheme presumption and voiding transfers made preferentially to insiders). Anderson also makes the curious argument that investigators hired by the Receiver did not uncover specific facts showing that the transfer to Anderson was an attempt to evade creditors. 104 As the Receiver s investigators specifically explained during their depositions, their role was to track down, secure, and inventory assets. 105 Their role was not to find facts showing that Cook was trying to evade creditors in transferring 103 Br. at Br. at Jansen Ex. 187 at 12; Kohlhepp Ex. 23 at

29 CASE 0:11-cv SRN-FLN Document 227 Filed 01/11/12 Page 29 of 52 $102,000 to Anderson. Indeed, there was no need for investigators to search for evidence of actual intent in light of the Ponzi scheme presumption. [I]t is precisely because such direct proof of fraudulent intent is rarely available that courts allow a finding of fraudulent intent based on circumstantial evidence. In re Slatkin, 525 F.3d 805, 812 (9th Cir 2008) (applying the Ponzi scheme presumption). B. Summary Judgment Cannot Be Granted on Anderson s Good Faith Defense. 1. Legal Standards Related to Good Faith. Minnesota law provides a statutory defense to a fraudulent transfer claim: A transfer or obligation is not voidable under section (a)(1) against a person who took in good faith and for a reasonably equivalent value or against any subsequent transferee or obligee. Minn. Stat (a). Anderson correctly notes that the standard for good faith is objective. 106 In re Armstrong, 285 F.3d 1092, 1096 (8th Cir. 2002); In re Sherman, 67 F.3d 1348, 1355 (8th Cir. 1995). But Anderson makes several material legal errors in the course of trying to establish a good faith defense. a. Anderson Bears The Burden of Proof. Anderson correctly states that it is her burden, as the transferee, to establish[] the good faith defense. See Warfield, 436 F.3d at 560. But she then switches the burden by arguing that the Receiver cannot demonstrate that Anderson had notice of any alleged fraudulent intent, 107 and that certain red flags are insufficient to preclude a finding of 106 Br. at Br. at

30 CASE 0:11-cv SRN-FLN Document 227 Filed 01/11/12 Page 30 of 52 good faith. 108 The Receiver does not have to demonstrate anything the transfer to Anderson is fraudulent unless she can demonstrate that she took it in objective good faith. Moreover, it is not enough for Anderson to demonstrate that a particular red flag is insufficient to preclude a finding of good faith, because Anderson must affirmatively establish her good faith defense, rather than merely trivialize red flags identified by the Receiver. b. Inquiry Notice Is That Which Would Cause a Reasonable Person to Question Whether a Transfer Was Made for A Fraudulent Purpose or Whether the Debtor Was Insolvent. Anderson relies on cases from 1895 and 1926 to assert that in normal fraudulent transfer cases a transferee takes in good faith, even knowing that the transferor is insolvent, so long as he provides adequate consideration. 109 But it is well established that inquiry notice of possible fraud or insolvency is fatal to a good faith defense under the UFTA, which was enacted in Minnesota in See, e.g., Sherman, 67 F.3d at 1355; In re Armstrong, 285 F.3d 1092, 1096 (8th Cir. 2002); In re M&L Bus. Mach. Co., 84 F.3d 1330, (10th Cir. 1996) ( M&L II ); Dev. Specialists, Inc. v. Hamilton Bank, N.A., 250 B.R. 776, (Bankr. S.D. Fla. 2000). As Anderson acknowledges, courts analyzing good faith frequently consider whether the transaction carries the earmarks of an arms-length or legitimate 108 Br. at 22, 23 (emphasis added). 109 Br. at

31 CASE 0:11-cv SRN-FLN Document 227 Filed 01/11/12 Page 31 of 52 exchange. 110 Sherman, 67 F.3d at 1355; Dev. Specialists, 250 B.R. at 798. Courts also recognize that other facts may trigger inquiry notice, including: Receipt of payments from an entity other than the one invested in (Armstrong, 2010 U.S. Dist. LEXIS 28075, at *28); Transferee s knowledge of the lawsuit pending against the transferor (Sherman, 67 F.3d at ; see also In re Hill, 342 B.R. 183, 203 (Bankr. D.N.J. 2006)); SEC s investigation of an entity (Warfield, 436 F.3d at 555); Conduct in violation of written policies (Dev. Specialists, 250 B.R. at 799); Representation that an investment has no risk (In re CEP Holdings, No , 2010 Bankr. LEXIS 1145, at *15 (Bankr. N.D. Ga. Jan. 5, 2010)); Promised rate of return in excess of the market rate without plausible explanation (M&L II, 84 F.3d at ; Jobin v. McKay, 164 B.R. 657, 663 (D. Colo. 1994)); and Unapproved conversions of one s investments (Smith, 417 B.R. at 443). The inquiry notice continues unless and until the transferee seeks and is given a plausible explanation. Manhattan, 397 B.R. at 23. The test is not whether the facts would tell a reasonable person there is fraud or insolvency to any degree of certainty. Determining what [a transferee] knew is not the same as asking whether [the transferee] should have attempted to learn more. Id. If a transferee has reason to inquire further reason to suspect that the transferor might be insolvent or acting with fraudulent intent then he or she does not have good faith. Armstrong, 285 F. 3d at 1096; see also, 110 Br. at 19,

32 CASE 0:11-cv SRN-FLN Document 227 Filed 01/11/12 Page 32 of 52 e.g., SEC v. Cook, No. 3:00-cv-7272-R, 2001 U.S. Dist. LEXIS 2601 at *11 (N.D. Tex. Mar. 8, 2001). Although good faith must be determined on a case-by-case basis, Sherman, 67 F.3d at 1355, courts have been consistent in taking a commonsense approach and looking at red flags in the aggregate to determine whether they are sufficient to prompt a reasonable person to make further inquiry. See, e.g., Sherman, 67 F.3d at ( the combination of these factors places [the transferee] on inquiry notice ). c. Diligent Inquiry Anderson argues that even if she was aware of red flags sufficient to trigger inquiry notice, summary judgment in her favor is proper because a diligent inquiry would not have illustrated Basel s insolvency or any fraud. 111 In making this argument, she ignores Eighth Circuit law holding that inquiry notice by itself is fatal to a good faith defense. In re Sherman, the leading Eighth Circuit case on the good faith defense, states that a transferee does not act in good faith when he has sufficient knowledge to place him on inquiry notice[.] Sherman, 67 F.3d at There is no second prong to the good faith test; if a transferee is aware of facts that would prompt a reasonable person to inquire further into possible fraud or insolvency, the good faith affirmative defense fails. Id.; see also Armstrong, 285 F.3d at 1096 (affirming district court s holding that transferee lacked good faith when on inquiry notice that [the transferor] might be insolvent with no discussion of actual inquiry). 111 Br. at

33 CASE 0:11-cv SRN-FLN Document 227 Filed 01/11/12 Page 33 of 52 Anderson would have the Court adopt the Bayou IV test for good faith, from the Southern District of New York. In re Bayou Group, LLC, 439 B.R. 284 (S.D.N.Y. 2010). Unlike the Eighth Circuit, Bayou IV adds a diligent investigation requirement for good faith once a transferee has been put on inquiry notice. 439 B.R. at 312. Even if the Court were inclined to adopt this test, Anderson has offered no evidence, let alone undisputed evidence, that diligent inquiry would have been futile; she has offered only attorney argument. More importantly, even Bayou IV like all of the other cases adding a diligent inquiry prong to the good faith test requires a transferee on inquiry notice to do something: conduct a diligent inquiry. 439 B.R. at 317, 328 (declining to disturb what it characterizes as the standard rule that no investigation means no good faith defense and remanding to resolve two material issues of fact both as to whether (1) the Appellants conducted a diligent investigation under the circumstances; and (2) a diligent investigation would have uncovered Bayou s fraud (emphasis added)); see also, e.g., Dev. Specialists, 250 B.R. at 798 ( The mere failure to make inquiry in the face of unusual circumstances also is sufficient to preclude a good faith defense. ). In fact, a recent opinion distilled the caselaw from jurisdictions having a diligent inquiry component (including Bayou IV) into a three-part test: (1) whether transferee is on inquiry notice, (2) whether transferee undertook a diligent investigation, and (3) if diligent inquiry did not discover the fraud determining whether any reasonable investigation would have uncovered the transferor s insolvency or fraudulent intent. In 27