The receiver of a collapsed Ponzi scheme orchestrated and maintained by Val Edmund Southwick brought an action for fraudulent transfer and unjust enrichment against two consultants to Mr. Southwick’s organizations who allegedly received millions of dollars in consulting fees during the period in which he operated the Ponzi scheme. Further, one of the consultants was an early investor with Mr. Southwick’s organizations, and “received significantly more money than he invested.”
Denying defendants’ motion to dismiss the action, the court held that both claims were sufficiently pleaded. First, the receiver’s claim for fraudulent transfer was sufficient because “fraudulent intent,” as required under the Utah Fraudulent Transfer Act, “may be inferred from the mere fact that a debtor is managing a Ponzi scheme,” and therefore “the inference of fraudulent intent applies to transfers made by Mr. Southwick during the course of carrying out his scheme.” Although the receiver could not differentiate between legitimate business payments and otherwise, the receiver was not required to allege more to survive a motion to dismiss.
Next, the receiver’s alternative claim for unjust enrichment was sufficiently pleaded despite the fact “that unjust enrichment claims can only be asserted under Utah law when there is no contract between the parties.” Although the payments were made pursuant to consulting agreements and investment contracts, the receiver’s allegation “that these contracts were in fact illegal instruments used to carry out Mr. Southwick’s fraudulent scheme” rendered the validity of those contracts a question of fact to be decided at trial. (Wing v. Wharton, 2009 WL 1392679 (D. Utah May 15, 2009))