Gibraltarian payday loans business files Chapter 15 in Miami

Two weeks after its UK sister company filed for Chapter 15 protection in New Jersey, the joint liquidators of a Gibraltar-registered payday loans business embroiled in fraud and mismanagement allegations, have sought recognition of their appointment in Miami.

With counsel from Sequor Law shareholder Leyza Blanco, Grant Thornton partners David Ingram and Frederick White filed the Chapter 15 petition in the US Bankruptcy Court for the Southern District of Florida on 14 August.

Ingram and White were appointed joint liquidators of Privilege Wealth One by the Supreme Court of Gibraltar in June, five months after administrators were appointed over its sister company, UK-registered holding company Privilege Wealth, in England.

Soon after the UK administrators were appointed, the group caught the attention of the UK’s Mail on Sunday, which quoted a letter to investors from Privilege Wealth One blaming the group’s problems on a series of bad decisions, including the UK company;s investment in a payday loans business in South Dakota run by a Native American Sioux Tribe, and serviced – at least initially – from a call centre in Panama.

The head of that call centre, according to the Mail, was a UK national and “well known scam operator” who was reportedly shot in an assassination attempt in Panama last year. He was later arrested at the request of Spanish police, which accused him of running a scam oil venture from a call centre in Marbella targeting British investors.

In a declaration filed at the Miami court, Ingram said Privilege Wealth One was plunged into compulsory liquidation after Chilean creditor Richard Leclerc filed a statutory demand in Gibraltar in March. Leclerc requested payment owed to him by Privilege Wealth One and its general partner Privilege Wealth Management (PWM) under a loan note agreement.

After the companies failed to satisfy the demand they were presumed insolvent under Gibraltarian law and Leclerc made an application to appoint the joint liquidators, supported by three additional investors. Those four creditors have combined unsatisfied debts of US$600,000 in US loan notes and £800,000 (US$1.02 million) in European loan notes.

Ingram told the US court that he has taken steps to gather information on the affairs of Privilege Wealth One and PWM, and to notify all creditors and interested persons of his appointment. But he said that the information available to the joint liquidators so far has not allowed them determine “the precise details of the funds received from creditors” for investment in the Privilege companies, or how the proceeds were used.

The Chapter 15 application “is of critical importance to addressing these issues”, Ingram’s declaration said. “[R]ecogonition under Chapter 15 is essential to the joint liquidators’ worldwide pursuit of assets with which to recover the funds received from creditors”.

Under Gibraltarian insolvency law, no distinction is applied between the assets of an insolvent entity located within Gibraltar and those outside the territory. “The joint liquidators are empowered to seek recovery of all assets and rights, wherever located,” Ingram said, adding they are duty bound to pursue assets and claims of the debtor in the United States.

Other actions

GRR has already reported that the UK administrators Privilege Wealth, filed Chapter 15 recognition proceedings in New Jersey on 2 August. David Rubin & Partners’ Stephen Katz and John Kelmanson of Kelmanson Insolvency Solutions were appointed by the England and Wales High Court back in January, after the company defaulted on funds owed to the Gibraltarian entity.

In a declaration filed in New Jersey, Katz said he had become aware that Privilege Wealth had possible rights and causes of action arising out of a 25,000 strong portfolio of payday loans. He said any outstanding loans and the proceeds from the portfolio may now lie with US company Oliphant Financial, which was allegedly engaged to service the loans after the UK company’s own Panamanian subsidiary stopped servicing them.

Katz and Kelmanson intend to file lawsuits in the US to obtain what funds they can for creditors, and have also asked the New Jersey bankruptcy court’s permission to repatriate any proceeds recovered to the UK.

Privilege Wealth One and Luxemburgish fund Helix Investment Management are described as the UK company’s two primary lenders in its Chapter 15 application. They appear on a list of entities against whom Katz and Kelmanson may seek provisional relief in the US, along with Florida foreign limited partnership Privilege Direct, and numerous Oliphant entities, which are being pursued by Helix in the District Court of the Middle District of Florida.

Helix, which may be owed US$7 million by Privilege Wealth according to the UK’s Mail on Sunday, is seeking damages of US$75,000 plus interest and injunctive relief in those proceedings for the breach of various security arrangements relating to loans it issued to the company.

In Ingram and White’s Chapter 15 petition in Miami, they also list the Oliphant groups and Helix as entities against whom the Gibraltarian company may seek interim relief, as well as the UK company Privilege Wealth.

A hearing to decide Privilege Wealth One’s recognition application will take place before Judge Laurel Isicoff in Florida on 9 September.

Meanwhile, a recognition hearing for Privilege Wealth’s action in New Jersey has been listed for 6 September, with Judge John Sherwood assigned to the case.

In the US Bankruptcy Court for the Southern District of Florida

In re: Privilege Wealth One Limited Partnership
• Judge Laurel Isicoff

Joint Liquidators of Privilege Wealth One

• Grant Thornton

Partners David Ingram in London and Frederick White in Gibraltar Counsel to the joint liquidators of Privilege Wealth One

• Sequor Law

Partners Leyza Blanco and Edward Davis in Miami

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New ‘Substantial Doubt’ Standard for Foreign Judgment Enforcement in Fla.

A recent change to a state law concerning the recognition and enforcement of foreign judgments in Florida may make it easier to avoid payment of valid debts.

By Arnoldo B. Lacayo, Juan J. Mendoza and Andres H. Sandoval


Left to right: Juan Mendoza, Andres Sandoval and Arnoldo B. Lacayo, Sequor Law

A recent change to a state law concerning the recognition and enforcement of foreign judgments in Florida may make it easier to avoid payment of valid debts. An amendment to the Uniform Out-of-Country Foreign Money- Judgment Recognition Act (the act) adds two further grounds for denial of recognition of foreign country money-judgments, potentially making it harder to recognize and enforce foreign judgments in the Sunshine State, a jurisdiction already viewed domestically and abroad as a debtor’s haven due to its generous exemptions.

On March 19, House Bill No. 623 was signed into law and, per Article III, Section 9 of the Florida Constitution, went into effect on May 9. The bill adds two discretionary grounds to Section 55.605(2), Fla. Stat., to challenge recognition of a foreign money-judgment. Under these additional grounds, a Florida court need not recognize a foreign money-judgment if the judgment was rendered in circumstances that “raise substantial doubt about the integrity of the rendering court” or “the specific proceeding in the foreign court leading to the judgment was not compatible with the requirements of due process of law.” These new grounds apply only to judgments of other countries and not to judgments of other U.S. states, territories or commonwealths.

Enacted in Florida in 1994, the act largely follows the 1962 version of the Uniform Foreign Money-Judgments Recognition Act (the Uniform Act), promulgated by the National Conference of Commissioners on Uniform State Law (the NCCUSL). The act applies to final, conclusive, and enforceable money-judgments of other countries. Generally, such judgments are entitled to recognition under the act; however, there are several mandatory and discretionary grounds set forth in Section 55.605, Fla. Stat., upon which a court may deny recognition.

While the purpose of the act is to “provide a speedy and certain framework for recognition of foreign judgments,” Laager v. Kruger, 702 So. 2d 1362, 1363 (Fla. 3d DCA 1997), in practice, this may not be the case.

At first glance, the new amendment may seem unnecessary as the act already provides avenues to challenge recognition of a foreign judgment if it is “rendered under a system which does not provide impartial tribunals or procedures compatible with the requirements of due process of law,” or if it is “obtained by fraud.” The official comment to the Uniform Act draws a distinction between the new and existing grounds by stating that the focus of these two new grounds is on the integrity and procedure of the specific court that rendered the judgment, rather than on the judicial system of the foreign country.

Nevertheless, one potential concern is that the amendment invites a case-by-case review of foreign judgments, rather than further the “speedy and certain framework” the act intended to establish. This concern is compounded by the uncertainty as to the application of the nebulous “substantial doubt” standard when evaluating the “integrity” of the foreign court. Based on this language, some may argue that a debtor need only present enough evidence to raise substantial doubt in the mind of the trier of fact rather than affirmatively demonstrating fraud. Thusly, at face value, the amendment appears to welcome the enterprising debtor to argue the interpretation and limits of these new provisions in an effort to delay and possibly frustrate the recognition and enforcement of a legitimate foreign judgment.

Though the “substantial doubt” standard appears broad and ambiguous, it should in fact be narrowly interpreted. The NCCUSL explains that the standard is tantamount to “a showing of corruption in the particular case that had an impact on the judgment that was rendered.” At least two courts have followed the NCCUSL’s guidance in this respect. See In re Carmona, No. 16-50155, 2018 WL 889358, at *13 (Bankr. S.D. Tex. Jan. 19, 2018); Savage v. Zelent, 243 N.C. App. 535, 545 (2015). Neither found “substantial doubt” as to the integrity of the foreign court.

In short, the new amendment may leave room for abuse if courts do not adhere to the guidance of the Uniform Act and the interpretation of other courts. If so, the nebulous “substantial doubt” standard should have minimal impact for experienced creditor’s rights and asset recovery lawyers seeking to enforce valid foreign judgments entitled to recognition in Florida.

To view full article, click here.

Partner Q&A

This June, we welcomed two new powerhouse attorneys as partners at Sequor Law. We sat down with Leyza Blanco and Fernando Menendez to discuss what led them to our firm, their viewpoints on their unique practice areas, and their interests and community involvement.

Why did you decide to join Sequor Law?

  • Fernando – Being geographically situated in Miami, which serves as a gateway to Latin America and a hub for international business, Leyza and I were excited by the possibilities presented in joining a firm with a great depth of experience and knowledge in the international asset recovery arena. We have known the lawyers at Sequor Law professionally for many years and greatly admire their practice. We believe that our addition to this exceptional team creates natural synergies, adds to the firm’s resources and helps us all respond to the needs of our clients worldwide.
  • Leyza – Sequor Law presented an excellent opportunity to join professional colleagues who are world-class experts in the fields of Insolvency, Creditors’ Rights and Asset Recovery, and who would augment my cross-border practice with an already established global presence in those fields.

What do you think is unique about the firm?

  • Fernando – The firm’s depth of experience in international asset recovery matters is truly impressive. In the few short weeks since joining the firm, I’ve had the opportunity to assist clients and work with global teams on matters with ties, not only to the U.S., but to the U.K., Gibraltar, Luxembourg, Panama, Turkey, and Romania. I don’t know that I could say that anywhere else.
  • Leyza – Sequor Law is unique because it is a specialized firm with a niche practice and global reach in the Insolvency, Restructuring and Asset Recovery space.

How are your practice areas important for Sequor, and/or in general?

  • Fernando – I’ve focused my practice on bankruptcy and creditors’ rights matters for some time. Sequor’s focus on representing companies and individual clients in the areas of asset recovery, financial fraud, insolvency and financial services litigation fits perfectly within the scope of the work I’ve done throughout my career. I believe that our addition to the team will amplify the firm’s already formidable resources, and allow us to better assist and respond to the needs of our clients, whenever and wherever they may arise.
  • Leyza – Our practice areas have synergy with Sequor’s existing cross-border insolvency and restructuring practices. We look forward to adding to Sequor’s already deep bench in these areas.

How do you see your practice areas evolving or changing in the next 5-10 years?

  • Fernando – In a world that (at least as it relates to commerce) is getting smaller by the day, I see the scope of my work expanding to meet the needs of U.S.-based clients engaged in international business, and to assist clients in their asset recovery efforts around the world.
  • Leyza – I see our practice evolving to expand the use of U.S. Courts to assist clients from all parts of the world in asset recovery and insolvency proceedings.

What special strengths do you bring to Sequor?

  • Fernando – During my career, I’ve had the opportunity to handle numerous types of bankruptcy and insolvency matters from a number of different perspectives. In addition to working for plaintiffs and defendants in various fraudulent transfer and avoidance cases, I’ve also assisted a broad range of clients acting in various capacities in bankruptcy and other litigation proceedings, including debtors, trustees, secured creditors, bondholders, judgment creditors, and shareholders. I think the broad range of my prior engagements provides the benefit of multiple perspectives on how to handle new challenges.
  • Leyza – We bring additional depth of experience in both cross-border and domestic insolvency and creditors’ rights matters as well as the ability to counsel clients in Spanish, as we are native Spanish speakers.

How do you give back to the community?

  • Fernando – My wife and I contribute to several charities that are primarily focused on assisting children in developing countries.
  • Leyza – For many years, I have taught law students in clinical programs with the goal of serving the profession of law and the community. Most recently, I have assisted with a medical/legal partnership clinic assisting students with indigent clients who seek pro bono assistance in insolvency matters. I am also committed to increasing diversity and inclusion in the legal profession and to this end have served in various leadership roles, including Treasurer of the Florida Bar’s Business Law Section and Finance Director of IWIRC (International Women’s Insolvency & Restructuring Confederation.) When I served as President of the Bankruptcy Bar Association of the Southern District of Florida, I brought the Credit Abuse Resistance Education Program (C.A.R.E.) to South Florida, and then throughout the state. The C.A.R.E. Program teaches students of all ages the dangers of credit abuse. Through this program, we have presented to students in middle schools through to university freshmen. I am still involved in this program and most recently presented to students at the Department of Juvenile Justice in collaboration with the Legal Up Program. Teaching at-risk students and foster youth in transition about the dangers of credit abuse has been a good way to merge my skill set and experience as a bankruptcy lawyer with my love of teaching.

What is something people don’t know about you? (could be a hobby, interesting experience, skill or talent)

  • Fernando – Last year, I decided to take on the challenge of building a large wooden deck in my backyard. Not being a carpenter, and working only on weekends, the project turned out to be somewhat ambitious, and took far, far, . . . far longer than anticipated. Although it was a very rewarding experience, I’m fairly certain that my wife will insist that all future carpentry be left to the professionals.
  • Leyza – Many people do not know that law is my second career, having worked as a public school teacher prior to and during my law school years. Since then, I have also served as an adjunct professor teaching law students.

Sequor Law Picks Up Two Bankruptcy Attorneys From GrayRobinson

By Rick Archer

Leyza Blanco and Fernando Menendez Jr.

Sequor Law has added two former GrayRobinson PA shareholders, including one of the founding members of that firm’s Miami office, to its own Miami-based bankruptcy practice, the firm has announced.

In a statement released June 4, Sequor Law said new partners Leyza Blanco and Fernando Menendez Jr. have experience dealing with complex and cross-border bankruptcy cases, which would be a particular asset to the firm.

“The firm not only gains two outstanding lawyers with years of experience in insolvency, restructuring and commercial litigation but their bilingual and multicultural heritage will add to the growth of our market leadership in international asset recovery and cross-border insolvency,” Sequor Law founding shareholder Ed Davis said in the statement.

Seven years ago Blanco, a graduate of the University of Miami School of Law, was one of the founding shareholders of GrayRobinson’s Miami office.

The statement said Blanco has a wide range of litigation experience with a special emphasis on complex business bankruptcy and commercial litigation matters. She has extensive international bankruptcy experience, including with the Chapter 15 proceedings for Barbados-based British American Insurance Co., where she served as U.S. counsel for the court-appointed representatives from 11 different jurisdictions

She is also a Florida Supreme Court Certified Civil Mediator. Menendez, a New York University School of Law graduate, also spent seven years with GrayRobinson after starting his career at White & Case LLP.

Menendez has worked a broad range of business reorganization and restructuring matters as well as complex and contested bankruptcy issues, the statement said. According to his biography on the firm’s website, one major case Menendez has handled was representing the holders of more than $30 million in secured debt in the contested Chapter 11 of the owner of a large Miami real estate parcel.

Both attorneys credited what they called Sequor’s focus on international business as their reasons for joining the firm.

“I think we were both concerned about widening the breadth of our international practice,” Menendez said in a phone interview Monday. “They’re already in these markets. I think we have the opportunity to expand our relationships overseas.”

In the statement, Blanco said they had both worked with a number of Sequor’s attorneys for years and had “long admired” the firm.

“They have significant depth in the cross-border area,” Blanco said in the phone interview. “They have a really deep bench.”

Miami-based Sequor represents financial institutions, governments, and public and non-public companies in commercial litigation, financial fraud cases and bankruptcies in the U.S. and internationally, according to the statement.

To view full article, click here.

Miami’s Sequor Law Raids GrayRobinson for Two Insolvency/Litigation Partners

By Brenda Sapino Jeffreys

Leyza Blanco and Fernando Menendez Jr. joined Miami’s Sequor Law as partners.

Leyza Blanco and Fernando Menendez Jr.

Sequor Law, the Miami firm formed in 2017 as the successor to Astigarraga Davis, on Monday hired insolvency and litigation lawyers Leyza Blanco and Fernando Menendez Jr. as partners. Both came from GrayRobinson.

Blanco said Sequor Law’s well-known international insolvency practice is a great fit for her practice. She does a range of insolvency work and litigation, including complex business bankruptcy and commercial litigation. Menendez does a variety of insolvency work, including complex workouts, bankruptcy litigation and representation of foreign and domestic court-appointed trustees.

Blanco, who is also a Florida Supreme Court-certified civil mediator, declined to identify clients they brought with them to the new firm.

“The firm not only gains two outstanding lawyers with years of experience in insolvency, restructuring and commercial litigation, but their bilingual and multicultural heritage will add to the growth of our market leadership in international asset recovery and cross-border insolvency,” Edward Davis, a founding partner of Sequor Law, said in a statement.

Both Blanco and Menendez are fluent in English and Spanish.

In April 2017, Astigarraga Davis co-founder Jose Astigarraga left the firm along with a group of international arbitrators to open a Miami office for Reed Smith. At that time, Davis changed the name of Astigarraga Davis to Sequor Law, which has a practice focusing on asset recovery, financial fraud and cross-border insolvency.

With the lateral hires, Sequor Law now has 14 lawyers.

GrayRobinson, the duo’s former firm, did not immediately respond to a request for comment.

To view full article, click here.

How to Answer Tough Law School Interview Questions

By Ilana Kowarski

In law school interviews, it’s important to explain why you’re a strong candidate, experts say.

Trial lawyers and appellate lawyers are often asked questions by judges who expect an immediate response. These attorneys cannot waver over what to say; they must improvise and come up with a compelling argument.

Some of the most influential attorneys in U.S. history are famous for their ability to deliver captivating, off-the-cuff speeches. Before he joined the U.S. Supreme Court, Justice Thurgood Marshall was a litigator known for his powerful speeches during civil rights cases. And Clarence Darrow – a trial attorney who represented clients in some of the most controversial legal disputes of the early 20th century like the “Scopes monkey trial” – was often lauded for his ability to sway juries with his remarks.

Law school admissions committees strive to identify students who have the potential to have a lasting positive impact on the legal profession. That’s one reason why they look for applicants who have the capacity to speak with authority and conviction in a way that inspires others. But law schools also have a more pragmatic reason to recruit students with a silver tongue: Oral advocacy is a crucial part of many legal jobs.

Attorney Andrew Ittleman, a founder and partner with the Fuerst Ittleman David & Joseph law firm in Miami, says that showing poise during a law school admissions interview is a must.

“[In] exercises like that, you know, whether it’s sitting in an interview or arguing in court, you want to get to a place where you can be loose going in,” Ittleman says. “It’s not a test… Nobody is grading you the way that they would on a test. They want to see who you are as a person.”

Ittleman advises law school applicants to conduct a few practice interviews with people they trust who can provide honest feedback. “Go through a couple of dry runs,” he suggests. Ittleman says practice interviews help students discover the right words to use to clearly express their thoughts.

With that in mind, attorneys say that law school applicants should figure out how they’d like to answer the following questions before their admissions interviews.

1. Why do you want to become a lawyer? Experts say this is a question that J.D. applicants must have a compelling answer for, because law schools are wary of admitting students who view law school as a delay tactic to avoid making a career choice.

“I believe strongly that we should prepare and produce graduates who passionately want to be lawyers, because I believe lawyers who are passionate about what they are doing will be happy lawyers,” says Kathleen Boozang, dean of the Seton Hall University School of Law in New Jersey. “And so I am looking to see that the student is going to law school because they are inspired to go to law school, as opposed to [because] they really can’t think of anything else to do.”

2. Why are you applying to this particular law school? “Students should go into interviews knowing everything on that school’s website, its values, how it describes itself, who the star professors are, etc.,” says Ella Tyler, a retired lawyer who works as a tutor for Varsity Tutors, a virtual education platform. “Law requires preparation and research, so if you showcase those skill sets in your interview, it’s proof that you have what it takes to be a lawyer.”

3. What kind of law are you most interested in practicing? What is your dream law job? If you want to use a law degree in an unconventional way, such as in a policy job or a nonlegal business position, you may be asked: Why do you need a law degree? What would a law degree allow you to do professionally that you couldn’t do without the degree?

Experts say law schools are looking for applicants who can clearly articulate how they intend to use a J.D., because these schools don’t want to admit students who lack a clear justification for investing the time, effort and expense that law school requires.

“Law school is hard, it’s a lot of work, and you have to have the spark,” Boozang says. “You have to have a passion, you need to want to do it, and I want to just confirm that the student knows what they are getting into and that the desire is real.”

4. What book are you reading at the moment, and what do you think of it? If you aren’t currently reading a book, you may be asked an alternative question: Who is your favorite author and why?

Boozang says she asks questions like this to see whether a J.D. applicant is intellectually curious, enjoys the written word and can formulate a coherent argument about what he or she has read. The ability to analyze a text is a key skill for an aspiring lawyer, Boozang says.

Questions of this type are also meant to reveal whether an applicant has a well-rounded personality that includes interests besides academics, Boozang says. She advises applicants to read the news and continue pursuing their extracurricular interests during the law school admissions process, because it gives them something interesting to discuss when they are asked personal questions.

“I emphasize the importance to young people thinking about law school the need to be thinking about the world around them,” she says.

5. What college paper are you most proud of? The thinking behind this question is that it allows a J.D. applicant to discuss a subject they are enthusiastic and knowledgeable about, Boozang says. This interview question illuminates the way an applicant thinks and clarifies whether they have the mindset of a future attorney, she adds.

Boozang says a J.D. applicant who is asked this question should be prepared to answer follow-up queries about his or her paper, which may ultimately lead to a back-and-forth discussion with the interviewer. She says that the topic or thesis of the paper will be less relevant to the interviewer than whether the applicant is able to clearly explain his or her ideas and make a coherent argument.

6. How would you contribute to a law school class? Experts say questions like this give law school applicants an opportunity to differentiate themselves from their competitors in the J.D. admissions process.

Nyana Abreu, an attorney at Sequor Law in Miami, says the key to answering this question well is to talk less about academic statistics and more about who you are as a person.

“That’s not an academic question, and I think that’s something that a lot of candidates miss – that when you’re given an opportunity to talk about yourself, they don’t want to know your GPA [and] they don’t want to know your test scores,” she says. “They already know all those types of things. They want to know something memorable about you. So I would say, think of that question as more of a first date question. You’re not so much telling the interviewer why you’re so studious and hardworking. You’re telling the interviewer why people want to spend time with you.”

To view full article, click here.

They’re Having A Corruption Summit In South America. South Florida Should Tune In.

By Tim Padgett

Pedro Pablo Kuczynski resigned as president of Peru in March because of a corruption scandal – just a month before he was supposed to host the Summit of the Americas this week in Lima. But here’s the kicker: This time the theme of that gathering of the hemisphere’s heads of state is … corruption.

Pedro Pablo Kuczynski resigned as president of Peru in March because of a corruption scandal – just a month before he was supposed to host the Summit of the Americas this week in Lima. But here’s the kicker: This time the theme of that gathering of the hemisphere’s heads of state is … corruption.

But when Salazar declared his innocence to a Peruvian TV news show by Skype recently, he wasn’t in Peru. He’s living here, in the $1.5-million oceanfront condo he owns in Sunny Isles Beach. A Peruvian judge just issued a preliminary extradition order to bring Salazar back to Peru. But it could be a long time before that ever happens. If it happens.

And that situation bothers corruption experts like Jose Miguel Cruz.

“Miami and South Florida are seen as this paradise for those [allegedly] corrupt officials and executives,” says Cruz, who is director of research at Florida International University’s Latin American and Caribbean Center (LACC).

This Friday the LACC hosts a conference on Latin American corruption to coincide with the corruption summit in Peru. One point Cruz hopes to register is that the U.S. aids Latin American corruption by making it easy for suspects to take refuge in places like Miami with their allegedly dirty cash.

“We don’t seem prepared or willing to handle these corruption cases coming in from Latin America,” says Cruz. “Here in Miami, with the desire to contribute to the growth in real estate and different investments, we have tended to look the other way.”

Cases like Salazar’s are indeed common in South Florida. Among them: former Panamanian President Ricardo Martinelli, who was living in a Coral Gables mansion when he was arrested last year; the U.S. will decide if he should be extradited to Panama on corruption charges involving millions of dollars. (Martinelli denies the accusations.)

For his part, Salazar insists he’s a victim of shoddy investigative work by overzealous Peruvian prosecutors peddling assumptions, not facts. And he points out in Peru there’s no bail system – so if he does return he’ll have to sit in jail until his case is resolved, which could be years.

“We have repeatedly reached out to the prosecutor to explain what happened in this case,” says Salazar’s Miami attorney, Lilly Ann Sanchez.

“But unfortunately they don’t have the due process rights that we have in the United States. So of course [Salazar] is going to take the due process benefit of the country he’s in here.”


The concern about due process in Latin America is valid. Still, many Peruvians are angry Salazar is enjoying due process in such luxurious digs.

Salazar, a U.S. resident, bought his Jade Beach condo in Sunny Islands Beach six years ago. That’s when Odebrecht arranged the bribe Salazar is accused of expediting. And he acquired the condo anonymously – using a shell company whose officers are his wife and daughter.

“These structures are very commonly set up to hide the assets using family members,” says Annette Escobar, a Miami attorney at the Sequor Law firm specializing in international financial fraud.

Escobar notes federal officials did start a pilot program two years ago to make large property purchases like these more transparent. But she says much more is needed.

“It’s not overnight that you overcome a legacy like the one that Miami unfortunately has developed,” she says. “I think it would take congressional action and probably international cooperation.”

Latin American corruption suspects who take refuge here are under heavier scrutiny now. Former Guatemalan presidential candidate Manuel Baldizón is wanted back home in another massive Odebrecht case; U.S. officials arrested him in January and his extradition is pending.

“It’s very important that Mr. Baldizón return,” says Matías Ponce, spokesman for Guatemala’s International Commission Against Impunity (CICIG). “This is the most important corruption case in Guatemala.”

There may be more cases here to scrutinize – at least underwater. A high-level Odebrecht executive told investigators he had a laptop computer containing all the bribery data. But he said that last year during a visit to Miami he threw it into the ocean in a panic.

Meaning, lots of alleged corruption is probably lying at the bottom of Biscayne Bay.

To view full article, click here.

US Supreme Court Clarifies Standard of Review for Bankruptcy “Insiders”

By Benjamin Clarke

In its second clarificatory ruling in the space of a week, the US Supreme Court has found that appeals courts should apply a “clear error” standard when reviewing bankruptcy court rulings that determine whether an individual is an “insider”.

The unanimous decision handed down by Justice Elena Kagan on 5 March affirmed a Ninth Circuit ruling from February 2016 that federal courts should defer to the factual findings of the bankruptcy courts when hearing challenges over insider relationships, rather than conduct their own de novo reviews – where they would not have to place any weight on the bankruptcy court’s findings.

While the US Bankruptcy Code’s definition of an insider includes directors, officers, general partners and any “person in control” of the debtor entity, the US courts have developed tests to identify non-statutory insiders, which focus on whether transactions with the debtor are carried out “at arm’s-length”.

In the 5 March judgment, Justice Kagan concluded: “Appellate review of the arm’s-length issue – even if conducted de novo – will not much clarify legal principles or provide guidance to other courts resolving other disputes.”

“The issue is therefore one that primarily rests with a bankruptcy court, subject only to review for clear error,” she added.

Lawyers tell GRR that the ruling provides a “clear deference” to the bankruptcy court’s determination of insider status.

Mixed question of law and fact

The seven-year journey to the Supreme Court started in June 2011 when real estate company Village at Lakeridge filed for Chapter 11 protection in Nevada, owing US Bank over US$10 million and its sole owner, MBP equity partners a further US$2.76 million.

US Bank opposed the restructuring plan, which placed the two creditors in separate classes, and a potential cramdown plan – based on MBP’s consent – was prevented from proceeding because insiders cannot provide the agreement needed for cramdowns.

To get around the obstacle, Kathleen Bartlett – a member of the MBP board, and an officer of Lakeridge – offered to sell MBP’s entire claim to a retired surgeon, Robert Rabkin, so he could agree to the cramdown plan as a non-insider.

Following this move US Bank commenced litigation arguing that Rabkin was a “non-statutory insider” because he had a “romantic relationship” with Bartlett, and the purchase of MBP’s debt was therefore not an “arm’s-length transaction”.

The Nevada court rejected US Bank’s arguments and found that while Bartlett and Rabkin were in a romantic relationship, the purchase was made as a “speculative investment” and Rabkin had carried out the necessary due diligence.

When the matter subsequently made its way to the Court of Appeals for the Ninth Circuit, a divided vote affirmed the bankruptcy court’s position. The opinion handed down by Judge Norman Smith on 8 February 2016 said the bankruptcy court’s decision was based on a finding that the transaction was conducted at arm’s length. The decision was entitled to a clear error review, but could not be reversed under such a review, the Ninth Circuit said.

After the split decision the matter was allowed to proceed to the Supreme Court, for the determination of a single question: whether the Ninth circuit was right to review the bankruptcy court’s determination for clear error rather than de novo.

In a unanimous decision the Supreme Court agreed with the Ninth Circuit’s standard.

Justice Kagan said a “’mixed question’ of law and fact” remained at the heart of the case. The bankruptcy court had to determine whether the historical facts found regarding the relationship between Bartlett and Rabkin satisfied the legal test for conferring non-statutory insider status.

The standard of review for dealing with such mixed questions depends on whether answering it “entails primarily legal or factual work,” the court explained.

Using the test identified by the Ninth Circuit for determining Rabkin’s insider status – whether the transaction was carried out at arm’s length – the court decided the “mixed question” was primarily factual: was Rabkin’s purchase of the MBP claim conducted as if the two parties were strangers?

“That is about as factual sounding as any mixed question gets,” the court found.

Justice Kagan concluded that the Ninth Circuit applied the proper standard in reviewing the bankruptcy court’s determination that Rabkin did not qualify as an insider because his transaction was conducted at arm’s length.

“A conclusion of that kind primarily rests with a bankruptcy court, subject only to review for clear error.  We accordingly affirm the judgment below,” Justice Kagan finished.


Speaking to GRR after the verdict, retired bankruptcy judge for the Southern District of New York Judge Allan Gropper says the decision was only a narrow one given that the court’s ruling was limited to the standard of review an appellate court should use.

In such circumstances where questions of mixed law and fact are considered, the Supreme Court noted that the standard of review “is often determined on the basis of which judicial actor is better positioned to make the decision,” he says.

In this case, the court held that it was the bankruptcy judge who was best placed to make the decision, as he had heard the evidence and weighed the facts, and applied them to a legal standard that was not at issue, Judge Gropper explains.

In terms of the impact of the decision, Judge Gropper says he predicts losing parties will be less ready to appeal factual decisions made by bankruptcy or other trial courts, as a decision which is primarily factual in nature can only be reversed for clear error.

“Since either a debtor or a creditor can be on the losing end of a factual dispute, I don’t think the impact of the decision will fall more heavily on one or the other,” he adds.

Finally, Judge Gropper says that, as federal court judges are appointed for life under article III of the US constitution, and bankruptcy judges are appointed for 14-year terms under article I, he was “struck” by the Supreme Court’s decision to treat the factual findings of the bankruptcy court “with the same deference it would treat the factual findings of any other trial court”.

“In recent years, the Supreme Court and some other appellate courts have written opinions stressing the limited power of the bankruptcy courts to issue final decisions on certain issues, generally said not to be ‘core’ bankruptcy issues,” he says.

As the issue at play in this case was about the construction of a term defined in the Bankruptcy Code – surely a “core” issue – it is notable that the Supreme Court did not deem it relevant that the bankruptcy judge who made the initial factual findings was a non-article III judge.

“In my view, that aspect of the Supreme Court’s opinion should be important in confirming the role that the bankruptcy courts have in our judicial system,” Judge Gropper adds. 

Annette Escobar, founding shareholder and senior counsel at Sequor Law in Miami, agrees. She says that the specialised nature of the bankruptcy courts and the experienced judges that sit in them put them in the “best position as to facts and evidence presented to them”.

“I think it is a well-deserved recognition of the deference due to bankruptcy courts in matters pertaining to their areas of specialisation,” she tells GRR.

On the likely impact of the decision, Escobar also notes the issue resolved was a “very narrow one” and could vary from case to case in the future.

“The impact it will have on bankruptcy stakeholders or creditors on an individual basis is likely to be minimal,” she says, “but the question resolved might have extensive effects on appeals from bankruptcy courts more generally.

“[I]n all bankruptcy appeals in which mixed questions of law and fact are present, appellate courts will have to engage in the case by case analysis set forth by the Supreme Court,” Escobar adds. “I think we can expect a great deal more haggling about and briefing on the ‘nature’ of the questions on appeal”

Kristopher Aungst, bankruptcy and restructuring partner at Wargo French in Miami agrees that the decision provides a “clear deference” to the determination of insider status provided by the bankruptcy courts, but notes it does not offer any further clarity on the “limited but important” question of who is an insider under the bankruptcy code.

“Insider status, while relatively limited in scope of importance, clearly matters in the context of the look-back period in certain avoidance actions,” Aungst tells GRR. He suggests an expansion of the definition would create greater potential avoidance powers.

Coordinating editor of international for the American Bankruptcy Institute, Tally Wiener says she doesn’t think the Supreme Court missed an opportunity to offer more clarification on the definition of insiders. “[W]e know them when we seem them,” she says.

With regard to the substance of the ruling, Wiener tells GRR there is potential for courts to apply a broad construction. The decision could be cited to try to achieve a deferential standard of review with respect to other mixed issues of law and fact, she suggests.

“This strikes me as unfortunate,” Wiener says, “perhaps because I live in New York and am accustomed to federal appellate courts applying a de novo standard of review to many mixed issues of law and fact arising in bankruptcy appeals”.

The Supreme Court’s decision comes just six days after its landmark “safe harbour” ruling, in which it unanimously found that defendants who are not financial institutions or market participants should not be able to invoke the Bankruptcy Code’s safe harbour clawback.


Recoup From A Ponzi Past?

Law: After bankruptcy, lawsuit, Woodbridge tries a turnaround.

By Helen Floersh

Woodbridge Group of Cos. in December made headlines from Southern California to South Florida after it filed for Chapter 11 protection and was subsequently sued by the Securities and Exchange Commission for allegedly running a billion-dollar Ponzi scheme.

Woodbridge founder Robert H. Shapiro is alleged to have squandered investor money, paying big returns to old investors using fresh money from new investors, in classic Ponzi-scheme fashion. He enjoyed a lavish life, too, the SEC claimed, blowing millions on limousine service, fine wine and big parties attended by such prominent Republicans as Karl Rove.

Law: New Board Plans to Restructure Woodbridge

But what’s happened since is unusual. Ponzi schemes usually collapse upon being exposed. But management at the real estate investment firm – situated in a two-story office building on Ventura Boulevard in Sherman Oaks – appear set to overhaul its operations and try to make good with its creditors. The company announced early last month that it had cut all ties with Shapiro (not to be confused with renowned Los Angeles attorney Robert L. Shapiro, cofounder of Inc. in Glendale).

As part of a deal reached with federal regulators Jan. 24 in U.S. Bankruptcy Court in Wilmington, Del., the company has appointed a new board of directors to hunt for a chief executive who will spearhead a strategy to recoup the $1.2 billion Woodbridge raised from more than 8,400 investors. Meanwhile, the SEC has called off its request for a receiver.

“This board will guide Woodbridge through a fair and transparent restructuring process focused on maximizing recoveries for investors,” Woodbridge said in an e-mail to the Business Journal. “After conducting a comprehensive review of assets and operations, this board will begin developing a plan of reorganization, which will determine how creditor recoveries are managed and what Woodbridge might look like after the restructuring process is completed.”

Former management

Woodbridge investors in the past were told that the company was putting their money into high-interest loans made to luxury real estate developers. The borrowers were actually shell companies owned and operated by Shapiro, the SEC alleged in its Dec. 22 complaint.

“Shapiro promised investors they would be repaid from the high rates of interest (earned) on loans the companies were purportedly making to third-party borrowers,” the SEC wrote.

He allegedly used teams of internal and external sales agents to sell the securities to investors, at least 2,600 of whom were South Florida-based retirees who invested in Woodbridge using money from their Individual Retirement Accounts, the SEC alleged. They were guaranteed monthly interest and dividends from the so-called “hard money” loans Woodbridge was making.

Woodbridge claimed it generated between 11 and 15 percent annual interest for short-term financing, 5 to 10 percent of which was returned to investors, according to the SEC. In addition, investors were told they would see gains from the sale of real estate properties purchased and developed by the company, the SEC said. In reality, only about $14 million in interest was paid to Woodbridge by third-party borrowers, the SEC claimed. Roughly $103 million of new investors’ money was used to pay monthly interest and dividends to existing investors, with another $265 million paid as principal. At the time of the lawsuit, $961 million in principal remained due, the SEC said.

“The claimed interest payments from the purported third-party ‘property owners’ … did not exist,” the lawsuit stated. “Payments …derived almost exclusively from funds Woodbridge received from other investors.”

However, some purchases were, in fact, made. The real estate to which the Woodbridge loans referred included nearly 200 properties, most of them in Aspen, Colo. and Los Angeles, none of which investors had any say in choosing. The L.A. purchases were conducted through the company’s subsidiary Mercer Vine and included the historic Owlwood estate in Holmby Hills, which once belonged to Sonny Bono and Cher, as well as several other luxury properties, news reports said. Others were vacant lots “that have sat undeveloped for years,” the SEC claimed.

Meanwhile, Shapiro spent upwards of $21 million in investors’ money on himself and his family, the SEC said, including $34,000 on limousine services and $600,000 on political contributions. A local newspaper in Aspen detailed the events he threw with prominent Republican politicians, including former White House Advisor and Deputy Chief of Staff Rove along with current Energy Secretary Rick Perry. Other expenses included $1.4 million on luxury retail items and $1.2 million in alimony, SEC documents said. “Shapiro treated himself to an exorbitant lifestyle, at the investors’ expense,” the SEC said.


Shapiro resigned from Woodbridge Dec. 1, according to company documents. Through a transition services agreement between an LLC Shapiro established in September and Woodbridge, he named himself as a “consultant” to the firm at a monthly fee of $175,000. The agreement was terminated by the start of the year; Woodbridge said in a Jan. 2 press release that it had removed him from all matters involving the company.

Woodbridge had appointed Lawrence Perkins of L.A. management consultancy Sierra-Constellation Partners to steer the company through bankruptcy as its chief restructuring officer, but on Jan. 19 announced that he had resigned as Woodbridge seeks out a new chief executive with “homebuilding experience.”

As part of the agreement reached Jan. 23 in bankruptcy court, the company has appointed a trio of directors – Richard Nevins, M. Freddie Reiss and Michael Goldberg to oversee the search. Nevins is an attorney from Riverside, while Reiss most recently served as senior managing director in the corporate finance division of business advisory firm FTI consulting’s L.A. offices. Goldberg is the co-chair of the fraud and recovery practice group at the Fort Lauderdale, Fla. offices of Akerman, a Nevada-based law firm.

Reorganization: Investors Wait for SEC Inquiry

The company also has formed committees to represent investors’ interests, according to a release from the SEC. In turn, the SEC has withdrawn its request for a court-ordered trustee and a receivership for Woodbridge’s assets.

Investors will have to wait until bankruptcy proceedings are further along to know whether they will be able to recover much of their money. The company’s ability to emerge from the scandal unscathed will depend on both on their willingness to remain patient while the company restructures itself as well as what the SEC finds during its ongoing investigation, explained Arnie Lacayo, a Miami attorney at the firm Sequor Law and who is unconnected to Woodbridge but who reviewed the case at the Business Journal’s request. He noted the fact that the company declared bankruptcy voluntarily before being sued by the SEC may complicate the matter.

“(These kinds of cases) don’t normally involve bankruptcy where the business can be reorganized, though it does happen,” Lacayo said. “You have these very powerful forces that are clashing (the SEC and the federal bankrupt- cy court) as to what should happen next.” An attorney for Shapiro could not be reached, though his legal representative previously told the Wall Street Journal that Shapiro “denies any allegation of wrongdoing and looks forward to defending himself in a court of law.” The SEC declined to comment apart from its remarks in public materials.

For now, it remains to be seen whether Woodbridge will have to sell off its assets or be able to continue operations. Lacayo said the SEC could move to shut down the enterprise if it is proven that it was primarily run as a Ponzi scheme.

“(Woodbridge) will need to show that investments were made over time and that there was independence by the people charged with running the company.” he explained. “Investigators will get at those facts pretty quickly.”

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