Personal Bankruptcy Florida NonProfit asked to return Corporate Donations when the Donor declares bncrptc

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I am the Director of a small nonprofit animal welfare in St. Augustine, FL. A local corporate donor was raided in late March by the FBI for possible fraudulent activities on the part of the owner. To date, as far as we know, no arrests or 'cease and assists' for the business have occurred and the investigation is on-going. A Trustee was named to run the company and is now suing our organization thru US Bankruptcy Court in Middle District of Florida for the donations we received over a four year period calling them "fraudulent transfers" and "misappropriated funds". The total amount of donations our org received over that four year period is just over 38,000. The amount estimated to have been misappropriated is between one and two hundred million.
*The summons goes on to say that "The Debtor received no value in exchange for the Four Year Transfers" - (I was under the impression that a charity was not to give anything in return for donations received other than a receipt for tax purposes and proof of our 501c3 status).
* It also states that the transfers were made as a part of and in furtherance of the Debtor's operation of the Ponzi scheme...with the intent to hinder, delay and defraud his creditors...that it constitutes an interest of the Debtor in property (and) ...that 'The Defendant knew or should have known that the Four Year Transfers were improper' (How in the world would we know that when the FBI hasn't made a decision on it yet?!?)
* We are summoned and required to submit a motion or answer to this complaint against our org within 30 days. We are a shoe-string operation completely run by volunteers. The donation checks were hand delivered to our bank by an employee and investor in the company. We never saw them. How could we have known that the donations were improper? Any good advice would be much appreciated, Thank you for your Time.
The small non-profit has a BIG problem

Under 11 USC 548(a)(1) the Trustee has the duty to avoid and recover for the Estate a fraudulent transfer that is either:

(a) a transfer done with the intent to hinder, delay or defraud ((a)(1)(A))
(b) a transfer done without an equal exchange of value ((a)(1)(B)).

HOWEVER, under under 548(a)(2), a transfer to a "qualified religious or charitable entity" that falls under 548(a)(1)(B) (unequal exchange) "shall not be considered to be a recoverable transfer in any case in which the amount of the transfer does not exceed 15% of the gross annual income of the debtor. . ."

Unfortunately it appears that the Trustee is attempting to recover both on the 548(a)(1)(A) theory (hinder, delay, defraud) and the 548(a)(1)(B) theory (unequal exchange for value). While the non-profit may have a defense for the unequal exchange for value argument, it will not be protected under the "delay, hinder, defraud" part of 548.


This portion of your post is troubling:

"The total amount of donations our org received over that four year period is just over 38,000. The amount estimated to have been misappropriated is between one and two hundred million."

What do you mean by the "amount estimated to have been misappropriated"? Is the non-profit related in some way to the debtor (either directly or indirectly)? It would appear that you are admitting some sort of connection otherwise how could the non-profit have misappropriated 1 to 2 hundred million?

My recommendation is that the non profit immediately sit down with a qualified bankruptcy attorney. If the non profit does not respond the Court will issue a default against it and then the Trustee will exercise what ever rights there are to collect. If the non profit hires an attorney the non profit may be able to negotiate a settlement that will not cause it to go out of business.
Non profit woes

The total amount missappropriated of 1 to 2 mil was from a quote in the local paper. It was then quoted in the Claim. It is the amount the investors think the owner used fradulently for her own purposes. The 38,000 was our portion. The rest was on houses, cars, personal trainers, etc. Heck of a group to be associated with when no one from our group profited in any way. How can they claim we knew or should have known when no one else did?
Additionally, until the 1st of Jan 2010. the same paper reported her Corp to be bringing in over 2 mil a month. Her investors were bringing between 15% & 18% monthly until this past Jan. The company was not new either. One investor was just in the paper this past weekend stating that she had been an investor since the mid 90s. She had also taken her money out & then reinvested again later over those years. (It was a subprime auto finance investment company).
We were originally introduced to this company by some of it's investors. Further, our donors were asked to invest by a woman who was an investor and was hired by the company to handle the 'charities'. It was this same woman who convinced the owner to make the donations to our org, delivered the checks directly to our account, and is now suing us for the $?
This is way too convoluted. I cannot tell if the non profit was an investor or just a recipient of charitable contributions. What you are describing is similar to the Bernie Madoff mess but on a much smaller scale. Ponzi schemes happen all the time. I would be curious to take a look at the Complaint. Even after seeing the Complaint I am not sure I can point you in the right direction other than to again stress the importance of finding a local BK attny.

If you want me to look at the Complaint, the only way for me to do so is for you to post the Case Number and what district out of the FL Bankrutpcy Court it was filed. I can then access it off the PACER system. HOWEVER, AND THIS IS A BIG HOWEVER, If you do this you will lose the privacy your non profit currently has as this is a public forum. Think before you post. I will keep an eye on this thread.
FL NonProfit

As a Public charity we have little that is private
# 3:10-bk-02805-PMG
Middle District of Florida
DRFarm was a recipient only
& was referred to the donor by one of thier investors
DRFarm did not solicit the donor
Members of DRFarm were later solicited to invest but did not
The donations were directly deposited into the Farm's account
How could we have refused
and where does this leave us with other donor's funds?
Many articles can be found if you search the Debtor's name
I have reviewed the Complaint and as expected, the Chapter 11 Trustee is claiming recovery under 548(a)(1)(A) and (B). In addition, he is utilizing Florida's "fraudulent conveyance" statutes.

The General Allegations should be answered that the non-profit has no knowledge of the allegations.

The specific Counts need to be responded to. As to Count 1, proving that the transfers were not done with the intent to hinder, delay or defraud should not be difficult. Who tenders $$ to a charity with such intent? As to the Counts dealing with 548 (a)(1)(B), the non profit may have a defense. As to the State law counts, I have no clue since I am not in Florida.

Bottom line, the non-profit needs to hire an attorney and then needs to do one of two things:

1. Defend the allegations or
2. Settle with the Trustee

In a situation like this, I as counsel for the non profit, would put in a Notice of Appearance and then seek an "open extension" from the Trustee as it relates to filing an Answer. During that open extension I would try to negotiate a settlement. The settlement might be the cost of litigation. Both sides understand that either side could lose and getting the matter settled for some amount less than the $38,000.00 is in everyone's interest.

If the Trustee will not give an "open extension" an Answer MUST be filed or a Default Judgment will be entered. Once the Answer is filed I would attempt to settle as defending the action could run more than the amount sought in the Complaint.

Best of luck.
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I appreciate your response
How do we avoid this mess in the future?
I'll admit that 'some amount less than the $38,000.00 is in everyone's interest' is not in our best interest
We are a shoe string operation and that $ went straight to rent
It was never in the account for more than 48hours
We do not carry a cushion balance
There are always more horses than $
especially in the last few years
The thought that we would have to return
contributions because our donor went bankrupt
is terribly frightening in this economy
Thank you for your time tho!
I empathize with your plight. I think your non profit is commendable for the work it does.

Unfortunately there is no way to protect yourself in the future. There is no way to know what financial wows the donors are having. It is the luck of the draw.

When you meet with the attny you might want to discuss folding the current non profit and opening a new one. One strategy is to put the current non profit into a Chapter 7 and then form a new non profit. The new non profit can offer to purchase all of the assets (no matter how small or large) from the Chapter 7 Trustee. This purchase would be "free and clear" of all creditors, including the Chapter 11 Estate. This might be a cheaper approach and one that I have used in my district but, admittedly not under your unique set of circumstances.
You are not actually involved in the fraudulent activities done by your donor, and you can easily convince this to the court of law.You have just received the donations, and it is not a crime.Thus, there is no cause of worry to you.
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