Investor in failed housing foundation 'Ponzi-like' scheme recovers partial investment on appeal

By Andrey Burin | May 15, 2015

U.S. 5th Circuit Court of Appeals

NEW ORLEANS – A trial lawyer who invested in a development corporation allegedly engaged in a “Ponzi-like” scheme will receive part of his investment back after an appeals court overturned a lower court’s ruling requiring he not be repaid any part of his investment following the company’s bankruptcy and its CEO’s suicide.

Robert Templeton, an investor in the American Housing Foundation (AHF), originally filed suit against the company for recovery of his investments after its CEO committed suicide and it went bankrupt.
On May 12, 2015, the Fifth Circuit Court of Appeals affirmed the key portion of the ruling concerning subordination of the claim, but reversed a decision allowing the corporation to avoid some payments made to the appellant.

A bankruptcy court published its original decision in March 2013 and a district court subsequently affirmed this decision in full. After examination of Templeton’s dealings with the company, the original ruling stated that they seemed “wildly beneficial to Templeton” and chose to treat Templeton’s investments as purchases of equity rather than debt. This moved his investment from being legally classified as a “General Unsecured Claim” (bringing an estimated recovery total of 20 percent to 40 percent) to an “Allowed Subordinated Claim” (bringing with it an estimated recovery total of 0 percent).

This part of the ruling is based on the court’s interpretation of Templeton’s investments as being legal purchases of equity in the company, thus weakening his claim from that of a creditor to one of an equity holder and changing the amount that he could recover. The plaintiff’s arguments that some of his investments were not in AHF but in other companies was negated by the court’s ruling that those other investments were in affiliates controlled by AHF. The appeals court thus denied Templeton’s appeal of the claim’s subordination and ruled that his investments were purchases of equity in AHF affiliates.

The court also ruled to reverse a portion of the decision dealing with $157,500 that Templeton received from the company in the 90 days leading to bankruptcy. Section 547(b) of the banking code is a provision that allows trustees to “avoid any transfer of an interest of the debtor in property” made to creditors “on or within 90 days before the date of the filing of the petition.”

However, Templeton argued that these transfers fell under the category of “ordinary course of business” and thus should not be avoidable. Though mentioning the company did engage in some "Ponzi-like" investments that were illegitimate, the court ruled that because those constituted only 9 percent of total investments and the AHF did engage in legitimate business, these transfers between the plaintiff and the trustee fell under the category of “ordinary courses of business,” denying the company the right to avoid the payments and awarding Templeton $157,500.

The appellant, Templeton, is a trial attorney who invested more than $5 million in AHF and its affiliates starting in the late 1990s. AHF CEO Steve Sterquell started the company in 1989 and by 2009 owned or managed about 14,000 housing units across nine states prior to his suicide.

This case was heard by judges Carolyn D. King, W. Eugene Davis and Priscilla Owen.

Case no. 14-10563.

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