In re Ifs Financial Corp., Bankruptcy No. 02-39553.
| Decision Date | 09 September 2009 |
| Docket Number | Adversary No. 04-03757.,Adversary No. 04-03803.,Bankruptcy No. 02-39553.,Adversary No. 04-03745.,Adversary No. 04-03768.,Adversary No. 04-03775. |
| Citation | 417 B.R. 419 |
| Parties | In re IFS FINANCIAL CORPORATION, Debtor(s). W. Steve Smith, Trustee, Plaintiff(s) v. Ramon Garcia Suarez, Defendant(s). |
| Court | U.S. Bankruptcy Court — Southern District of Texas |
Blanche Duett Smith, W. Steve Smith, McFall Breitbeil Shults PC, Houston, TX, for Plaintiff.
Michael G. Colvard, Martin & Drought, P.C., San Antonio, TX, for Defendant.
The Court awards judgments against Guillermo de la Pena Stettner, Luis de la Pena, Margarita Isabel de la Pena Stettner, Cristina de la Pena Stettner, Paz de la Pena Stettner and Mario Valverde Garces arising out of avoidable fraudulent conveyances received by them. The Court denies all claims against all other defendants. The Court's principal findings are as follows:
• The funds were paid out of an account legally titled in the name "Integra Bank," but actually owned and controlled by the Interamericas Companies.
• IFS, acting through its officers and agents, exercised exclusive control over the account.
• The funds were paid on account of antecedent debt, but in furtherance of a fraudulent scheme.
• The judgment defendants knew or should have known of the fraudulent scheme.
The Interamericas Companies were comprised of operating businesses offering insurance, mortgage, and banking services along with affiliated holding companies and off-shore investment vehicles. IFS Financial Corporation ("IFS") was the holding company that held the income producing subsidiaries. IFS was the nucleus of the Interamericas Companies.
The Interamericas Companies were funded largely through Mexican investors. Mexican investors were issued debt instruments (typically CDs from a Curacao, Netherlands Antilles bank or bearer notes in the name of an Interamericas Companies entity) at above market rates. The security of the investments depended on the success of the Interamericas Companies entities. At least by 1998, the Interamericas Companies were no longer operating as a viable enterprise. The only assets with significant value were liquidated, while millions of dollars in new investor debt continued to be incurred. Proceeds from the liquidations and newly invested funds from Mexican investors were paid to insiders or favored investors.
In this adversary proceeding, Trustee Smith seeks to recover approximately $3 million in payments made to a small group of investors during the Interamericas Companies' final years. Trustee Smith brings his claims on behalf of the IFS estate only. To succeed on his claims, Trustee Smith must prove that: (1) the withdrawals were property of IFS; and (2) IFS made the transfers with the intent to hinder, delay, or defraud creditors.
The identity of the true owner of the transferred funds is obscured by the "circuitry of arrangement"1 amongst the Interamericas Companies. Investor funds were deposited in an account at the Southwest Bank of Texas styled in the name of Integra Bank. Integra Bank was incorporated in Curacao and was not technically owned by an Interamericas Companies entity. Nevertheless, the evidence demonstrated that IFS controlled the Southwest Bank of Texas account to such an extent that IFS was the true owner of the account. IFS used the Southwest Bank of Texas account as its general fund. IFS transferred proceeds from the sales of IFS businesses into the account. IFS paid IFS shareholder dividends and IFS business expenses from the account. All transfers to and from the account were approved by board members operating on behalf of IFS. Integra Bank could not unilaterally withdraw funds from the Southwest Bank of Texas account.
Based on the evidence presented and as set forth in greater detail later in this Memorandum Opinion, the Court concludes that the Interamericas Companies controlled the Southwest Bank of Texas account to such an extent that Interamericas was the true account owner, notwithstanding legal title in another party.
IFS's intent to hinder, delay, and defraud was evidenced by the condition of its enterprise. When the transfers were made, IFS: (1) had sold or was in the process of selling its only legitimate operating businesses, and (2) IFS continued to borrow money in a Ponzi-like scheme2 from new investors. Even if IFS began as a legitimate enterprise, IFS's officers eventually concluded that it had no hope of honoring its commitments to investors. IFS orchestrated a series of fraudulent inter-company loans to distort its balance sheets and solicited new investments to pay-off old investments. By 1998, IFS's transfers were made solely to keep the fraudulent scheme going. Under Supreme Court and Fifth Circuit precedent, the existence of a pervasive fraudulent scheme is sufficient to find fraudulent intent with respect to transfers made in furtherance of that scheme.
As set forth in detail below, Trustee Smith established the necessary elements of a fraudulent transfer claim. Though most investments were made in good faith, the distributions were not. With the exception of three Defendants who have established an affirmative defense, the Court will award judgments against Defendants and in favor of the IFS estate.
The IFS Financial Corporation ("IFS") bankruptcy case is a jointly administered case comprised of approximately 19 related entities (the "Interamericas Companies"). The Interamericas Companies included Interamericas, Ltd., Interamericas Investments, Ltd., Interamericas Holdings, Inc., Interamericas Corporation, Interamericas Financial Holdings, Ltd., Interamericas Financial Holdings Corp., IFS, and other related entities. The Interamericas entities included holding companies that simply held stock in other entities, off-shore shell companies created to channel money to and from investors, and actual operating entities. The operating entities were involved in the mortgage, banking, insurance, real estate, custom brokerage and transport forwarding, money exchange, construction/development, and food industries.
The Interamericas Companies can be broken into two branches. One branch of entities was owned under holding companies bearing the word "Interamericas." A second branch of entities was owned under holding companies bearing the word "Financial." IFS was in the Financial branch. IFS held Interamericas Companies' most significant businesses: American Founders Life Insurance Company ("AFL"),3 AccuBanc Mortgage Corporation ("Accubanc"), and Pueblo Corporation ("Pueblo"). AFL was an insurance company, Accubanc was a subprime mortgage originator, and Pueblo focused on selling various products to the Latin American community. Though a few smaller businesses were owned through the Interamericas branch, AFL, Accubanc, and Pueblo were the primary operating businesses.
Interamericas Companies received capital primarily from Mexican investors, although there were some European investors as well. Interamericas Companies paid "promoters" to solicit investors and encourage investors to keep their assets with the enterprise. Promoters were paid 0.10-1.00% per month of total investments retained by Interamericas Companies. Investors were sold foreign CDs or bearer notes, both paying rates of approximately 10-11%. The promoter commission and interest rates were to be paid from the operation of Interamericas Companies' businesses.
Investor funds were sent to Interamericas Companies' Woodlands, Texas headquarters and deposited in a Southwest Bank of Texas account held in the name of Integra Bank.4 Integra Bank was the primary off-shore entity used to channel foreign investor funds into Interamericas Companies entities. Integra Bank was incorporated in Curacao, Netherlands Antilles, and, at least on paper, was independent of the Interamericas Companies. Investors' account statements would list the individual's investments and the account balance. Investments were listed as either: CDs in the name of Integra Bank or bearer notes issued by an Interamericas Companies entity. Investors were told that their investments were in safe CDs issued by Integra Bank. Representations made by promoters and Advisory Board members and the account statements led investors to believe that their money was in fact deposited with Integra Bank. Though some investors understood that their CD rates of return were earned by Integra Bank's investments in Interamericas Companies, investors nevertheless assumed that their CD accounts were held and managed by Integra Bank.
Though all the Interamericas Companies had separate corporate existences, incorporated in countries around the world, all were controlled by a single Advisory Board based in the Woodlands, Texas.5 The Advisory Board's membership changed from time to time, but was primarily dominated by the Pimienta family (Hugo, Enrique, and Arturo), Rodolfo Garcia, Peter Ulrich, and Ramon Beteta. Hugo Pimienta effectively ruled the Advisory Board during much of the time period between 1998 and Interamericas Companies' demise in 2002. The Advisory Board set interest rates on the CDs and bearer notes. The Advisory Board controlled how investor funds would be invested in the various Interamericas Companies entities. The Advisory Board controlled what Interamericas Companies would be sold and for how much. The Advisory Board directed loans between the Interamericas Companies when the Board determined that a company needed increased capitalization. To the extent that Interamericas Companies and Integra Bank had officers and directors that were not part of the Advisory Board, they were not independent of the Advisory Board. No one...
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