A federal jury in the Eastern District of Tennessee has indicted Louis Rivas on multiple charges of mail fraud, money laundering and fraudulent transfers in contemplation of bankruptcy relating to the collapse of Rivas' alleged foreign currency exchange firm - and its investment endeavor, The Forex Project - which the indictment (available here) alleges was nothing but a classic Ponzi scheme.
According to the indictment, Rivas represented himself to be an experienced trader in foreign currency exchange operating through The Forex Project, which invested in "off market foreign currency exchange." In approximately March 2007, Rivas devised a scheme to defraud by raising raising more than a million dollars in investments through false promises of high rates of return, recruiting investors as "equity agents" for the purpose of recruiting additional investors and paying early investors with income from later investors. Rivas allegedly misapplied investor's funds for his personal use by purchasing numerous lavish assets. As the scheme began to unravel, according to the indictment, several creditors filed an involuntary bankruptcy petition against Rivas on May 15, 2008. Rivas, however, had already allegedly transferred hundreds of thousands of dollars - presumably to a safe place.
Those transfers gave rise to the bankruptcy criminal charges. Counts _-_ charge Rivas with violating 18 U.S.C. section 152(7) by fraudulently transferring nearly $300,000 on May 19th and 20th allegedly "in contemplation of" the involuntary bankruptcy filing on May 15th and with "the intent to defeat the provisions of title 11." In so charging, prosecutors followed the common practice of charging both alternative mental states present in the statute. Section 152(7) requires proof that a defendant acted "knowingly and fraudulently" and either (a) "in contemplation of" a bankruptcy filing or (b) "with intent to defeat the provisions of title 11."
While it is not uncommon for indictments to charge fraudulent intent together with both "contemplation" and intention to defeat the bankruptcy code, the charging pattern in this case appears unusual because of the timing of the alleged transfers in relation to the bankruptcy filing. How, one may ask, could a person make a fraudulent transfer "in contemplation of" a case that already has been filed? Does not the phrase "in contemplation of" refer to an expectation of a future event? The Pattern Criminal Federal Jury Instruction for the Seventh Circuit (this case is not in the Seventh Circuit) says it does by stating that the phrase "in contemplation of" means "in expectation of, or planning for, the future probability of a bankruptcy proceeding."
Be that as it may, while the charging pattern here appears to be unusual on the facts it does not appear to be legally defective and perhaps additional facts will develop to explain it. More to come?
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