Facts

John Brincko, National Consumer Mortgage's chapter 11 trustee, sued Rio Properties Inc. The case involved alleged fraudulent transfers between National Consumer Mortgage and Salvatore Favata.

PLAINTIFF'S CONTENTIONS:
Brincko alleged that Favata and others engaged in a Ponzi scheme, soliciting investments from National to fund residential mortgages. Plaintiff claimed the funds were not used for this purpose, and simply misappropriated by Favata. Plaintiff also claimed that the Ponzi scheme eventually collapsed, and National was forced to file for Chapter 11 bankruptcy. During the operation of the Ponzi scheme, Favata transferred over $10 million of National's funds to Rio Properties.

Plaintiff claimed Rio Properties may have ended up with money from any of the 66 alleged fraudulent transfers from National to Favata.

DEFENDANT'S CONTENTIONS:
Rio denied the allegations and asserted various affirmative defenses, including that Brincko lacked standing to assert his claims and that he had failed to meet pleading standards.

Rio contended that it acted in good faith.

Result

A jury found that Rio had received $10,342,008 of National's funds. However, the jury found that of the funds received, $8,862,008.21, approximately 90 percent of the transfers at issue, Rio received in good faith and without knowledge of fraudulent transfers from National to Favata. The National Consumer Mortgage trustee will recover $1,480,000 of the funds transferred.

Other Information

Favata was later criminally prosecuted, and plead guilty to his criminal conduct. FILING DATE: June 10, 2010.