# Carickhoff v. Cantor

> United States Bankruptcy Court, D. Delaware · July 23, 2025

URL: https://www.frixlaw.com/law-library/cases/11106438

## Case

- **Court:** United States Bankruptcy Court, D. Delaware
- **Decided:** July 23, 2025
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/11106438

## Opinion text

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
Th re:
Chapter 7
LIVE WELL FINANCIAL, INC.,
Case No. 19-11317 (LSS)
Debtor.
DAVID W. CARICKHOFF, as Chapter 7
Trustee of LIVE WELL FINANCIAL, INC.,
Adv. Pro. No. 21-50990 (LSS)
Plaintiff,
v.
STUART H. CANTOR, JAMES P.
KARIDES, BRETT J. ROME, LWFVEST,
LLC, NORTH HILL VENTURES II, LP,
FIVE ELMS EQUITY FUNDT, L.P., FIVE
ELMS HAAKON, L.P., FIVE ELMS
COINVEST, L.P., JAMES BROWN,
GANTCHER FAMILY LIMITED
PARTNERNSHIP and ERIC LEGOFF,
and
JOHN DOES 1-10,
Defendants.
MEMORANDUM
Defendants Karides, Rome, LWFVEST LLC, North Hill Ventures 1, LP, Five Elms
Equity Fund I, L.P., Five Elms Haakon, L.P. and Five Elms Coinvest, L.P. (collectively, or
a subset thereof, “Movants”) move to dismiss’ Counts 1 and 9 of the Amended Complaint.?
For the reasons stated below, the Motion to Dismiss is denied.

' Defendants LWF Vest LLC, North Hill Ventures II, LP, Five Elms Equity Fund I, LP, Five Elms
Haakon, LP, and Five Elms Coinvest, LP, James Karides, and Brett Rome’s Mot. to Dismiss
Counts 1 and 9 the Trustee’s Compl, Dkt. No. 54 (“Motion”).
2? Am. Compl., Dkt. No. 45.

‘Procedural Posture
On June 13, 2023, J issued that certain Opinion on Movants’ motion to dismiss
Trustee’s original complaint; it was followed by an Order on June 16, 2023.7 I denied the
motion to dismiss as to Counts 3, 4, 5, 6, 12, 13 and 14.
I also denied the motion as to Count 1 (breach of fiduciary duty against Defendants
Rome and Karides) for claims arising on or after June 10, 2016. But I granted the motion as
to claims arising before that date, concluding that they were barred by Delaware’s statute of
limitations,
Finally, I granted the motion to dismiss, in full, as to Count 11 (actual fraudulent
conveyance claims against LWFVEST, North Hill, Five Elms Equity Fund, Five Elms
Haakon, and Five Elms Coinvest). Trustee relied on the Ponzi scheme presumption to
establish fraudulent intent, but I concluded that he had not pled that the transfers at issue
were “in furtherance” of the Ponzi scheme.*
On August 11, 2023, Trustee filed his Amended Complaint, which includes amended
versions of the dismissed counts renumbered as Counts 1 and 9. Movants timely moved to
dismiss Counts 1 and 9. The matter has been fully briefed and is ripe for decision.°

3 Carickhoffv. Cantor (In re Live Well Financial, Inc.), Adv. Pro. No. 21-50990, 2023 WL 3995900
(Bankr. D. Del. 2023), Dkt. No. 40 (“Opinion”); Order Granting In Part and Denying In Part Defs.
LWEVest LLC, North Hill Ventures II, LP, Five Eims Equity Fund I, LP, Five Elms Haakon, LP,
and Five Elms Coinvest, LP, James Karides, and Brett Rome’s Mot. to Dismiss the Trustee’s
Compl. [Dkt. No. 13], Dkt. No. 41.
* Op. 34-35.
> Opening Br. in Supp. of Defs. LWFVEST LLC, North Hill Ventures II, LP, Five Elms Equity
Fund I, LP, Five Eims Haakon, LP, and Five Elms Coinvest, LP, James Karides, and Brett Rome’s
Mot. to Dismiss Counts 1 and 9 the Trustee’s Am. Compl., Dkt. No, 55 (“Opening Br.”); Trustee’s
Resp. in Opp’n to Mot. to Dismiss of LWFVEST LLC, North Hill Ventures Il, LP, Five Elms
Equity Fund I, LP, Five Elms Haakon, LP, and Five Elms Coinvest, LP, James Karides, and Brett
Rome, Dkt. No. 62 (“Resp.”); Reply Br. in Supp. of Defs. VEST LLC, North Hill Ventures II,

Jurisdiction
I still have jurisdiction over the matter pursuant to 28 U.S.C. § 1334(b). As relevant
here, Count I is non-core and Count 9 is core, Trustee consents to entry of final orders by
the Court if it is determined that, absent the consent of the parties, the Court cannot enter
final orders consistent with Article III of the United States Constitution. Movants do not,
If this matter goes to trial, I will have to recommend findings of fact and conclusions of law
to the district court on non-core counts. But this is not a final decision.
Legal Standard
“A Rule 12(b)(6) motion challenges the sufficiency of the factual allegations
contained in the complaint.”* A complaint must contain “sufficient factual matter, accepted
as true, to state a claim to relief that is plausible on its face” to survive a motion to dismiss.’
The facial plausibility requirement is met when “the plaintiff pleads factual content that
allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.” J will not repeat analysis done in my Opinion, but will address only
whether the new allegations are sufficient to correct the previous deficiencies.

LP, Five Elms Equity Fund 1, LP, Five Eims Haakon, LP, and Five Elms Coinvest, LP, James
Karides, and Brett Rome’s Mot. to Dismiss Counts | and 9 of the Trustee’s Am. Compl., Dkt. No.
65 (“Reply”).
Gavin Solmonese LLC yv. Shyamsundar (Tn re AmCad Holdings, LLC), 579 B.R. 33, 37 (Bankr. D, Del.
2017) (citing Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir. 1993)).
? Bell Atl v. Twombly, 550 U.S. 544, 570 (2007).
8 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 US. at 556); Fowler vy. UPMC
Shadyside, 578 F.3d 203, 210 (3d Cir. 2009).

Discussion
I. Count 1: Trustee has adequately pled that the statute of limitations was tolled
Trustee alleges in Count I that Defendants Rome and Karides breached their
fiduciary duties to Live Well “[f]rom at least September 2015 through their resignations in
September 2016... .”? While the statute of limitations is an affirmative defense not
typically subject to challenge of a motion to dismiss,’® because Trustee affirmatively pleads
that the statute of limitations has been tolled,'' he bears the burden of pleading sufficient
facts to support his assertion.” The question here is whether Trustee has pled sufficient facts
to toll the statute of limitations for claims which accrued prior to June 10, 2016.
Delaware decisional law recognizes that the statute of limitations may be tolled
under the doctrines of inherently unknowable injuries, fraudulent concealment or equitable
tolling.” Regardless of the theory, the tolling ends when the plaintiff is on inquiry notice of
the cause of action.’* At issue here is whose knowledge may be imputed to Live Well for
purposes of establishing inquiry notice.
In response to the dismissal of Count I, Trustee now pleads:

Am, Compl. § 205.
10 In ve: Tower Air, Inc., 416 F.3d 229, 242 (3d Cir. 2005) (“affirmative defenses generally will not
form the basis for dismissal under Rule 12(b)(6)”).
Am. Compl. ff 307-309.
2 Tower Air, 416 F.3d at 238 (where complaint “declares” an affirmative defense does not vitiate
plaintiff's claims, the court may dismiss the complaint based on that defense).
3 Gregorovich v. EI, du Pont de Nemours, 602 F. Supp. 24.511, 518-19 (D. Del. 2009). The parties
assume Delaware substantive law applies, so I do as well.
14 Pomeranz v. Museum Partners, L.P., No. CIV. A, 20211, 2005 WL 217039, at *3 (Del. Ch. Ja. 24,
2005). A plaintiff is on inquiry notice when it has “sufficient knowledge to raise [its] suspicions to
the point where persons of ordinary intelligence and prudence would commence an investigation
that, if pursued would lead to the discovery of the injury.” Td.

307. Prior to Live Well’s bankruptcy, all statutes of limitations for claims
against the Directors related to the fraudulent bond scheme, and the harm
caused to Live Well thereby, were equitably tolled until the Petition Date
because neither Live Well nor any innocent stakeholder of Live Well had
knowledge or, through the exercise of reasonably [sic] diligence, had reason to
know of the fraudulent scheme or the harm it caused Live Well until the scheme
ultimately collapsed.
308. Live Well, as an entity, had no knowledge of the fraudulent bond
scheme independent from the knowledge of its agents and fiduciaries. The only
Live Well agents and fiduciaries that had knowledge, or, through reasonable
diligence, could have obtained knowledge, of the fraud, were the Criminal
Insiders and the Directors. As described in detail above, however, the interests
of the Criminal Insiders and Directors were adverse to the interests of Live Well
with respect to the fraudulent bond scheme because each of them stood to gain
financially, to the detriment of Live Well, from the fraud. They were also
highly incentivized to ensure that neither Live Weil nor any innocent
stakeholder of Live Well learned of the fraudulent bond scheme because its
revelation could potentially subject them to significant civil and/or criminal
liability. As such, Live Well cannot be charged with the Criminal Insiders’ or
its faithless directors’ knowledge of the bond fraud. And, for the same reasons,
the existence of the bond fraud was inherently unknowable to Live Well.
309. Moreover, Hild and the Directors fraudulently concealed their fraud
and breaches of fiduciary duties from Live Well and its creditors and innocent
stockholders (the only other stake holders [sic] that could have brought a claim)
through their approval and issuance of fraudulently misstated financial
statements, which were reasonably relied upon by such stakeholders. As such,
all statutes of limitations related to the bond fraud and Defendants’ breaches of
fiduciary duties are equitably tolled under the doctrine of fraudulent
concealment.'®
Movants assert that Director Glen Goldstein, various “board observers” (including Live
Well’s outside corporate counsel) and the employees responsible for managing Live Well’s
bond portfolio all had knowledge which, if imputed to Live Well, would have put it on
inquiry notice. Additionally, they allege “the market, Live Well, even Live Well’s

1 Amended Complaint ff] 307-309. The first paragraph was contained m the original Complaint.
The second and third paragraphs are new.
Opening Br. 9-13.

shareholders saw exactly what the Directors saw” which would defeat claims of equitable
tolling,”
Neither Movants nor Trustee specifically briefed what is necessary to plead in this
context, which is, if not singular, rare. But this is a complaint in federal court, so notice
pleading is the standard."
The Tower Air case is instructive. There, plaintiff pled in his complaint that the
business judgment rule did not vitiate any of his defenses. Because he did so, the Third
Circuit held that plaintiff had to “plead that he overcomes the presumption created by that
rule—that Tower Air’s directors and officers acted in good faith and on an informed
basis.” More specifically, the Court stated:
the question for this Court is whether [plaintiff's] Amended Complaint sets out
a simple and brief statement of claims of irrationality or inattention and gives
the [defendants] fair notice of the grounds of those claims. “[U]nless it appears
beyond doubt that the plaintiff can prove no set of facts in support of his
claims[s] which would entitle him to relief,” Conley, 355 U.S. at 45-46, 78 S.Ct.
99, we must reverse the District Court['s granting of the Rule 12(b)(6)
motion|.””
Applying the Tower At methodology here: having raised the tolling of the statute of
limitations, Trustee must plead that he overcomes the three-year statute of limitations.”
Because this is notice pleading, he must do so by providing a short and concise statement as

Opening Br, 13.
'8 Tower Air, 416 F.3d 229, 237,
19 Hd, at 238.
20 Fd. at 239. Since Tower Air, the Supreme Court established a new pleading standard on motions to
dismiss—the plaintiff must now allege “sufficient factual matter, accepted as true, to ‘state a claim
for relief that is plausible on its face’”—but the principle is the same. Jgbal, 556 U.S. at 678 (citing
Twombly, 550 U.S. at 570).
21 Tower Air, 416 F.3d at 237. This is a burden Trustee would not otherwise have had. Jd.

to why the statute of limitation is tolled. In other words, after reading the Amended
Complaint, I will only grant the motion to dismiss if Trustee has not alleged facts, which
taken as true, “state a claim for relief that is plausible on its face.””
Here, Trustee alleges that the only agents or fiduciaries with knowledge of the fraud
were the Criminal Insiders and the Directors, all of whom had adverse interests.”* Trustee
also alleges that no creditors or shareholders knew of the bond scheme because the Directors
issued fraudulent financial statements.24 While he does not make specific allegations in the
Amended Complaint regarding the knowledge (or lack thereof} of corporate counsel, other
board observers or the bond portfolio management team, I conclude that is not fatal in these
circumstances.”
1. Director Glen Goldstein
The parties agree that, as a director, Glen Goldstein had sufficient knowledge of the
Criminal Insiders’ scheme to put Live Well on inquiry notice if his knowledge were imputed
to the company.” The general rule is that a director’s knowledge 1s imputed to the
corporation, however, “application of the rule is not automatic, [it] is dependent upon the
circumstances,”?’

22 Twombly, 550 U.S. at 570.
3 Capitalized terms not defined herein shall have the meaning given them in the Amended
Complaint.
44 Am. Compl. ff 309.
25 He does plead that creditors and stockholders are the “only other stake [sic] holders that could
have brought a claim.” Amended Complaint { 309.
7 Resp. 9, See also Op. 16.
Cred Inc. Liquidation Trust v. Uphold HQ Inc. (In re: Cred Inc.), 650 B.R. 803, 825-26 (Bankr. D. Del.
2023).

The adverse interest doctrine is one exception to the general rule.” “[I]n a case
where the agent’s action is totally adverse to the interests of his principal, the law will not
impute knowledge of the bad act to the principal, because it seems nonsensical to presume
that a thieving agent would tell his principal about the theft.””” But if a reasonable fact
finder could conclude that the agent acted, at least in part, in the principal’s interest, the
agent’s knowledge will be imputed to his principal.*° In other words, absent total adversity,
a director’s knowledge will be imputed to the company.*!
Trustee asserts that the adverse interest doctrine prevents Goldstein’s knowledge
from being imputed to Live Well. Trustee contends that, as a director, Goldstein either
knowingly or with willful blindness “permitted Hild to cause Live Well to violate the law,
which would expose Goldstein to liability if the scheme was discovered.” Movants

*% The caselaw cited by the parties shows disagreement among Delaware courts as to whether the
adversity must be complete, with no benefit received by the company or whether the mere presence
of self-interest is sufficient for the exception to apply. Compare Stewart v. Wilmington Trust SP Servs.,
112 A.3d 271, 309 (Del. Ch. 2015) (applying total adversity standard) (quoted with approval in
Hecksher v. Fairwinds Baptist Church, Inc., 115 A.3d4 1187, 1204 (Del. 2015)) and Eugenia VI Venture
Holdings, Ltd, v, MapleWood Holdings, LLC (In re AMC Investors), 637 B.R, 43, 58 (Bankr. D. Del.
2022) (applying Stewart standard) with In re HealthSouth Corp, S’holders Litig., 845 A.2d 1096, 1108
n.22 (Del. Ch. 2003) (“An exception to the general rule that knowledge of an officer or agent will be
imputed to the corporation arises when an officer . . . is acting in a transaction in which he is
personally or adversely interested or is engaged in the perpetration of an independent fraudulent
transaction, where the knowledge relates to such transaction and it would be to his interest to
conceal it.” (alteration in original) (quoting 18B Am.Jur.2d Corporations § 1680 (2003))) and Cred, 650
B.R. at 825-26 (quoting HealthSouth). See also In re Amer, Int'l Group, Inc., 965 A.2d 763, 813 (Del.
Ch. 2009) (finding equitable tolling may apply beyond cases of “pure self-dealing” where
shareholders benefited from a fiduciary’s fraud}. It is not necessary for me to decide the proper
standard at this stage because even applying Stewart’s more exacting “totally adverse” standard,
Trustee pled sufficient facts to survive the Motion.
2 Stewart, 112 A.3d at 309,
See id.
3
Resp. 9.

counter that Trustee fails to plead facts establishing that Goldstein was totally adverse to
Live Well and note that Trustee has neither brought claims against Goldstein nor alleged
that Goldstein received financial payments or had any financial interest in the bond/ price
inflation scheme.
In the Opinion, I concluded that Trustee pled facts “that constitute red flags and
allow for the inference that Rome and Karides had knowledge of corporate misconduct at
Live Well” and therefore, that Trustee stated a claim for breach of fiduciary duty.” Those
red flags included facts learned/discussed at board meetings, including knowledge of
scenario 14, the massive increase in the value of Live Well’s bond portfolio and the
significant purchases of HECM IO bonds. These allegations remain in the Amended
Complaint. The Amended Complaint alleges Goldstein was a director. His presence at
these same board meetings would provide him the same knowledge as Rome and Karides.
Given my previous conclusions regarding the allegations in the Complaint with
respect to Rome and Karides—Goldstein’s fellow directors—a reasonable person could infer
Goldstein knowingly or with willful blindness permitted Live Well to violate positive law by
allowing the Criminal Insiders’ fraud to continue.* The mere fact that Trustee chose not to
sue Goldstein does not establish that the potential for liability-—-and the incentive to remain
silent for fear of self-incrimination—did not exist.** Because Trustee has alleged facts which

33 Op. 15.
4 Kandel, Derivatively on Behalf of Nominal Defendant, FXCM, Inc. v. Niv, C.A. No. 11812-VCG, 2017
WL 4334149, at *2 (Del. Ch. Sept. 29, 2017) (“Where directors knowingly cause or permit a
Delaware corporation to violate positive law, they have acted in bad faith, and are liable to the
corporation for resulting damages.”). See also Op. 16.
3 A trustee’s fiduciary duties include “not merely care, diligence and skill in the prosecution of the
estate’s claims. It is also care, diligence, and skill in deciding which claims to prosecute, and how
far.” Inve Taxman Clothing Co., 49 F.3d 310, 315 (7th Cir. 1995)).

could plausibly render Goldstein totally adverse to Live Well’s interests, Goldstein’s
knowledge is not imputed to Live Well for purposes of the Motion.**
2. Shareholders
Because shareholders can bring derivative actions, equitable tolling ceases when
shareholders have information sufficient to put shareholders on inquiry notice.” “[W]hen
disclosures of the alleged harmful acts are made to shareholders, the corporate entity is no
longer without redress against those who control it because the shareholders have both the
knowledge and authority to protect the corporation’s rights . . . therefore, there is no reason

. to toll the statute of limitations.”** Publicly filed documents, including annual reports and
Securities & Exchange Commission filings, have been held to put shareholders on inquiry
notice.”
In the Opinion, I determined “that there is nothing pled (or submitted by Movants)
to indicate that shareholders and creditors had critical knowledge surrounding [s]cenario 14

3 AIG, 965 A.2d 763, 807 (Del. Ch. 2009) (“[Bjad faith conduct [gave] [. . .] guilty insiders
an interest in hiding what they had done. Asa result, the knowledge of those culpable fiduciaries is
not imputed to [the principal].”); HealthSouth, 845 A.2d 1096, 1108 n.22 (Del. Ch. 2003) (“When
corporate fiduciaries — such as HealthSouth managers - have a self-interest in concealing
information ~ such as the falsity of the financial statements that they had helped prepare — their
knowledge cannot be imputed to the corporation”); Cred, 650 B.R. at 826 (same). At a later stage in
the case, Movants will be able to present evidence, if any, to sufficient to show that the statute of
limitations should not be tolled. Compare White v. Irwin, 114 F.Supp.3d 174, 185 n.11 (D. Del.
2015).
3? Tyson Foods, 919 A.2d 563, 585 (Del. Ch. 2007); Asher Candy Co, vy. MAFCO Holdings, Inc. (in re
Marvel), 273 B.R. 58, 76 (D. Del. 2002) (“[W]here representatives of the corporation have both
notice and opportunity to redress the alleged wrongs against the corporate entity, tolling is
inappropriate.”).
38 Marvel, 273 B.R. at 76.
% See id. (collecting cases).

10

Movants now argue that stockholders and creditors did have such knowledge. They
contend that Live Well’s shareholders “could have easily seen the ‘sudden meteoric growth’
of the bond portfolio’s value and the ‘lack of any downward volatility in the bond prices’
just by looking at IDC’s data” and Live Well’s financial statements.*! Trustee counters that
those factors, in the absence of the Directors’ additional knowledge, would not cause an
objectively reasonable person to investigate further.” Evaluating inquiry notice requires
analysis of: “(1) the precise nature of the ciaims asserted by [Trustee], (2) whether an
objectively reasonable person would have realized the need to investigate further, and (3)
the information such an inquiry would have disclosed.””
Taking the facts alleged in the Amended Complaint as true, starting in February
2015, IDC listed daily prices for the bonds m Live Well’s portfolio provided by the Criminal
Insiders in lieu of independent, market-based prices.“* Beginning in or about August 2015,
the Criminal Insiders provided IDC with prices generated using scenario 14.° The Criminal
Insiders then used the values published by IDC in Live Well’s financial statements.” In
those periods, the Criminal Insiders “harvested” money though margin calls issued to its
repo lenders, inflating Live Well’s liability beyond the vaiue the bonds could cover. This

40 Op. 20,
Opening Br. 12.
Resp. 14.
8 EBS Litig. LLC v. Barclays Global Invs., N.A., 304 F.3d 302, 305 (3d Cir. 2002) (evaluating inquiry
notice under Delaware law).
“4 Am. Compl. ff 65, 67-68.
4 Am, Compl. ff] 82-84.
“ Am. Compl. { 84.

71

situation would not be readily apparent from Live Well’s financial statements. Further, in
the absence of price comparisons on the bonds (as provided in paragraph 92 of the
Amended Complaint), the Criminal Insiders’ fraudulent inflation of the bond values was not
apparent.
Trustee has pled sufficient facts from which I can find that it 1s at least plausible that
an objectively reasonable person would not have realized the need to investigate the
valuation of the bonds. Accordingly, Live Well’s shareholders were not on inquiry notice
and their knowledge cannot be imputed to Live Well for purposes of this Motion.
3. Corporate Counsel”
In the Amended Complaint, ‘Trustee makes only passing references to corporate
counsel. As relevant here, citing to Hild’s testimony at his criminal trial, Trustee pled that
[t]he Directors asked a lot of questions about the new methodology [scenario
14]. As described by Hild: “They wanted to understand how the methodology
framework worked, what some of the inputs were, what the implications were
and the like. It was a very free-flowing discussion amongst the board and board
observers, corporate counsel and the like. We all discussed it.””
Movants assert that corporate counsel was an agent of Live Well such that his knowledge is
imputed to Live Well.” Trustee counters that corporate counsel’s knowledge cannot be
imputed because, to the extent counsel knew of the bond fraud, he too could face liability if

47 Resp. 10 n.22 (“Live Well had outside general counsel, referred to in the Amended Complaint
and herein interchangeably as ‘outside corporate counsel,’ ‘outside counsel,’ ‘corporate counsel,’ and
company counsel.’ Live Well did not have in-house counsel.”) (internal citations omitted).
48 Am. Compl. { 87 (alterations in original omitted).
® Opening Br. 11 (citing XRI Inv. Holdings LLC v. Holifield, 283 A.3d 581, 627 (Del. Ch. 2022);
Martin v. Med-Dev Corp., CA. No. 10525-VCP, 2015 WL 6472597, at *13 (Del. Ch. Oct. 27, 2015);
Davis y. 24 Hour Fitness Worldwide, Inc., C.A. No. 12-1370-GMS, 2014 WL 4955502, at *4 (D. Del.
Sept. 30, 2014)).

13

the fraud was exposed, and, further, he would not have standing to bring a claim against
Live Well.” Trustee also attempts to distinguish Movants’ cited authorities, arguing that
“in none [of the cases cited by Movants] was the knowledge of outside counsel, standing
alone, imputed to the corporation for purposes of inquiry notice.”*!
“Delaware law states that the knowledge of an agent acquired while acting within
the scope of his or her authority is imputed to the principal.” “Whether notice or
knowledge of an attorney is imputed to his or her corporate client follows the same rules
governing whether notice to or knowledge of an attorney is imputed to any client, regardless
whether the client is a corporation.”* Imputation under this standard has three elements:
(i) the individual must be an agent,* (ii) the agent must take an action and (iii) the agent’s
action must be taken within the scope of his or her authority.*
There is nothing in the Amended Complaint suggesting that corporate counsel was
an agent of Live Well for purposes of the bond pricing scheme. Nor are there any
allegations in the Amended Complaint suggesting that the attorney took some action at the

Resp. 12-13.
1 at 13,
52 XRI Inv., 283 A.3d at 627 (quoting Albert vy. Alex. Brown Mgmt. Servs., Inc., 2005 WL 2130607, at
*11 (Del. Ch. Aug. 26, 2005)).
3 3 William Meade Fletcher, Fletcher Cyclopedia of the Law of Corporations § 807.10 (Sept. 2024) (but
noting, “[ij/f an attorney-at-law is also an officer of a corporation but the information in question
comes to the attorney in his or her professional capacity as a member of the bar, and not in the
capacity as an officer of the corporation, the knowledge the attorney acquired as a practicing
attorney-at-law will not be imputed to the corporation.”).
An agent is an entity which another entity (the principal) has authorized to act on the principal’s
behalf, Restatement (Third) of Agency § 1.01 (A.L.1. 2006).
55 XRI Inv,, 283 A.3d at 627. See also Rogers v. Palmer, 102 U.S. 263, 268 (1880) (“the agent of a
creditor, whose acts and whose knowledge, obtained in the course of the employment, would have
been the acts and the knowledge of his principal”),

13

direction of Live Well or that any actions in particular were within the scope of corporate
counsel’s authority. Even though Trustee pled that the statute of limitations was tolled and
therefore must allege some facts to show equitable tolling, I will not conclude that Trustee
must have anticipated and pled around every potential agent Movants could assert to defeat
Count I. Given the fact-intensive nature of this affirmative defense, that is too great a task
for a notice pleading standard.
4, Other Board Observers
Board observers are mentioned even less than corporate counsel in the Amended
Complaint, referenced only once. In Paragraph 87 (full text above), Trustee pleads that
“board observers” participated in the November 2, 2015 board meeting. Trustee does not
identify the board observers.
Movants, on the other hand, purport to identify one board observer, In so doing,
they ask me to consider three pages of testimony (pages 1124, 1512 and 1730) from the trial
transcript of Mr. Hild’s criminal trial. These three pages reflect the testimony of Mr. Rohr
and Mr. Cantor, both of whom testified that board observers attended board meetings. The
only board observer mentioned by name is Mr. Coulson, a preferred shareholder.
Assuming, without deciding, that I should consider this testimony, it does not aid
Movants. Trustee alleges that all preferred stockholders were bought out under the
Preferred Stock Repurchase.® Thus, all preferred stockholders, including Mr. Coulson, are
arguably implicated in the wrongdoing. If Mr. Coulson is not a preferred shareholder, then

% Am, Compl. { 145 (“the parties agreed that Live Well would repurchase all the outstanding preferred
stock”) (emphasis added).

14

it is unclear who Mr. Coulson is and whether his knowledge could be imputed to Live Well.
Certainly, it is plausible that the statute of limitations is tolled.
5. Bond Portfolio Management Team
Finally, in a two sentence argument, Movants contend that Mr. Strumberger and
“several members” of the Stifel team that Live Well hired to manage the 18 HECM IO bond.
strips had “knowledge of the original volatility of the bond” and “should have been more
suspicious of the change in stability and valuation.”*’ Movants cite no authority for the
proposition that the members of the bond portfolio management team were agents of Live
Well or that they could protect Live Well’s rights (akin to shareholders). This argument
presents no basis on which any knowledge of Live Well’s bond portfolio management team
can be imputed to Live Well.
* * x
Consistent with Tower Air, I will only grant the motion to dismiss if Trustee has not
alleged facts, which taken as true, state a plausible claim that the statute of limitations is
tolled. Having considered each argument made by Movants, I cannot reach that
conclusion. Accordingly, | wiil deny the Motion as to Count I.
It. Count 9: Trustee has adequately pled actual fraudulent intent
In the Opinion, I dismissed Count 11 of Trustee’s Complaint, which sought to avoid
interest payments to Preferred Stockholders under 11 U.S.C. § 548(a)(1)(A), for failure to
plead sufficient facts supporting fraudulent intent. Trustee pled the Ponzi scheme
presumption, but failed to allege facts showing the interest payments were “in furtherance

5? Opening Br. 11-12.

14

of’ the Ponzi scheme.™ ‘Trustee now pleads the same conduct as Count 9 of the Amended
Complaint with the following additional factual allegations,”
151. All of the interest payments that Hild and Cantor caused Live Well to
make to the Preferred Shareholders were paid in furtherance of, and to conceal,
the Criminal Insiders’ fraudulent scheme. Indeed, any default on the notes
would have created a substantial risk that the Criminal Insiders’ and the
Directors’ wrongdoing would be discovered. At the very least, any failure by
Live Well to make the interest payments would have spurred the Preferred
Stockholders not otherwise involved in the Criminal Insiders’ fraudulent
scheme into taking a closer look at Live Well’s financials and to begin asking
difficult questions about Live Well’s financial situation—an inquiry that would
have, inevitably, resulted in the discovery of Live Well’s insolvency and the
fraudulent bond scheme.
152. Moreover, the quarterly interest payments served no legitimate business
purpose because Live Well received no consideration in exchange for granting
the Preferred Stockholders the notes upon which the interest payments were
based. Indeed, as discussed above, Live Well was insolvent when it issued the
notes to the Preferred Stockholders, rendering the preferred shares that Live
Well purportedly purchased from them worthless.”
* * *
276, Furthermore, each of the Interest Payment Transfers were made in
furtherance of, and to conceal, the Criminal Insiders’ fraudulent scheme.
Indeed, any failure by Live Well to make the Interest Payment Transfers would
have created a substantial risk that the Criminal Insiders’ and the Directors’
wrongdoing would be discovered. At the very least, any failure by Live Well to
make the Interest Payment Transfers would have spurred the Preferred
Stockholders not otherwise involved in the Criminal Insiders’ fraudulent
scheme into taking a closer look at Live Well’s financials and to begin asking
difficult questions about Live Well’s financial situation—an inquiry that would
have, inevitably, resulted in the discovery of Live Well’s insolvency and the
fraudulent bond scheme.

38 Op. 35, Movants appear to argue that I rejected. the position that transfers made to prevent
discovery of a Ponzi scheme could not be in furtherance of it. I did not so conclude. Rather, I stated
that Trustee had not examined the specific transfers at issue. fd. As discussed herein, Trustee has
now done so.
Am, Compl. Ff 271-280.
Am, Compl. fff 151-152.

14

277. The Interest Payment Transfers were also part of the guid pro quo that
Rome and Karides and their affiliated Preferred Stockholders received in
exchange for Rome and Karides breaching their fiduciary duties by taking no
action to protect Live Well from the fraudulent bond pricing scheme and
turning over unfettered control of Live Well to Hild.
278. Finally, the Interest Payment Transfers served no legitimate business
purpose because Live Well received no consideration in exchange for granting
the Preferred Stockholders the notes upon which the Interest Payment
Transfers were based. Indeed, as discussed above, Live Well was insolvent
when it issued the notes to the Preferred Stockholders, rendering the preferred
shares that Live Well purportedly purchased from them worthless, *
The question before me is whether, by these additional allegations, Trustee pleads facts
sufficient to support his claim that the interest payments were made “in furtherance of” a
Ponzi scheme and permit his reliance on the Ponzi scheme presumption or otherwise pleads
actual fraudulent intent.
Movants do not contest Trustee’s allegation that Live Well was engaged in a de facto
Ponzi scheme. The Ponzi scheme was Live Well’s practice of “harvesting” money from
margin calls when it needed funds to purchase additional bonds or repurchase bonds from
repo lenders by manipulating the bond prices given to IDC.® The interest payments made
to Preferred Shareholders were not the scheme itself.
As illustrated above, Trustee argues two theories by which the interest payments
furthered the scheme: (i) they were intended to prevent the discovery of the scheme and/or
(ii) they were part of the guid pro quo for Rome and Karides breaching their fiduciary duties
to Live Well.

6! Am. Compl. ff 276-278.
& Opening Br. 14-16. See also Am. Compl. {ff 89-96, 110-116, 275.
8 See, e.g., Am. Compl. { 94.

17

Movants first respond that payments made to hinder discovery of a Ponzi scheme are
pre se not in furtherance of the scheme as a matter of law.“ This per se contention is not
borne out in the caselaw. For example, in DBS/ I Judge Walsh ruled that plaintiff
sufficiently alleged transfers were made in furtherance of a Ponzi scheme where he alleged.
that commission fees paid to salespeople in exchange for their services created and
promoted “the false impression of financial strength” to investors and permitted DBSI to
continue to make payments to investors.” And the Gelizer court decided the Ponzi scheme
presumption “or similar principles” should apply where plaintiff had adequately pled that
debtor settled with an individual investor “to avoid a dispute with [the investor] and risk
disclosure of the entire scheme to other investors.” Similarly, while Bayou Group is not
strictly a Ponzi scheme case, it is instructive. There, in examining redemption payments
made to investors, the court ruled that plaintiff made out a prima facie case of an actual

6 Opening Br. 15-16 (citing Zazzali vy. 1031 Exch. Grp. LLC (fn re DBSI, Inc,), 476 B.R. 413, 422-23
(Bankr. D. Del. 2012); Perkins v. Lehman Bros., Inc. (In re Int'l Memt. Assocs. LLC), 563 B.R. 393, 418
(Bankr. N.D. Ga. 2017) rev'd and remanded sub nom,, CLA. No. 1:17-CV-0302, 2018 WL 8368848
(N.D. Ga. Feb. 12, 2018) (“The Court specifically finds that in [sic] the Bankruptcy Court should
not have placed a limitation on the Ponzi scheme presumption that the transfers must directly and.
materially cause fraudulent inducement of new investors.”); Stoebner v. Opportunity Fin, LLC, 562
B.R. 368, 387 (D. Minn. 2016).
6 DBSI UH, 477 B.R. 504, 512 (Bankr. D. Del. 2012) (“DBSI iH”) (citing Christian Bros. High Sch. v.
Bayou No Leverage Fund, LLC (in re Bayou Grp., LLC), 439 B.R. 284, 302 (S.D.N.Y. 2010) (internal
quotation omitted)). Movants cite Stoebner, 562 B.R. at 387, for the premise that, under Minnesota
law, the combination of comingled funds and a Ponzi scheme in a related organization does not
establish actual fraud even when those facts delayed discovery that an organization was insolvent.
This case is readily distinguished because the decision turns on the fact that the complaint alleges
facts related to the running of a corporate entity engaged in a Ponzi scheme (Petters Company, Inc.),
but not facts related to the fraudulent intent of the separate corporate entity (Petters Consumer
Brands, LLC) which made the allegedly fraudulent transfers. Here, the transfers were all made by
Live Well. I also note this decision does not relate to the Ponzi scheme presumption, which does
not apply to claims advanced under the Minnesota Uniform Fraudulent Transfer Act. Jd. at 385
(citing Finn v. Alliance Bank, 860 N.W.2d 638, 648 (Minn. 2015).
Geltzer v, Barish (In re Geltzer), 502 B.R. 760, 770 (Bankr. $.D.N.Y. 2013).

TR

fraudulent conveyance because, among other things, the payments were made “to avoid
detection of the fraud, to retain existing investors and to lure new investors and [because
they] constituted an integral and essential element of the alleged fraud, necessary to validate
the false financials and to avoid disclosure.” ‘The court also concluded that the redemption
payments “were accompanied by multiple ‘badges of fraud,’ including fraudulently inflated
principal and profits and inadequate consideration.”
Movants next advocate a variation of the per se argument—that payments intended to
conceal a Ponzi scheme should be limited to “payments that directly further the Ponzi
scheme, such as payments made to investors in the Ponzi scheme to protect the image of the
scheme’s profitability or to third-parties so as to solicit new investors into the scheme.”®
This argument attempts to cabin the caselaw discussing the Ponzi scheme presumption to
their specific facts. I find this reading excessively narrow. While many cases relying on the
Ponzi scheme presumption involve attempts to avoid payments made to early investors to
give the appearance of a successful investment that is unsurprising given the nature ofa
Ponzi scheme. But nothing in these decisions limits their logic or conclusions as Movants
suggest. As already shown, many published decisions also apply the Ponzi scheme
presumption to transfers made to parties other than investors.”

Bayou Grp., 439 B.R. at 302 (cleaned up).
68 at 307. See also Manhattan Inv. Fund, 397 B.R. 1, 13 (S.D.N.Y. 2007) (“While we are cognizant
of the possibility, as was the case in Sharp, that certain transfers may be so unrelated to a Ponzi
scheme that the presumption should not apply, we proceed under the rule (noted by the Bankruptcy
Court below) that if a transfer serves to further a Ponzi scheme, then the presumption applies and
‘actual intent’ under § 548(a)(1)(A) is present.”).
Reply 12-13.
” See, e.g., DBSI I, 477 B.R. at 512 (payments to salespeople). See also Kapila v. Integra Bank, N.A.
(in ve Louis J, Pearlman), 440 B.R. 569, 575-76 (Bankr. M.D. Fila. 2010) (finding loan repayments

19

Moreover, Trustee also alleges that the interest payments were part of a guid pro quo
arrangement between the Criminal Insiders, Rome and Karides (and their respective
entities) for Rome and Karides’ agreement to take no action to protect Live Well from the
fraudulent bond pricing scheme. Much like hindering the discovery of the scheme, inducing
members of Live Well’s board of directors to abandon their fiduciary duties to protect Live
Well allows the scheme to continue.
Taking Trustee’s allegations as true, he pleads sufficient facts to support a reasonable
inference that the interest payments were made to conceal the existence of the Ponzi scheme
and to induce board members to ignore their fiduciary duties. It is thus plausible, for
purposes of the Motion, that the interest payments were made in furtherance of the Ponzi
scheme because they permitted the scheme to continue longer than it otherwise would have.
Finally, Trustee has now pled three of the six traditional badges of fraud: the insider
nature of the relationship between Live Well and (at least certain) transferees, the lack of
consideration for the conveyance, and the insolvency of the debtor.
For these reasons, I will deny the Motion to Dismiss Count 9.

made to unrelated banks to retain credit flow which stabilized a Ponzi scheme were in furtherance
the scheme; “The trustee’s complaint contains enough allegations to make plausible that the loan
repayments were “in furtherance of” either the EISA Program or the TCTS Stock Program, which.
both are undisputable Ponzi schemes.”).

20

Conclusion
For the reasons set forth above, the Motion is denied. A separate order will issue
consistent with this memorandum.

Dated: July 23, 2025 (ZL PLCALLE Lehi Lite ti Me.
aurie Selber Silverstein
United States Bankruptcy Judge

31

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/11106438. Public record. Not legal advice.