The Fifth Circuit Court of Appeals ruled that The Golf Channel must return $5.9 million paid by Stanford International Bank for advertising, as Stanford was operating a Ponzi scheme. The court stated that any advertising that aimed to extend the Ponzi scheme could not provide value to the bank's creditors. However, the district court and Golf Channel argued that the advertising deal was a legitimate business transaction, as Golf Channel was an innocent trade partner providing normal services, not perpetuating the fraud. If upheld, this expansive ruling could negatively impact many normal business transactions by imposing liability on unwitting partners of fraudulent entities.

1. Golf is a Crazy Game
On March 11, 2015, the Fifth Circuit Court of Appeals, in Ralph Janvey, as Receiver for
Stanford International Bank Limited, et al., v. The Golf Channel Incorporated, Case No. 13-
11305, issued a stomach curdling decision requiring The Golf Channel (“Golf Channel”) to
return nearly $6 million to the Receiver for Stanford International Bank, Limited (“Stanford”),
which operated a now-infamous Ponzi scheme. The basis for this decision was that Stanford’s
creditors could not receive value for advertising efforts intended to extend a Ponzi scheme.
There is nothing unusual about the facts in this case (other than Stanford was engaging in a
massive fraud that no one knew about). In 2006, long before news of the Ponzi scheme broke,
Stanford negotiated a deal with the Golf Channel regarding an advertising package. Stanford was
apparently attempting to reach the Golf Channel’s high-net-worth viewership that was likely to
invest. Ultimately, an agreement was struck to, among other things, provide live coverage of a
golf tournament hosted by Stanford. In total, Stanford paid the Golf Channel $5.9 million.
By 2009, Stanford’s proverbial goose was cooked. The SEC uncovered a massive Ponzi scheme,
one of the largest in the history of the United States. The SEC filed lawsuit in the Northern
District of Texas, and the District Court appointed a Receiver to take custody of Stanford’s assets
and to locate additional assets by, if possible, voiding transactions.
The Receiver targeted the Golf Channel transaction, seeking to claw back the full $5.9 million on
the basis that this was a fraudulent transaction that provided no value to Stanford’s creditors. The
District Court rejected the Receiver’s position, concluding that Stanford’s creditors received the
market value of Golf Channel’s advertising.
The Fifth Circuit Court Appeals vociferously rejected that the District Court’s ruling. The Fifth
Circuit stated that the market value of the advertising is completely irrelevant. According to the
Fifth Circuit, advertising purchased to extend a Ponzi scheme could not, as a matter of law,
provide value to Stanford’s creditors. Thus, the Receiver was entitled to void the agreement with
the Golf Channel and to a return of the full $5.9 million.
Setting aside the technicalities of the legal analysis for a moment, the decision is hard to fathom.
A legitimate business partner provided a legitimate service, yet, years later it is required to pay
back $5.9 million because the other party turned out to be a bad egg. What can a business do to

2. avoid the fate of the Golf Channel? Should every business have to do a financial prostate exam
of every customer that happens to be a money manager?
Worse yet, is the IT company maintaining servers at risk? Should the pizza delivery man be
worried? Is the local coffee shop exposed? The scope of those potentially at risk by this decision
is mind-boggling.
Bottom line, the District Court had it right when it wrote, “[the] Golf Channel looks more like an
innocent trade creditor than a salesman perpetrating and extending the Stanford Ponzi scheme.”
And, as aptly put by the Golf Channel in the conclusion to its brief in support of its motion for
summary judgment, the “expansive and unprecedented theory of recovery” has “the effect of
rendering any payment by a fraudulent enterprise avoidable at the receiver’s sole discretion,
regardless of the culpability or remoteness of the transferee from the fraud … [and] “renders
meaningless the explicit protections for ‘good faith and for reasonably equivalent value’
transferees, and create[s] a chilling effect on commerce by imposing a risk of loss on vendors
working in their ordinary course of business.”
You can read the full decision here.
Jason B. Hirsh is a litigation partner with Levenfeld Pearlstein, LLC, located in Chicago,
Illinois.