Opinion ID: 600331
Heading Depth: 2
Heading Rank: 2

Heading: Preferential Transfer Claims

Text: 16 The Menicuccis concede that the district court erred in suggesting that the insolvency of WWF, rather than that of USSL, was the controlling factor. Although the Menicuccis received the funds from WWF, they acknowledge that WWF was merely disbursing the funds for USSL. Neither party disputes the insolvency of USSL, the transferor. 17 The district court also erred in relying on the facts that the Menicuccis were not insiders and that they had no reasonable cause to believe that USSL was insolvent. Because all of the disputed payments to the Menicuccis and MIS were made within ninety days before WWF and the Buchanan-Vogt companies filed their petitions, insider status and knowledge of insolvency are not necessary to establish that the transfers were avoidable. See 11 U.S.C. § 547(b)(4)(B). 18 The only remaining question is whether the payments were made in the ordinary course of business within the meaning of the exception contained in section 547(c)(2). To fit within that exception, transfers must be made in the debtor's ordinary course of business. Graulty v. Brooks (In re Bishop, Baldwin, Rewald, Dillingham & Wong, Inc.), 819 F.2d 214, 217 (9th Cir.1987). In Graulty, this court concluded that a Ponzi scheme is not a business, and that transfers related to the scheme are not within the ordinary course of business. Id. at 216-17; accord Danning v. Bozek (In re Bullion Reserve of North America), 836 F.2d 1214, 1219 (9th Cir.), cert. denied, 486 U.S. 1056, 108 S.Ct. 2824, 100 L.Ed.2d 925 (1988). The Menicuccis do not contest the conclusion that Buchanan and Vogt operated USSL as a Ponzi scheme. The payments to the Menicuccis and to MIS therefore could not have been made in the ordinary course of business. 19 Accordingly, we must reverse the district court's reversal of the bankruptcy court's decision holding the Menicuccis liable for $10,398.74 and MIS liable for $30,880.05 for preferential transfers.