plaintiff s motion for summary judgment (iisupplemental...

UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF FLORIDACase No.: 15-cv-80946-M IDDLEBROOKS

JAM ES D. SALLAH, not individuallybut solely in his capacity as Court-AppointedReceiver for JCS Enterprises, lnc. d/b/aJCS Entemrises Services, lnc., T.B.T.I. Inc.,

M y Gee Bo, lnc., JOLA Enterprise, Inc., and

PSCS Holdings, LLC.,

Plaintiff,

JOSEPH SIGNORE, individually, andLAURA SIGNORE, individually,

Defendants.

/

ORDER GRANTING M OTION FOR SUM M ARY JUDGM ENT

THIS CAUSE comes before the Court on M otion for Summary Judgment against

Defendant Joseph Signore ($fMotion'') and Statement of Undisputed Fact Cdstatement of Fact),

filed on September 12, 2016 by Plaintiff James D. Sallah, Esq., not individually, but solely in his

capacity as Court-appointed Receiver (idReceiver'') for JCS Enterprises, Inc., d/b/a/ JCS

Enteprises Services lnc. (i'JCS'') T.B.T.I. Inc. (ûiTBTI'') My Gee Bo, lnc. (tsGee Bo''), JOLA5 '

Entemrise, Inc. ($7OLA''), and PSCS Holdings, LLC (ûtPSCS'') (collectively, iklteceivership

'' 1 DE 92 & 93). Defendant Joseph Signore (stsignore'') filed a Response onEntities ). (

September 27, 2016 (DE 99), to which the Receiver replied on October 17, 2016 (DE 1 13).

Defendant Joseph Signore subsequently filed a Supplem ental Response in Opposition to

Plaintiff s Motion for Summary Judgment (iisupplemental Response'') (DE 120), a Designation

of Evidence in Support of his Opposition (ilstatement of Fact'') (DE 121), and an Affidavit (DE

' L Si nore and the Receiver have agreed to a settlement. (DE 61-1).aura g

Case 9:15-cv-80946-DMM Document 125 Entered on FLSD Docket 11/18/2016 of 25

122) on November 7, 2016. On November 10, 2016, the Receiver filed a Motion to Strike

Accompanying Documents, or in the Altem ative, M otion forSupplemental Opposition and

Leave to Respond. (DE 124). Although Signore submitted these filings after the deadline to

respond to Plaintiff s M otion, the Court construes them as seeking leave of Court, and grants

ltave because Plaintiff is a pro st litigant who is incarcerated and without easy acctss to relevant

documentation. See S.D. Fla. L.R. 7.1(c); Fed. R. Civ. P. 6(b). The Receiver's altemative

motion to respond is denied as moot in light of this Order.

Also pending is the Receiver's Motion for an Order to Show Cause W hy Defendant

Joseph Signore Should Not be Held in Contempt of the Court's September 1, 2016 Order

Requiring Him to Respond to Plaintiffs First Set of Interrogatories (:çMotion for Contempt''), in

which the Receiver seeks default judgment, or alternatively, for the Court to strike Signore's

answer and any affirmative defenses or to preclude him from supporting his claims or defenses

in areas covered by the Interrogatories.(DE 103). For reasons stated below, Plaintiffs Motion

is granted and Plaintiffs M otion for Contempt is denied as moot.

1. Background

On July 10, 2015, the Receiver filed a Complaint against Joseph Signore, individually,

tiGrande'') 2 individually, alleging as follows: (1) theand Laura Signore a/k/a Laura Grande ( ,

Receiver is entitled to a declaration of his rights as Receiver under 28 U.S.C. j 2201(a); (2)

fraudulent transfer under Fla. Stat. j 726.105(1)(a), Florida Uniform Fraudulent Transfer Act

(iiFUFTA''); (3) fraudulent transfer under j 726.105(1)(b), FUFTA; (4) fraudulent transfer under

j 726.105(1)(b), FUFTA; (5) fraudulent transfer under j 726. 106(1), FUFTA; (6) unjust

enrichment under Florida common law; (7) conversion under Florida common law; and (8)

2 si nore and Laura Signore were manied at the time of the events in this action, but have sinceg

divorced.


breach of fiduciary duty under Florida common law .3 In his M otion, the Receiver seeks

summary judgment on Counts 1, I1, and VIlI and on the aftirmative deftnse of set-offs asserted

by Signore under Fla. Stat. j 726.109(1), as well as pre-judgment and post-judgment interest and

4costs.

II. Undisputed Facts

The Receivershlp

On April 7, 2014, theUnited States Securitiesand Exchange Commission (:CSEC'')

commenced an adion against JCS, TBTI, and two individuals, Signore and Paul L. Schumack, 11

(tsschumack'') in the case Securities and Exchange Commission v. JCS Enterprises, lnc., #/:/J

JCS Enterprises Services, Inc., TB. Tl Inc., Joseph Signore, and Paul L . Schumack, 11., Case

14-CV-80468-MlDDLEBR00KS/BM > ON (S.D. Fla. Apr. 7, 2014) CSSEC Case'').

Sallah Affidavit CçAff.'') at jl 2.

On April 7, 2014, thisCourt issued an Amended Receivership Order and appointed

Sallah as Receiver over JCS and TBTI. 1d. at ! 3. On April 14, 2014, the Court expanded the

Receivership over Gee Bo. 1d. at ! 4. On December 1 1, 2014, the Court expanded the

Receivership over JOLA and PSCS. 1d. at ! 5. On December l2, 2014, the Court entered its

Reappointment Order reappointing Sallah as Receiver. The Reappointment Order directed the

Receiver to:

Investigate the manner in which the affairs of the Receivership Entities were

conducted and institute such actions and legal proceedings, for the benefit and on

behalf of the Receivership Entities and their investors and other creditors, as the

Receiver deems necessary against those individuals, corporations, partnerships,associations and/or unincom orated organizations, which the Receiver may claim

3 C ts IlI through VlI are alleged in the altem ative to Count lI. Count VI1l is alleged in theoun

alternative to Count 11 as to the transfer of certain assets.4 B se Counts lll through VIl are pled in the alternative

, the Receiver's M otion for Summ aryecauJudgment seeks to dispose of the entire action.


have wrongfully, illegally or otherwise improperly misappropriated or transferredmonies or other proceeds directly or indirectly traceable from investors in the

Receivership Entities, including their officers, directors, employees, affiliates,subsidiaries, or any persons acting in concert or participation with them

. or

against any transfers of money or other proceeds directly or indirectly traceablefrom investors in the Receivership Entities; provided such actions may include

,

but not be limited to, seeking imposition of constructive trusts, disgorgement of

profits, recovery and/or avoidance of fraudulent transfers under Florida Statute

5726.101, et seq. or otherwise, rescission and restitution, the collection of debts,and such orders from this Court as may be necessary to enforce this Order

.

Sallah Aff. at ! 6.

#. The Receivership Entities

JCS is a Delaware coporation, incoporated in 2010, with its pxincipal place of business

in Jupiter, Florida. During the events at issue, Signore was the Chairman and President of JCS,

and Grande was its Vice Chairperson and Vice President. Id. at !( 7.

TBTI is a Florida corporation, incorporated in 2001, with its former principal place of

business in Coconut Creek, Florida. During the events at issue, Schumack was Vice President of

TBTI, and Chzistine Schumack was its President. 1d. at ! 8.

Gee Bo is a Florida coporation, incorporated in 2013, with its former principal plaee of

busintss in Jupiter, Florida. During the tvents at issue, Joseph Signore was Gee Bo's President,

and Grande was its Treasurer and Secretary. Id. at !( 9.

JOLA was a Florida corporation, incomorated in 20l 3, with its fonner principal place of

business in Jupiter, Florida. During the events at issue, Joseph Signore was JOLA 'S Presidents

and Grande was its Treasurer and Secretary. Sallah Aff. at ! 1 0.

PSCS was a limited liability company, organized under the laws of the State of Florida in

2013, with its form er principal place of business in Highland Beach, Florida. During the events

at issue, Schumack and Christine Schumack were PSCS'S member-managers. 1d. at ! 1 1 .

4


Signore ultimately controlled a1l ûnancial accounts in the name of JCS, Gee Bos and

JOLA. Signore Transcript at 16:25-17:2, 136: 14-1 38:23, 145:2 1 -148: 16, 1 50:21- 22, 151 :6-

1 51 *25. 152. 15-1 9 1 53:23-155:14 159:20-164: 1 3; Signore Admission Nos. 7, 1 1 , 24.5@ j @ y' y

The Criminal Case

On December 7, 2015, Signore was found guilty of 14 counts of mail fraud, nine counts

of wire fraud, conspiracy to commit money laundering, promotional money laundering, three

counts of eoncealment money laundtring, and three counts of transactional money laundering in

the case United States v. Signore, et al., Case No. 14-80081-CR-DTKH (S.D. Fla. Apr. 7, 2014)

(kicriminal Case'').

On M arch 14, 2016, the Receiver attended Signore's sentencing hearing in the Criminal

Case, and then obtained a certifed copy of the transcript pxoceedings before the Honorable

Danitl T. K. Hurley. Sallah Aff. at !! 14-15. During the sentencing hearings Judge Hurley

rtferred to Signore's scheme as a Ponzi scheme. The Court subsequently sentenced Signore to a

concurrent term of imprisonm ent of 240 months, three years of supervised release, special

assessments, and to make restitution, jointly and severally with his co-defendants, in the amount

of $31,080,698.73. Criminal Case, DE 677 & DE 758; Sallah Aff. at !! 13, l6; Signore

Admission Nos. 157-163. As part of the Criminal Case, Judge Hm ley ordered restitution to be

paid to the cart of tht Receiver until ordered otherwise. Criminal Case, DE 758) Sallah Aff. at !

6 On June 7 2016 the Receiver served Requests for Admission on Signore, but did not receive

any response within the time permitted even though Signore acknowledged receiving them.

Signore Transcript at 165:5-8; Sallah Aff. at ! 12. Pursuant to Fed. R. Civ. P. 36(a)(3), theserequests are therefore deemed admitted. In his Supplemental Response, Signore asks that the

Court not deem the Requests admitted because he iicouldnot (sicl gain access to the records heneeded in order to admit or deny the admissions.'' However, because the Court had already

rejected this excuse for not responding to the Receiver's discovery requests on numerousoccasions (DE 101, 107), Signore was on notice of his obligation to respond to the best of hisabilities without his records.


17. ln turn, the Receiver was ordered to advise the Clerk of Court in writing of the amount of any

disbursements to victims in the Criminal Case. 1d.

D. Defendant Signore 's L oan to JCS

Signore claims that he made a $350,000 no-interest loan to

documentation evidencing the loan.

JCS, but has no

Signore Transcript at 98:24-99: 19,. 109.. 19-2 1 ; l01 :9-13,.

102:15-103:3. The Receivership Entities have no records of a $350,000 loan to any of them from

Signore. Davis Aff. at ! 37. Signore claims that the source of the funds for the $350,000 no-

interest loan he made to JCS came from the money he inherited from his father. Signore

Transcript at 98:22-98:24; 99:20-22. However, Signore filed for bankruptcy on December l 6,

2003, before he claims that he made the loan to JCS. 1d. at 13:5-8; Signore Admission No. 152;

SEC Case DE 6-20. W hen asked where Signore had held the funds used for the purported

$350,000 no-interest loan to JCS, Signore invoked his Fifth Amendment right against self-

incrimination i'because (he didn't) want to reveal where the money is at.'' 1d. at 101 :3-13.

E. The JCS-TBTI Ponzi Scheme

JCS manufactured and marketed virtual concierge machines (itvCMs''), which are free-

standing or wall-mounted, A'rM-like machines that were promised to be placed at various

locations to enable businesses to advertise their products and services via touch screen and

printable tickets or coupons which were dispensed from the VCM S. Expert Report of Melissa

StDavis Report 2'9) at 3;6 Sallah Aff. at ! 1 8.Davis dated September 3, 201 5 (

Joseph Signore and Schumack, through JCS and TBTI, respectively, offered and sold

investm ents in JCS'S VCM S, which would purportedly pay incom e to investors from advertising

6 M lissa Davis is a Partner at KapilaM ukam al, LLP, specializing in insolvency and fiduciarye

matters, who reviewed the finances and transactions of the Receivership Entities and providedtwo expert reports detailing her findings.


revenues generated by the VCMS. Sallah Aff. at ! 21 ; Davis Report 2 at 7. JCS and TBTI,

combined, raised approximately $80.8 million from at least 1,800 investors nationwide by selling

contracts for more than 22,500 VCM S. Davis Report 2 at 7-9; Signore Admission No. 44. These

sales to investors were documented through contracts with JCS and TBTI, and those contracts

represented that advertising revenue would provide investors with a return of $300 per month for

36 to 48 months, or a return of at least $10,800 over a 36 month period. Davis Report 2 at 7;

Signort Transcript at 22:22-25: 14.

Howevers advertising revenues were insufficient to pay the promised returns to investors.

Davis Report 1 at 3) Signore Transcript at 45:16-19) Signore Admission No. 65. JCS delivered

only 90 VCM S, and JCS and TBTI, combined, earned a total of approximately $21 ,000 or

$22,000 in advertising revenue from these machines. Davis Report 2 at 7; Signore Transcript at

45:16-19, 85:12-14.) Signore Admission No. 64. Besides this advertising revenue, JCS and TBTI

generated no other meaningful source of revenue or cash intlows from which to pay investors or

any other creditors. Davis Report1 at 12; Signore Admission No. 66. Thus, the advertising

revenue actually generated by VCM S would not even have supported the obligations for two

VCMS that were sold under the shorter, 36-month contracts. M oreover, based on a conservative

calculation assuming that the payment stream would be limited to 36 months, JCS and TBTI

would have been obligated to pay more than $243.4 million to investors during the duration of

these investment contracts, or $6.75 million per month. Davis Report 1 at 13,

In order to maintain the fiction that the investment was valid and make these payments to

investors, Signore and Schumack caused JCS and TBTI, respectively, to use new investor funds

to make so-called lçreturns'' to earlier investors in the total amount of $49.7 million. Davis Report

1 at 12; Signore Admission Nos. 68, 69. These transfers were made almost exclusively from: (1)


principal money from new investors; (2) existing investors' principal investment money; and/or

(3) additional principal investment money from existing investors. Davis Report 2 at 7. Thus, a11

transfers that Signore wrongfully caused JCS to make as retums and/or redemptions to investors

and as commissions paid to agents were made in furtherance of his scheme. Id. In conelusion,

Signore and Schumack operated JCS and TBTI, respedively, as part of a single, continuous

Ponzi scheme. Davis Report 2 at 6.

F The Transfers to Defendants Signore and Grande andfor their Beneht

W hile Signore operated JCS, he caused JCS to transfer monies for his and Grande's own

use, including diverting funds to themselves or other companies they controlled. Davis Report 1

at l 3-14; Signore Admission Nos. 69-72. Based on the records reviewed by the Receiver,

between 201 1 and April 7, 2014, Signore caused JCS to transfer $17,500 to Signore and Grande,

jointly, and $605,236.25 to Signore, individually. Affidavit of Expert Melissa Davis (tsDavis

Aff.'') Exs. D & E.5

7, 2014, Signore caused JCS and JOLA to make transfers of

$981,936.30 to third parties for Signore's benefit. Davis Aff., Ex. G. Specifically. Signore

testified that the transfers JCS made to Boca Tanning Club, Craft M aster Pool, Disney, Gold

Distributors, Inc., Hula Pools, lnc., Palms Pool Service, LLC, and Universal Orlando were made

Between 20 1 1 and April

for his personal benefit. Signore Transcript at 1 26:14-127:13, 13 1 : 13-1 7, 131 : 18-23, 132:22-

133:1, 133:16-20, 135:5-15, 136:4-6. Signore also transferred over $60,000 from JOLA to M ike

Mieves to work on Signore's Rolls Royce. Davis Aff., Ex. G.; Signore Transcript at 94:3-19.

W hile in control of the JCS bank accounts, Signore caused JCS to transfer funds to

Grande as payroll or as com missions for selling VCM S. Signore Transcript at 90:5-1 7, 91 : 1-10;

1 13:25-1 14:24. W hen asked whether JCS would have written checks to Grande for any reason


other than as payroll or for commissions, Signore responded'. û:No.'' Signore Transcript at

1 14:24-1 1 5:2. From January 201 1 through April 7, 2014, Signore caused JCS to pay Grande at

least $819,723.42. Davis Aff., Ex. F.; Signore Admission No. 79.

Defendants also purchased real property located at 14161 64th Drive North, Palm Beach

Gardens, Florida 33418-7212 (iisignore Residence'')in September 2013 with investor funds.

Davis Aff. at !! 22-23 & Ex. 1. Specifically, of the $555,000 purchase price for the Signore

Residence, $535,1 19.27 are traceable to investor funds derived from the JCS Ponzi scheme, as

follows: $200,000.00 from JCS; $225,000.00 from Grande; and $1 10,1 19.27 from JOLA. Davis

Aff. at ! 25 & Ex. K. The overwhelming majority of funds that were available to make the

$200,000.00 payment from JCS for the purchase of the Signore Residence were investor funds.

Davis Aff. at !! 10-1 1, 27. Similarly, the $225,000.00 transferred by Grande for the purchase of

the Signore Residence wasderived from JCS because the account thatfunded the $225,000

transfer was insufficiently capitalized with funds from sources other than the Receivership to

have made the transfer for the purchase of the Signore Residence. 1d. at !! 29-30 & Ex. N. The

JOLA transfer of $1 10,1 19.27 was also derived from funds belonging to the Receivership

Entities. Davis Aff. at !! 3 1-32 & Ex. P. JCS and JOLA did not receive reasonably equivalent

value for the transfer of funds they made for the purchase of real estate on behalf of Signore.

Sallah Aff. at !! 22, 23; Signore Admission Nos. l 03, 104.

111. Standard

ç'The court shall grant summary judgment if the movant shows that there is no genuine

dispute as to any material fact and the movant is entitled to judgment as a matter of law.'' Fed.

R. Civ. P. 56(a). %'Genuine disputes are those in which the evidence is such that a reasonable

jury could retul.n a verdict for the non-movant.'' Ellis v. England, 432 F.3d 132 1 , 1325-26 (1 1th


Cir. 2005). tsF'or fadual issues to be considered genuine, they must have a real basis in the

record.'' f#. at 1326 (intemal citation omittcd).kiFor instance, mere conclusions and unsupported

factual allegations are legally insufficient to defeat a summary judgment motion.'' ld (internal

citation omitted). 'iMoreover, statements in aftidavits that are based, in part, upon information

and belief, cannot raise genuine issues of fact, and thus also cnnnot defeat a motion for summary

judgment.'' Id. (internal citations omitted).

The movant û'always bears the initial responsibility of informing the district court of tht

basis for its motion, and identifying those portions of Sthe pleadings, depositions, answers to

interrogatories, and admissions on file. together with the affidavits, if any,' which it believes

demonstrate the absence of a genuine issue of material fact.'' Celotex Corp. v. Catrett, 477 U.S.

317, 323 (1986) (quoting Fed. R. Civ. P. 56(c)(1)(A)).When the moving party bears the burden

of proof at trial, 'sthe moving party must show that, on all the essential elements of its case on

which it bears the burden of proof at trial, no reasonable jury could tlnd for the nonmoving

party.'' United States v, Four Parcels of Real Prop. in Greene dr Tuscaloosa C/>w. in State of

W/J., 941 F.2d 1428, 1438 (1 1th Cir. 1991) (internal citation omitted). iilf the moving party

makes such an affirmative showing, it is entitled to summary judgment unless the nonmoving

party, in response, comes forward with

existence of a triable issue of fact.'' Id

significant, probative evidence demonstrating the

(internal quotations and citations omitted).

IV. Discussion

A. Count II: Fraudulent Transfers

Through Count Il, the Receiver alleges that Signore caused JCS to transfer a total of

$1,604,672.55 for Signore and Grande's benefit in violation of Fla. Stat. j 726.105(1)(a), which

prohibits transfers made with actual intent to defraud.


i. FUFTA Violations

The transfers at issue are: (1 ) $ l 7,500 from JCS to Signore and Grande jointly,

$605,236.25 to Signore individually, and (3) $98 1,936.30 from JCS and JOLA to third party

providers of goods and services. Signore does not dispute that he caused these transfers to be

made, but he argues that they do not violate j 726. 105(1)(a).

Section 726.105(1)(a) statts that iita) transfer made or obligation incurred by a debtor is

fraudulent as to a ereditor . . . if the debtor made the transfer or incurred the obligation . . . (wlith

actual intent to hinder, delay, or defraud any creditor of the debtor.''Fla. Stat. j 726.105(1 )(a).

To prove a fraudulent transfer, the Receiver must demonstrate that i1(1) there was a creditor to be

defrauded; (2) a debtor intending fraud; and (3) a conveyance of property which could have been

applicable to the payment of the debt due.'' See Wiand v. L ee, 753 F.3d 1 194, 1 199-1200 (1 1th

Cir. 2014) (citing Nationsbank, NA. v. Coastal Utils., lnc., 8 14 So.2d 1227, 1229 (F1a. 4th DCA

2002)).

a. Actual intent to dejbaud

ûiln determining whether a transfer was made with actual intent to defraud a creditor,

courts look to the statutory lbadges of fraud,''' identified in Fla. Stat. 726 105(2)(a)-(k).7j .

Wiand v. f ee, 753 F.3d 1 194, 1200 (1 1th Cir. 2014). Section 726.105(2)(a)-(k) lists the

7 The Receiver argues that a transfer made as part of a Ponzi scheme establishes actual intent to

defraud, and therefore the Court need not consider the statutory badges of fraud. The Eleventh

Circuit has held that Elunder FUFTA'S actual fraud provision, proof that a transfer was made in

furtherance of a Ponzi scheme establishes actual intent to defraud under j 726.105(1)(a).'' SeeWiand. 753 F.3d at 1201 . However, Wiand addresses transfers made to o1d investors with funds

from new investors, whereas the transfers at issue in our case were m ade for the personal benetitof Signore and Grande. The Receiver has not addressed whether these transfers are ''in

furtherance of a Ponzi scheme.'' Therefore, the Court analyzes actual intent to defraud under the

badges of fraud rather than the presumption that arises when a transfer is made in furtherance ofa Ponzi scheme.


following badges of fraud, among others: the transfer or obligation was to an insider, the debtor

retained possession or control of the property transferred after the transfer, and the debtor was

insolvent or became insolvent shortly after the transfer was made or the obligation was incurred.

Fla. Stat. j 726.105(2)(a)-(k). In addition, lilallthough FUFTA lists a number of badges of fraud,

it is clear from the language of the statute that in detennining intent, consideration may be given

to factors other than those listed.'' Wiand, 753 F.3d at 1200 (citing Gen.Trading lnc. v. Yale

Materials Handling Corp., 1 19 F.3d 1485, 1498 (1 1th Cir. 1 997)) (internal quotations omitted).

licourts may take into account the circumstances surrounding the conveyance.'' 1d. (citing Gen.

Elec. Co., 1 18 So. 3d at 327).

éi-f'he existence of badges of fraud createsa prima facie case and raises a rebuttable

presumption that the transaction is void.'' Id (citing Gen. Elec. Co. v. Chuly Int'l, L L C, 1 1 8

tiWhile a single badge of fraud may only create aSo.3d 325, 327 (Fla. 3d DCA 2013:.

suspicious circumstance and may not constitute the requisite fraud to set aside a conveyanceg,j

several of them when considered together may afford a basis to infer fraud.'' 1d. (citing Johnson

Dowell, 592 So. 2d 1 194, 1 197 (Fla. 2d DCA 1992) (internal quotations omittedl). For

example, in SEC v. Elliot, the Eleventh Circuit voided the transfer of assets from the receivership

entities made by the Ponzi scheme operator where two of the statutory badges - a transfer

immediately before appoint of the receiver and the debtor's insolvency - were present. 953 F.2d

1560, 1567-68 (1 1th Cir. 1992).

The undisputed facts prove multiple 'ibadges of fraud.''

to Signore and Grande were made to insiders, as Signore admits in his Supplemental Response.

(DE 120 at 5). Signore was Chairman and President of JCS, and Grande was Vice Chaimerson

First, the transfers of JCS funds

and Vice President of JCS. Joseph Signore was also JOLA'S President, and Grande was its


Treasurer and Secretary. Second, Signore retained control of the transferred property after the

transfer, at least as to those funds that he transferred to himself and his then-wife Grande.B

Third, Signore and Grande, as operators of a Ponzi scheme, were necessarily insolvent. See

Wiand, 753 F.3d at 1201 ($1(One of the badges of fraud . . . - the Ponzi scheme operator's

insolvency - is necessarily present in every Ponzi scheme.'').

In addition, ilcircumstances surrounding the conveyance'' - specifically, Signore's

operation of a Ponzi scheme - further support a finding of actual intent to defraud. ln Wiand, the

Eleventh Circuit describes the characteristics of a Ponzi scheme. 1iA Ponzi scheme uses the

principal investments of newer investors, who are promised large returns. to pay older investors

what appear to be high returns, but which are in reality a return of their own principal or that of

other investors.'' 1d. (citing ln re Fin. Federated Title to Trust, Inc., 309 F.3d 1 325, 1 327 n. 1

Cir. 2002)). it-l-he entities used to pepetrate the scheme usually conduct little to no

legitimate business operations.'' 16l (citing In re Fin., Federated Title, 309 F.3d at 1327 n.1 ).

iisince Ponzi schemes do not generate profits sufficient to provide their promised returns, but

rather use investor money to pay returns, they are insolvent and become more insolvent with

each investor payment.'' ld. (citing ln re Fin., Federated Title, 309 F.3d at 1332).

ln this case, Signore and Schumack, through JCS and TBTI, attracted investors with the

9 s ifically JCSpromise of high returns from advertising revenue generated by the VCM S. pec ,

8 si nore states that he did not retain control of the VCM S. but the transfer at issue is the transferg

of funds. not the transfer of the VCMS. (DE l20 at 5).9 Si nore argues that evidence of TBTI'S wrongdoing should not be used against Signoreg

because TBTI was a separate business entity, operated by Schumack. In support, Signore cites to

his Deposition, in which he states that TBTI bought VCM S from JCS and resold them to

investors. (DE 121 ! 20). He also cites to his Aftidavit, in which he states that 'CT.B.T.I. did useJCS'S M erchant Account which basically had T.B.T.I.'S m oney passing through JCS and onto

T.B.T.I.'' (DE 121 ! 41). Taking these facts at true, they do not contradict the expert's findingthat Signore and Schumack operated JCS and TBTI as a single, continuous Ponzi scheme.

1 3


and TBTI represented in their sales contracts with investoxs that advertising revenue from the

purchase of a VCM would provide investors with a return of $300 per month. Despite these

representations, JCS and TBTI, for the most part, conducted no legitimate business operations,

building just 90 VCMS and earning a total of approximately $21,000 or $22,000 in advertising

'0 Jcs and TBTI generated no other meaningful source ofrevenue from these machines.

1 l Thus their profits were insufscient to pay theI'CVCnUC. , more than $243.4 million in

contractual obligations to 1,800 investors who purchased more than 22,500 VCM S for a total of

12 B fits were insufficient to pay investors, JCS and TBTI used new investor$80.8. ecause pro

10 si nore disputes that the Receivership Entities were insolvent. ln support, he argues that theseg90 VCM S represent the StBeta phase'' of development and JCS planned to build more VCM S.

(DE 121 ! 10). He also cites to his Deposition, in which he states that there were Sksufticientamounts of revenue in local banks to cover the payment of 4.5% income to buyers of JCS

products.'' (DE 121 ! 7). He cites to his Aftsdavit, in which he avers that ''JCS had more than$7,000,000 in its accounts and more than enough money to build the outstanding units owed to

T.B.T.I. buyers when the SEC shut the operations down.'' (DE 12 1 ! 35). Taking these facts inthe light most favorable to Signore, the mere existence of funds in the Receivership Entities'

bank accounts does not create a genuine issue of material fact as to insolvency. An expertanalysis of the bank accounts of the Receivership Entities found that the Entities had no sourceof revenue, other than payments from new investors, with which to meet their contractual

obligations to old investors. Therefore, the remaining funds were obtained from new investors

through perpetration of a Ponzi scheme and cannot be considered in determining whether theReceivership Entities could meet their contractual obligations because the use of such funds

would only pemetuate the Ponzi scheme. See Wiand, 753 F.3d at 1201 (quoting Warheld v.Byron, 436 F.3d 551 , 558 (5th Cir. 2006) for the proposition that i1a Ponzi scheme . . . is, as amatter of law, insolvent from its inception.'').1 l Si nore disputes that JCS had no other meaningful source of revenue and cites to hisg

Deposition and Affidavit, in which he avers that JCS generated revenue from credit card

processing fees, Paybill, sales of hardware and software, a contract with a ktmerchant processing''

company, and Gee Bo commissions. (DE 121 !! 10, 15, 16, 21, 28, 35). However, there is nobasis in the record for these factual conclusions. See Ellis, 432 F.3d at 1326 (çfls'or factual issuesto be considered genuine, they must have a real basis in the record.'').12 I his Statem ent of Fact

, Signore claim s that if JCS had been allowed to continue to operate, itn

would have generated sufficient profits to pay the promised returns. (DE 121 ! 13). There is noevidentiary support for Signore's assertion, particularly in light of the evidence that theReceivership Entities had no meaningful source of revenue besides new investments, ln

addition, the SEC had no obligation to allow the Receivership Entities to continue to operate on


funds to make distributions to older investors in the amount of $49.7 million in order to maintain

the fiction that the VCM S were profitable. Accordingly, the undisputed facts show that Signore

operated a Ponzi scheme.

ln conclusion, the presence of multiple statutory badges of fraud and the sunounding

circumstances establish a presumption that the transfers at issue were made with actual intent to

defraud, which Signore has not rebutted. See Elliot, 953 F.2d at 1567-68.

b. 'êcreditor to be dejbauded'' and tfleh/t?r intending fraud''

In addition to intent to defraud, the Receiver must establish a creditor and a debtor under

prongs one and two of FUFTA. ç$A écreditor' is ia person who has a claim,' and 'claim ' is

broadly defined as ia right to payments whether or not the right isreduced to judgments

liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal,

equitable, secured, or unsecured.''' Wiand, 753 F.3d at 1200 (citing Fla. Stat. j 726.10243), (4)).

A corporation that was used to pepetuate a Ponzi scheme, but is now under a Receivership, is a

iicreditor'' under FUFTA because ltonce the Ponzi schemer is removed and the receiver is

appointed, the receivership entities . . . become entitled to the return of the money diverted for

unauthorized purposes.'' See id. at 1202 (citing Scholes v. Lehmann, 56 F.3d 750 (7th Cir.

1995)). The Ponzi schemer, who diverts funds from their lawful purpose, is obligated to return

the diverted funds to the receivership entities to be used for the benefit of innocent investors and

is therefore a ûsdebtor'' to the Receivership. See id. at 1203.

The undisputed facts show that JCS and JOLA are creditors and that Signore is a debtor

within the meaning of FUFTA. Although JCS was an instrum ent of fraud. it was also a distinct

legal entity whose purpose was to use client funds to invest in VCM S. Signore diverted funds for

the chance that they would cease to function as a Ponzi scheme and would becom e a legitim ate

business with sufficient revenues to pay back defrauded investors.

1 5


' d f investing in VCM s.l3his personal benefit that should have been used for JCS s state purpose o

On April 7, 2014, the Court removed Signore from control of JCS and appointed Sallah as

Receiver. Accordingly, JCS has a claim against Signore for the tireturn of the funds (Signore)

transferred for unauthorized purposes See Wiand, 75? F.3d at 1203. Although the

Receiver has not argued that JOLA was involved in the Ponzi scheme, the diversion of funds

from JOLA from its authorized business purpose in order to pay third parties for Signore and

Grande's benefit also entitles JOLA, now that it is under a Receivership, to a return of the

diverted funds from Signore.

c. ''Conveyance ofproperty which could have been applicable to the payment t?fthe debt due ''

The third element of FUFTA - ç1a conveyance of property which could have been

applicable to the payment of the debt due'' - is met when a debtor tidivertgs) property that he

controlgsl and that could have been applicable to the debt due.'' ld. ln other words, k'the exact

same money that generategsl the debt . . . (givesl rise to the claims in (a fraudulent transferq

case.'' ld In this case, Signore exercised his control over JCS and JOLA to divert funds for his

benefit and his then-wife's benefit.These funds could have been applied by Signore to pay the

debt he owed to JCS and JOLA arising from the unauthorized transfer of the same funds.

13 i disputes that all of the transfers at issue were for his personal benetst. He cites to a listS gnore

of credit card payments, which he claims were predominantly made to purchase JCS inventorys

and only partly for his personal benefit. (DE 121 ! 50, Ex. B), However, the list of paymentsdoes not support Signore's assertion. as it provides no information about the purposes for which

the credit card payments were made, and it is contradicted by other documentation provided bythe Receiver, which details expenditures, such as tanning bed paym ents, that are unquestionably

for Signore's personal benefit and not for the benefit of JCS or JOLA. To the extent that anyexpenditures were for JCS inventory, Signore's argument that he is entitled to a set-off for such

expenses is addressed in Section lV. A. ii., below. Signore does not dispute that the direct

transfers to himself and Grande were for his personal benefit.


Because the Receiver has established that the transfers violate Fla. Stat. j 726.105(1)(a),

he is entitled to a judgment avoiding the transfers to the extent necessary to satisfy the creditors'

14 A dingly, the Receiver is entitled to summaryclaims. See Fla. Stat. j 726.108(1)(a). ccor

judgment as to Count 11 in the amount of $ 1,604,672.55.

ii. Afhrmative Defense ofset-offî

ln his Answer, Signore asserts, as an affirmative defense, that he is entitled to a set-off in

the nmount of $607,036.00 for 6ta salary of $221 ,000 paid over 3 years, credit card payments for

inventory purchases, and a no interest loan made to JCS for $350,000.'9 (DE 74 ! 6).

Under Fla. Stat. j 726.10941), $t(a) transfer or obligation is not voidable under s.

726.105(1)(a) against a person who took in good faith and for a reasonably equivalent value . . .

'' Because the Receivership Entities operated as a Ponzi scheme, Signore did not provide any

valid services of Slreasonably equivalent value'' for which he is entitled to a salary. See, e.g.,

Warheld r. Byron. 436 F.3d 551, 560 (5th Cir. 2006) (iklt takes cheek to contend that in exchange

14 Under j 726.108, the remedies of creditors of a fraudulent transfer are as follows:

(a) Avoidance of the transfer or obligation to the extent necessary to satisfy thecreditor's claim ;

(b) An attachment or other provisional remedy against the asset transferred orother property of the transferee in accordance with applicable law;

(c) Subject to applicable principles of equity and in accordance with applicablerules of civil procedure:

1. An injunction against further disposition by the debtor or a transferee,or both, of the asset transferred or of other property;

2. Appointm ent of a receiver to take charge of the asset transferred or of

other property of the transferee; or

Any other relief the circumstances may require.

Fla. Stat. j 726.108.


for the payments (the Ponzi scheme operator) reeeived, the () Ponzi scheme beneftted from his

efforts to extend the fraud by securing new investment.''). As to the $350,000 Ioan, there is no

documentation of Signore having made this loan. In addition, Signore filed for personal

bankruptcy after receiving the funds that were the purported source of the loan, but before he

claims that he made the loan. Therefore, Signore's unsubstantiated statement in his Deposition is

contrary to the great weight of evidence on the record, and therefore does not does not create a

genuine issue of material fact that he made such a loan.Finally, for the same reason that Signore

is not entitled to a salary for operating a Ponzi scheme, the purchase of inventory to further the

Ponzi scheme does not provide iireasonably equivalent value'' to the Receivership Entities.

Accordingly, the Receiver is entitled to summary judgment on Signore's affsrmative defense,

B. Count VIII: Breach of Fiduciary Duties

Through Count V1I1, the Receiver alleges that Signore, as Chairman and President of

JCS, breached his fiduciary duties when he caused JCS to transfer $8l 9,923.42 to Grande as

payroll payments.

Florida courts have recognized a cause of action for harm resulting from the breach of a

15 s Doe v. Evans, 8 14 so. 2d 370 374 (F1a. 2002). Directors and corporatefiduciary duty. ee ,

officers owe a fiduciary duty of loyalty and care to the corporation.See Mccoy v. Durden, 1 55

So. 3d 399, 403 (Fla. 1st DCA 2014). The diversion of assets that rightfully belong to the

corporation in the ofscer or director's self-interest is a breach of fiduciary duty. South End

Improv. Group, lnc. v. Mulliken, 602 So. 2d 1327, 1333 (Fla. 4th DCA 1 992) (per curiam)

15 The Parties do not address whether Florida or Delaware law applies to a breach of fiduciary

duty in these circumstances. W hile JCS is a Delaware com oration, the Court may iirely with

contidence upon Delaware law to construe Florida corporate law. . . ,'' and therefore the outcome

is the same under either Florida or Delaware law. See 1nt 1 Ins. Co. v. Johns, 874 F.2d 1447,

1459 n.22 (1 1th Cir. 1989).

1 8


(finding that evidence supported that t'proposed transfer was corporate waste, and that the

directors breached their Gduciary duties because they acted in their own self-interest, rather than

on behalf of South End, in approving the donation''); Wiand, 753 F.3d at 1203 (finding that

receivership entities had a claim against hedge fund manager because idhe harmed the

comorations by transferring assets rightfully belonging to the corporations and their investors in

breach of his fiduciary duties'). :CIAq fiduciary is considered interested where he or she will

receive a personal fnancial benefit from a transaction that is not equally shared by the

stocltholders.'' ln re L NR Prop. Corp. Shareholders L itig., 896 A.2d 169, 175 (Del. Ch. 2005).

During the period when Signore caused JCS to transfer funds to Grande as payroll,

Signore was Chairman and President of JCS.He also controlled the financial accounts for JCS.

16As such, Signore owed JCS a duty of loyalty and care,

The undisputed facts show that Signore violated his fiduciary duties when he caused JCS

17 jjjoajjyto transfer funds for Grande to operate a Ponzi scheme that benetstted Signore. Spec ,

Signore caused JCS to transfer $819,923.42 to Grande as payroll for operating a Ponzi scheme.

The Ponzi scheme benefitted Signore by generating funds that he then diverted for his personal

use. Thus, Signore authorized the transfer of funds to pay Grande in his own self-interest in

furthering the Ponzi scheme, and contrary to JCS'S interest in selling VCM S.

ln response, Signore asserts that as majority shareholder of JCS, he was entitled tsunder

the corporate veil to use corporate funds without any permission or approval of corporate offices

16 i that he had no fiduciary relationship with Sallah during the events in question.S gnore arguesContrary to Signore's argument, Sallah may sue for breach of fiduciary duty because, as

Receiver, he may sue to redress injuries to the entity in receivership. See Wiand, 753 F.3d at1 194 (citing Scholes v. Lehmannn 56 F,3d 750, 753 (7th Cir. 1995)).17 hile the business judgment rule generally shields the business decisions of a Board fromWjudicial second-guessing, the rule does not apply to self-interested transactions or evidence ofwrongdoing, both of which are present here. See ln re LNR Prop. Corp, Shareholders Litig. , 896

A.2d at 176-77.

1 9


or private stockholders.'' (DE 99 ! 5).However, $çga1 shareholder that owns a majority interest

in a coporation, or exercises actual control over its business affairs, occupies the status of a

fiduciary to the comoration . . . .'' In re M /nc., 659 A.2d 760, 77 1 (Del. Ch. 1995).

Therefore, Signore's majority ownership in JCS did not absolve him of his fiduciary duties,

which were violated when he transferred funds in his self-interest.

Signore also argues that JCS had a com orate board, which was kept informed of all JCS

activity, and had company accountants, who approved all transfers and payments of money. (DE

121 !! 2, 27). However, Signore has provided no evidence that either the Board or an

accountant ratified the transfer of funds at issue here. In addition, Signore exercised actual

control over JCS and served on its Board, along with Grande.Accordingly, Signore must show

that the transfers were approved by a majority of independent and disinterested board members

or, depending on the facts of the transfer, that the transfers were entirely fair. See In re L NR

Prop. Corp. Shareholders L itig., 896 A.2d at 1 75-76. He has not offered evidence of either.

Accordingly, the undisputed facts show that Signore violated his fiduciary duties by

causing the transfer of $8 19,923.42 from JCS to Grande, and the Receiver is entitled to summary

judgment on Count Vll1 in the amount of $819,923.42.

C. Count 1: Equitable Lien

Through Count 1, the Receiver seeks a constructive trust or an equitable lien on the

18Signore Residence because the property was purchased with funds procured through fraud.

18 lthough the Receiver requests an equitable lien under the Declaratory Judgm ent Act, 28A

U.S.C. 2201(a), he alleges that he is entitled to the lien based on a finding in his favor on Counts11 and V11I. Accordingly, the Court construes the Receiver's M otion for Summary Judgment as

to Count 1 as a request for equitable relief under Counts 11 and VllI. See In re s4/'lnï, 580 F.App'x 740, 747 (1 1th Cir. 2014).

20


A court may impose an equitable lien for a violation of j 726.105 or for a breach of

fiduciary duty iiif the general considerations of right and justice dictate'' and there is ékno

adequate remedy at law.'' See In re f4/dpn/, 493 B.R. 866, 87 1 tBarlkr. M.D. Fla. 2013), aft''d 580

F. App'x 740 (1 1th Cir. 2014) (imposing equitable lien for violation of Fla. Stat. j 726.105))

Hirchert Family Trust v.Hirchert, 65 So. 3d 548, 551-52 (F1a. 5th DCA 201 1) (stating that

equitable lien is available for breach of fiduciary duty).Although Article X, j 4 of the Florida

Constitution protects homesteads from equitable liens, t'ltlhe courts recognize an exception to

the homestead protection if the property was acquired with funds generated by fraudulent

activity and a constructive trust is necessary to prevent unjust enrichment.'' Hirchert Family

Trust, 65 So. 3d at 551-52; Jee also In re Fin. Federated Title tf Trust, Inc., 347 F.3d 880, 88 1

(1 1th Cir.2003) (finding exception to homestead protection for residence purchased with

fraudulently obtained funds). The funds used to purchase the property must be traceable to funds

fraudulently obtained.Havoco ofAm., L td. v. Hill, 790 So.2d 101 8 (F1a. 2001); ln re Bfani, 580

F. App'x 740, 747 (1 1th Cir. 2014).

The undisputed evidence shows that the Receiver is entitled to an equitable lien on the

Signore Residence. First, the majority of funds used to purchase the Signore Residence are

traceable to funds fraudulently obtained in violation of j 726.105 and in breach Of Signore's

fiduciary duties. See ln re Financial Federated Title and Trust, Inc.. 347 F.3d at 892 (imposing

equitable lien when 90% of funds used to purchase property could be traced directly or indirectly

to fraud). Specitically, Signore caused JCS and JOLA to directly transfer $310,1 19.27 to South

19 vjaeFlorida Title lnsurers of Palm Beach County for the purchase of the Signore Residence.

19 In addition to the fraud perpetrated by Signore on JCS and JOLA in violation of j 726.105, theoverwhelming majority of the funds available to make the $200,000 payment from JCS were

2 1


$225,000 that Grande provided for the purchase of the Signore Residence was also traceable to

JCS funds because the account that funded the $225,000 was insufficiently capitalized with

funds from sources other than the Receivership Entities. Thus, $535,1 19.27 of the funds used to

purchase the Signore Residence for $555,000, or 96%, are traceable to the transfers made in

violation of FUFTA and in breach of Signore's fiduciary duties, and with funds obtained through

a Ponzi scheme.

Second, the Receiver does not have an adequate remedy at law for Signore's fraudulent

transfers and breach of tsduciary duties because Defendants' financial accounts, as well as the

accounts of JCS, Gee Bo, and JOLA, which were frozen at the outset of the SEC case, are

inadequate to satisfy the claims asserted by the Receiver. (DE 92 at 13).

Finally, allowing Signore to use the proceeds from fraudulently obtained and transferred

funds to purchase a home, while providing no remedy for the Receiver, would be unjust where

JCS and JOLA did not receive reasonably equivalent value for the transfer of funds made for the

purchase of the Residence.

Accordingly, the Receiver is entitled to an equitable lien on the Signore Residence in the

amount of the funds fraudulently obtained and used to purchase the Residence, which is

20 S In re Financial Federated Title and Trust, lnc., 347 F.3d at 892.$535,1 19.27. ee

D. Pre-judgment Interest

The Receiver seeks pre-judgment interest on his FUFTA and Florida common 1aw

claims.

investor funds fraudulently obtained through a Ponzi scheme. The JOLA transfer was also

derived from funds belonging to the Receivership Entities.

20 d ho owns the Signore Residence jointly with Signore, has consented to an equitableGran e, wlien on the Signore Residence. (DE 61-1).


W here, as here, FUFTA and Florida common 1aw provide the substantive bases for the

Receiver's claims, Florida law on pre-judgment interest applies. See Wiand, 753 F.3d at 1204

(1 1th Cir. 2014); Millennium Partners, L .P. v. Colmar Storage, LL C, 494 F.3d 1293, 1304 (1 1th

Cir. 2007). Florida courts award pre-judgment interest as a matter of course. See Argonaut Ins.

Co. v. May Plumbing Co. 474 So. 2d 212 (F1a. 1985); Wiand, 753 F.3d at 1205 (collecting

cases). However, a court may consider the following equitable factors in deciding not to award

pre-judgment interest or to reduce the amount of interest awarded: k'(1) in matters concerning

government entities, whether it would be equitable to put the burden of paying interest on the

public in choosing between innocent victims; (2) whether it is equitable to allow an award of

prejudgment interest when the delay between injury and judgment is the fault of the prevailing

party; (3) whether it is equitable to award prejudgment interest to a party who could have, but

failed to, mitigate its damages.'' See id at 1204 (citing Blaslanl Bouck tf L ee, lnc. r. City t?f N

Miami, 283 F.3d 1286, 1297 (1 1th Cir. 2002). Here, none of the equitable factors weighing

against pre-judgment interest apply, and Signore does not argue otherwise. Accordingly, the

Receiver is entitled to the full value of pre-judgment interest.

Fla. Stat. j 55.0341) governs the calculation of pre-judgment interest. Florida's Chief

Financial Officer sets the rate of interest, which applies based on the year in which each voided

transfer was made. Greenberg v. Grossman, 683 So. 2d 156, 157 (Fla. 3d DCA 1996). Based on

the rates set by the Chief Financial Officer, the rate of pre-judgment interest for the time period

from the inception of the Receivership through September 12, 2016, when Plaintiff s Motion for


21 i 1 1 4693094% and therefore the total amount due on theSummary Judgment was filed, s . ,

22transfers is $278,059.01 .

E. Post-judgment Interest

The Receiver seeks post-judgment interest, which accrues as of right from the date the

judgment is obtained until the date thejudgment is paid. See Fla. Stat. j 33.05. Accordingly, the

Receiver is entitled to post-judgment interest at the current rate.

Accordingly, it is hereby

ORDERED AND ADJUDGED that

(1) Plaintifps Motion (DE 92) is GRANTED. Plaintiffs alternative Counts 111, 1V, V, VI,

V1I are dismissed. Plaintiff is entitled to summary judgment as to Counts 1, ll, and Vlll

as follows:

a. $1 ,604,672.55 under Count l1;

b. $8 19,923.42 under Count Vlll;

c. $278,059.01 in pre-judgment interest;

d. Post-judgment interest at the current rate;

An equitable lien over the Signore Residence in the amount of $535,1 19.27; and

f. Costs, with the Court to retain jurisdiction to enter the amount of costs on motion

for final judgment.

(2) Plaintiffs Motion for Contempt (DE 103) is DENIED AS M OOT.

21 If the Receiver seeks pre-judgment interest from the date of tiling his motion for summaryjudgment through the date of this Order, he may file a motion requesting it.22 hile pre-judgment interest accrues from the date of loss, i.e. the date of each fraudulenlWtransfer, see SEB S.A. Sunbeam Corp. 148 F. App'x 774, 793 (1 1th Cir. 2005), the Receiver onlyrequests pre-judgment interest from the date of the Receivership's inception on April 7. 2014. inorder to preserve the costs and resources of the Receivership Entities.

24


(3) Plaintiff's Motion to Strike (DE 124) is DENIED.

DONE AND ORDERED inChambers inWest Palm Bea h, Florida, this ZZ day of

*

D ALD M . M IDDLEBROOKSUNITED STATES DISTRICT JUDGE

November, 2016.

Copies to: Counsel of Record

25
