Tiger Woods Charities Feel the Bite of Stanford Scheme

Charities founded by professional golfer Tiger Woods are learning they can be sued for innocently receiving contributions from a Ponzi schemer.

Tiger Woods Foundation Inc. and Tiger Woods Charity Event Corp. got $500,000 in charitable contributions from R. Allen Stanford’s Ponzi scheme. The Woods foundations failed to persuade a federal judge to dismiss a receiver’s suit seeking to recover the contributions as fraudulent transfers.

If a Ponzi schemer buys goods or services, the payments aren’t fraudulent transfers because something of value was given in return. Because charities don’t give anything in return for contributions, they can, by definition, be accused of receiving fraudulent transfers.

In Ponzi schemes, charities sometimes can get a break, although they may not be off the hook entirely. The trustee unwinding Bernard L. Madoff Investment Securities LLC said in a 2010 court filing that he recovered $80 million through settlements with “a number of charities and nonprofit organizations.”

The Madoff trustee referred to the settling charities as “admirable groups” and said he took into account their special circumstances when negotiating to recover from organizations that took out more than they invested with Madoff.

The Woods charities argued that the Stanford trustee waited too long before suing. U.S. District Judge David C. Godbey in Dallas denied their dismissal request on Oct. 15, finding the receiver adequately set forth a basis for reliance on the so-called discovery rule.

The discovery rule is an exception to deadlines set for filing suits under the statute of limitations. The rule gives the receiver an extra year to sue after he discovers or could have discovered the payment.

The receiver said he didn’t discover the contributions until his team found an article mentioning that Stanford was a foundation sponsor.

The judge said it was “perfectly reasonable to surmise that the generally complex and obfuscated nature of the Stanford financial records made these particular transfers difficult to discover.”

Viewing the complaint in a light most favorable to the receiver, the judge ruled there was enough to survive a motion to dismiss.

The charities still might win, because Godbey said questions of fact remain about the receiver’s diligence that can be decided only after a trial.

Stanford is serving a 110-year prison sentence. His chief financial officer, James M. Davis, got a five-year term.

The case is Janvey v. Tiger Woods Foundation Inc., 14-cv-1567, U.S. District Court, Northern District of Texas (Dallas).

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