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NJ Affordable Homes Corp. Ponzi Scheme: Trustee Recovery Efforts Continue

Bankruptcy Judge Donald H. Steckroth has issued a 108-page decision upholding substantially all claims asserted in almost 600 proceedings commenced by Charles M. Forman, trustee in the case of NJ Affordable Homes Corp., a massive real estate Ponzi scheme perpetrated by Wayne Puff and others. 

“U.S. Attorney Ralph J. Marra, Jr. thanked Charles Forman, trustee… for his assistance and cooperation.” – FBI Press Release

At the inception of this case, Mr. Forman and his professionals identified approximately 400 properties throughout New Jersey involved in or related to the Ponzi scheme.  Mr. Forman obtained almost $24 million of cash proceeds in addition to about $12.2 million of debt reduction through his efforts to recover money for almost 500 defrauded investors. Mr. Forman also commenced approximately 200 proceedings against prior participants in the Ponzi scheme to recover fictitious “profits” paid to those defendants from funds taken from subsequent investors. In light of the recent decision by Judge Steckroth, Mr. Forman was able to continue recovery actions from benefactors of the scheme on behalf of those defrauded.

The Federal Bureau of Investigation presented Mr. Gutfleish with a Certificate of Appreciation for “outstanding assistance in a joint investigative effort” leading to the criminal prosecution and conviction of NJ Affordable Homes, Corp. defendants.     

Of legal note, Judge Steckroth decided certain issues of first impression in the Third Circuit relating to the scope of a bankruptcy trustee’s authority to bring actions relating to a debtor’s fraudulent conduct.  Among other things, Judge Steckroth held that the in pari delcito doctrine did not bar any of the claims asserted.  Judge Steckroth also held that, under New Jersey’s Uniform Fraudulent Transfer Act, a bankruptcy trustee can avoid and recover fraudulent transfers made more than 4 years prior to the bankruptcy filing if one creditor exists who first learned of the transfer within one year of the bankruptcy filing. 

Since the NJ Affordable Homes Corp. bankruptcy case was filed, eleven people, including employees, attorneys and appraisers, have pled guilty to and have been sentenced for various federal crimes related to the Ponzi scheme.

Read the original SEC complaint here (PDF).

FBI Press Release: Ringleader of $80 Million New Jersey Affordable Homes Ponzi Scheme Pleads Guilty

Read the 2010 NY Times Article

Read the Judge’s Opinion On Motions To Dismiss here (PDF).