Magazine article Business Credit

How California's Fraudulent Transfers Act Helped Creditors

Magazine article Business Credit

How California's Fraudulent Transfers Act Helped Creditors

Article excerpt

What can a supplier do when it suspects that an insolvent customer had fraudulently transferred the majority of its inventory to another firm just prior to the customer's insolvency? This was the dilemma recently faced by many grocery suppliers who had sold product to two California firms known as P.L.S. Cash & Carry and Greenland Distribution, Inc. The following is an example of how creditors can effectively utilize civil remedies in cases where fraud is suspected.

On or around October 8, 1998, law enforcement, working with information provided by creditors and by NACM's Loss Prevention Department, seized approximately $1.2 million of inventory from a Long Beach, CA wholesaler known as Super U.S. Sales. Law enforcement seized the product alleging that the product was obtained from the insolvencies of P.L.S. Cash & Carry and Greenland Distribution, Inc. After the seizure, Super U.S. Sales had filed a Notice of Motion for Order Returning Property Pursuant to Penal Code 1409.

In February 1999, the court ruled in favor of the creditors saying that the sale of goods from P.L.S. Cash & Carry and the sales from Greenland Distribution to Super U.S. Sales were fraudulent transfers. The transfers were ruled to be voidable and the original vendors were granted a right of reclamation.

NACM's Loss Prevention Department thanks Detective Donna Copplin of the Los Angeles County Sheriff's Department, Attorney Chandler J. Coury and Attorney Clark Rivera, for all of their hard work in this matter. The following is the court's decision.

THE COURT FINDS THAT:

1. Vendors in good faith sold merchandise to PLS Cash & Carry, Inc. and Greenland Distribution, Inc., but were not paid for their merchandise as part of a planned insolvency scheme on the part of both buyers.

2. PLS Cash & Carry, Inc., and Greenland Distribution, Inc. conveyed the merchandise to Super U.S. Sales in or about September 1998.

3. The conveyance of said merchandise resulted in the insolvency of both PLS Cash & Carry, Inc. and Greenland Distribution, Inc., as evidence by the fact that within days of their conveyance, and within a week of one another, both abandoned their business locations and went out of business. Greenland Distribution, Inc. ceased doing business by September 15, 1998, and PLS Cash & Carry, Inc. ceased doing business by September 21, 1998.

4. The merchandise now subject to seizure pursuant to a search warrant issued October 5, 1998, and stored in the warehouse of Super U.S. Sales, located at 2303 and 2309 East Artesia Boulevard, Long Beach, California, to which vendors assert claim is the same unpaid-for merchandise which the vendors sold to PLS Cash & Carry, Inc., and Greenland Distribution, Inc. The approximate value of the merchandise is $1.2 million.

5. At the time of the conveyance of merchandise from PLS Cash & Carry, Inc., Frank Salame (aka John Bella, aka Frank Jevani) was employed as both the manager of Super U.S. Sales and as a sales representative of PLS Cash & Carry, Inc.

6. In the weeks leading up to the insolvency of PLS Cash & Carry, Inc. and Greenland Distribution, Inc., Super U.S. Sales purchased substantially all of its merchandise from PLS Cash & Carry, Inc. and Greenland Distribution, Inc.

7. On September 1, 1998, Super U.S. Sales transferred $226,000 by wire to a bank in Beirut, Lebanon, at the request of Bassam Dakdouk, president of PLS Cash & Carry, Inc. Said funds were deposited into an account under the name of "Prosperity Corporation."

8. On September 22, 1998, an additional $220,000 was transferred by Super U.S. Sales to a bank in Beirut, Lebanon. Additional similar wire transfers were made by Tony Tair and Super U.S. Sales, in an undisclosed amount during the month of September 1998.

9. Bassam Dakdouk purchased PLS Cash & Carry, Inc. in September 1997. …

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