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Market Overview

Fraudulent Transfer Claims on the Rise, New Navigant Consulting Data Shows


While signals about the pace of economic recovery continue to be mixed, a new study released by Navigant Consulting, Inc. (NYSE: NCI), and the Economist Intelligence Unit (EIU) shows a dramatic uptick in the number of fraudulent transfer claims filed as a result of last year’s financial crisis.

The study, “Risky Business: Financial Firms Face Wave of Fraudulent Transfer Claims,” provides perspectives on the preparedness levels of financial institutions in responding to claims by debtors, creditor committees and/or trustees who seek to recover money allegedly paid improperly to creditors. The study shows a rising tide of such claims, known as “fraudulent transfer” or “fraudulent conveyance” cases. More than half of respondents saw an increase in fraudulent transfer cases in the past year, while only two percent saw a decrease.

In the wake of the increase in fraudulent transfer claims, the study found that many financial institutions are taking steps to manage their risks. The study also noted that:

  • Sixty percent of respondents say loan restructuring decisions are made either by the Board of Directors, C-suite executives, or senior management.
  • More than 80 percent of respondents said employers or clients have been either somewhat or very active in improving internal processes to minimize fraudulent-transfer risks since the start of the recession.
  • More than 50 percent of internal and external legal counsel surveyed were optimistic about financial service firms’ preparedness with fraudulent transfers.
  • Twenty-six percent of respondents say financial firms will adopt new rules to seek expert counsel on solvency of applicants for loans.

“We have definitely seen an increase in fraudulent transfer cases in the last year,” said Stan Murphy, Managing Director at Navigant. “The risks for lending institutions can be very high and costly as more and more companies fail due to the economic downturn and creditors jostle for higher priority and security. To an increasing extent, lenders are being caught in the tide as courts find that they gained unfair advantages in their dealings with distressed borrowers.”

In one high-profile fraudulent transfer, Florida-based homebuilder Tousa Inc. and its subsidiaries were found by a Bankruptcy Court to have been insolvent both before and after engaging in a secured loan transaction. Several lending institutions made secured loans totaling approximately $500 million to the distressed borrower in large part to settle unsecured claims held by unrelated lenders. These secured loans were made prior to the time the debtor’s parent entity declared bankruptcy. The case resulted in the transaction being unwound and the unsecured lenders had to return approximately $403 million in settlement payments that they had received. In addition, the secured lenders’ liens against the debtor’s properties were voided. The judge ruled among others that the deal was a fraudulent transfer of the borrower’s assets, because the assets were no longer available to be distributed following bankruptcy.

The Navigant-sponsored survey polled 154 respondents worldwide in law firms that provide services to financial services firms (71 percent) and executives who work in the legal departments of financial services firms (29 percent) around the globe. For more information on the study, please visit

About Navigant Consulting

Navigant Consulting, Inc. (NYSE: NCI) is a specialized independent consulting firm providing dispute, financial, regulatory and operational advisory services to government agencies, legal counsel and large companies facing the challenges of uncertainty, risk, distress and significant change. The Company focuses on industries undergoing substantial regulatory or structural change including healthcare, energy and financial and insurance services, and on the issues driving these transformations. "Navigant" is a service mark of Navigant International, Inc. Navigant Consulting, Inc. (NCI) is not affiliated, associated, or in any way connected with Navigant International, Inc. and NCI's use of "Navigant" is made under license from Navigant International, Inc. More information about Navigant Consulting can be found at

Navigant Consulting, Inc.
Lindsay Dawson, 312.583.2748
Golin Harris
Michael Nowak, 312.729.4346

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