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A high-profile bankruptcy of Hollywood financial adviser Dana Giacchetto’s Cassandra Group company offers a lesson on how a bankruptcy trustee can creatively use state fraudulent transfer laws to maximize returns to creditors. Using the U.S. bankruptcy code and New York state fraudulent transfer law, the bankruptcy trustee recovered $6.9 million and distributed 35 cents on the dollar to creditors of Giacchetto’s company, said New York-based Bryan Cave partner Bob Wolf, who was special litigation counsel to the bankruptcy trustee in the case. That return will rise to 40 cents on the dollar if the court approves another interim distribution to creditors at the end of August, Wolf said. In re: The Cassandra Group, No. 00-41807 (S.D.N.Y.) The trustee also relied on state fraudulent transfer laws to negotiate an Aug. 10 settlement involving rights associated with a book about Giacchetto, You Will Make Money in Your Sleep: The Story of Dana Giacchetto, Financial Adviser to the Stars, by Emily White. Giacchetto’s start-studded client list included Courtney Cox, Cameron Diaz and Tobey Maguire. Creative moves Bankruptcy lawyers say the trustee’s use of state fraudulent transfer law in a federal bankruptcy case is a creative way of recovering money for creditors of a bankrupt company. “In a liquidation case it’s an outstanding result,” Wolf said. “Typically [for a] recovery in a Chapter 7 case, 10% is a large number.” In many cases, Giacchetto fraudulently transferred money from his nonfamous clients to celebrity clients when celebrity’s business managers complained about the lack of return on their clients’ investments, according to court documents. Giacchetto would have the investment company that held Cassandra clients’ money issue a check payable to a client, which Giacchetto would endorse with his own name to deposit in Cassandra’s bank account. Giacchetto would then write a new check to the complaining client � in effect with another client’s money instead of a return on the complaining client’s investment, according to court documents. The U.S. Securities and Exchange Commission (SEC) caught up with Giacchetto, and won a $14.4 million consent judgment against him in a separate case. Securities and Exchange Commission v. Dana C. Giacchetto, No. 00-2502 (S.D.N.Y.). That judgment gave the bankruptcy trustee the authority to recover Giacchetto’s personal assets and act as one of Giacchetto’s creditors, not just as the trustee of his company, Cassandra. To get more money for the bankruptcy creditors, the trustee took the somewhat novel step of using state fraudulent transfer law to recover money Giacchetto personally moved out of his company and book rights that Giacchetto had transferred to a separate company. Part of the strategy involved filing about 100 adversary proceedings, under state and federal law, to recover money from individuals and entities who shouldn’t have received cash from Giacchetto or who had received too much, Wolf said. From a legal standpoint, the case shows how an aggressive trustee can make a favorable recovery for creditors, said Gregory Nye, the managing partner of the Hartford, Conn., office of Houston-based Bracewell & Giuliani. Because federal fraudulent transfer law applies only to transfers by the debtor � in this case the Cassandra company � the bankruptcy trustee needed to use the state fraudulent transfer law to access money Giacchetto transferred in his own name, Nye said. “This was a creative use of powers,” Nye said. “He got a settlement from the SEC and he now has rights to go after a third party.” The case is a reminder to lawyers who advise bankruptcy trustees that they need to pursue all avenues to recover money, even state laws, said Gregory Gordon, a Dallas-based bankruptcy partner at Jones Day. “In some case these actions can be a significant source of recovery,” Gordon said. “It’s a wake-up call or reminder about that.” The trustee needs an additional $2 million to pay creditors and $1 million for professional fees and he hopes the book settlement will close that gap, Wolf said. In the settlement, Giacchetto relinquished his rights to any movie, television program or serialization of the book, and the author also agreed to give the trustee half of any book revenue and licensing proceeds. “What we’re really hoping is to hit a home run with a sale of the rights,” Wolf said. “That would in turn enable creditors to get more cents on the dollar.” Wolf said New York solo practitioner Ronald Fischetti signed the settlement on behalf of Legis, a company Giacchetto formed to share the book proceeds with the author. In an e-mailed statement, Fischetti said he had no comment about the settlement.

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