In Jalbert v. Flanagan (In re F-Squared Investment Management), Adv. No. 17-50738-LSS (Bankr. D. Del. May 7, 2019), the trustee of a liquidating trust sought to avoid bonus payments by the debtors as fraudulent conveyances. Defendants moved to dismiss the fraudulent conveyance counts on the single ground that the trustee had failed to sufficiently plead lack of reasonably equivalent value, because the sole allegations in the complaints regarding value were that the bonuses were discretionary. The trustee argued that, as a matter of law, the payment of a discretionary bonus not tied to a previously enunciated metric was a per se fraudulent conveyance if made while the debtors were insolvent. In rejecting the trustee’s argument, U.S. Bankruptcy Judge Laurie Silverstein of the District of Delaware held that whether the payment conferred value on the debtors was a factual question, and since the trustee did not intend to offer any further evidence in support of his claims, the motions to dismiss should be granted.

The debtors, F-Squared Management, and its subsidiaries, were investment management and research firms whose primary business was selling portfolio model services to investment advisers. In 2013, the SEC began an investigation into potential violations of federal securities laws related to the debtors’ advertising of the model’s track record. In 2014, the debtors agreed to a settlement with the SEC that required them to admit to false advertising, pay a $5 million penalty to the SEC, and disgorge $30 million in related profits. As a result, the debtors filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code in 2015, and the plaintiff was appointed trustee of the F2 liquidating trust the following year.