Court Opinions: 10th Circuit Affirms Fraudulent Transfer Judgment in Ponzi Scheme Case

The 10th Circuit Court of Appeals building in Denver, also known as the Byron White building.

Editor’s Note: Law Week Colorado edits court opinion summaries for style and, when necessary, length.

Hafen v. Howell 


Lured by the promise of a secure and exclusive investment opportunity, Les and Gretchen Howell made substantial investments in the Silver Pool, a silver-trading scheme operated by Gaylen Rust through his business, Rust Rare Coin. 

After 10 years of investing, Les Howell profited about $3.2 million above his roughly $1.2 million investment, according to the opinion. Gretchen Howell was $75,000 short of recovering her investment when the government exposed the Silver Pool and Rust Rare Coin as a Ponzi scheme and shut it down. 

Les Howell used his distributions to buy land in Kingman, Arizona, where he built a house. He later made Gretchen Howell a joint tenant, gifting her a one-half share in the property.

After its exposure as a Ponzi scheme, the Commodity Futures Trading Commission brought an enforcement action against Rust, and the district court appointed Jonathan Hafen as receiver to recover assets fraudulently transferred through the scheme. 

Hafen brought an ancillary action against the Howells under Utah’s Uniform Voidable Transactions Act, seeking to recover the $3.2 million in profit Les Howell made from the scheme. Hafen asserted claims of fraudulent transfer and unjust enrichment. 

The district court granted Hafen summary judgment against the couple on the fraudulent-transfer claims but declined to reach the unjust-enrichment claims because the ruling gave Hafen complete relief. 

The district court entered a judgment against the two for Les Howell’s profit, noting that it included the funds he transferred to Gretchen Howell by giving her joint title in the Kingman property. 

Both parties filed motions. Hafen sought prejudgment interest, which the district court granted at a 5% interest rate. The Howells sought reconsideration of the summary judgment order and clarification on the scope of Gretchen Howell’s liability. 

The district court denied the Howells’ motion but clarified that she was liable for half the $3 million that Les Howell spent on the Kingman property. Consistent with those orders, the district court entered an amended judgment that awarded Hafen prejudgment interest and clarifying that Gretchen Howell was liable for $1.5 million of the total money judgment. 

The Howells appealed the summary judgment, the calculation of the judgment against each of them and the award of prejudgment interest to Hafen. 

The 10th Circuit Court of Appeals agreed that the district court erred in calculating the judgment against Gretchen Howell. 

The 10th Circuit reversed and remanded for further proceedings to recalculate the amount of judgment against Gretchen Howell but otherwise affirmed. 

U.S. v. Martinez 

On Nov. 12 and 13, 2021, DeAnna Souza and her boyfriend of 10 years, Santiago Martinez, were at their residence in Taos Pueblo, New Mexico.  

According to the opinion, Martinez said he and Suazo went outside to their vehicle to listen to music. In the early hours of Nov. 13, 2021, Martinez claimed he exited the vehicle and went inside the house. Upon returning, he found Suazo’s vehicle running and her unresponsive on the ground near the front driver’s-side tire. Martinez reported that the front tire was against Suazo’s head and on her arm, so he moved the vehicle to free her arm.

Martinez didn’t call 911. Instead, he called family members of both himself and Suazo to tell them she was dead. Family members arrived on the scene and performed CPR on Suazo, while another called emergency services. Police, paramedics and the FBI were called to the scene. 

Upon investigation, law enforcement observed significant injuries to Suazo’s bodies and heard a description from a witness at the scene that their relationship was “toxic,” among other evidence. 

That morning, Martinez volunteered to take a polygraph test. On Nov. 22, 2021, two FBI agents asked to speak with Martinez at the Taos Police department, and he agreed. 

After some discussion, Martinez again consented to taking a polygraph test. He was advised of his rights, had no questions about the rights listed in the form presented to him and indicated his affirmance by electronically signing it, according to the opinion. He reviewed both forms on a computer screen but was not provided with a paper copy of either. 

He then took an unrecorded, roughly 90-minute pre-polygraph interview. Martinez then went to the restroom unescorted and returned. The polygraph was then administered. It lasted between thirty minutes and an hour, according to the opinion. Two sets of questions were administered, and each could yield one of three possible results: no deception indicated, inconclusive or deception indicated. 

In the second set of questions, the results indicated deception in Martinez’s responses. After “failing” the second part of the test, the FBI agent launched into a post-test interview, turning the recorder back on before she began questioning him. The post-test interview lasted approximately three hours. 

During the questioning, Martinez repeatedly stated he didn’t remember what happened the night Suazo died but made several admissions. According to the opinion, Martinez eventually told the agent that there was an argument and that he accidentally hit the gas and ran her over. 

At the end of the interview, Martinez declined to provide a written statement about what happened that night. Shortly after, he was arrested. The entire process took approximately six hours. 

The FBI also executed a search warrant on his cell phone, which included multiple exchanges in which Suazo expressed her desire to end the relationship, according to the opinion. The FBI also interviewed friends and family of Suazo and Martinez, learning from these interviews that Martinez had previously used violence against Suazo, according to the opinion. 

Martinez was charged with one count of second-degree murder. He pleaded not guilty. In a pretrial motion, Martinez filed to suppress the statements he made during the post-polygraph interview, arguing that he should have been re-Mirandized before the post-polygraph interview and that the initial Miranda advisement was insufficient for the subsequent interrogation because he was unaware there would be additional questioning at the end of the polygraph test. 

The government filed two related motions in limine to admit seven text message exchanges and a notice of intent seeking to elicit witness testimony of a prior instance of physical abuse. 

The district court granted Martinez’s motion to suppress and denied the government’s motions. 

The government appealed those rulings. 

On the suppression motion, the focus of the 10th Circuit Court of Appeal’s inquiry was whether Martinez had the capacity to understand the rights he was waiving, not whether he understood how the interrogation would be conducted. 

The 10th Circuit held that his signed waiver of his rights was voluntary, knowing and intelligent and wasn’t limited in scope to only the polygraph test, and that the district court erred in concluding otherwise. But, the 10th Circuit opined that a valid initial waiver doesn’t extend indefinitely. 

In this case, considering the totality of the circumstances, the 10th Circuit held that the district court erred in suppressing his post-polygraph statements. 

The 10th Circuit also found that the district court erred in excluding the text messages on a hearsay basis and concluded that the motion to elicit witness testimony needed to be reconsidered, as it was denied after the district court suppressed the post-polygraph statements. 

The 10th Circuit reversed and remanded for further proceedings consistent with the opinion. 

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