IN RE: LEW PERRIN MCGEE CASE NO. 97-50234
UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
LEW PERRIN MCGEE CASE NO. 97-50234
ROBERT J. BROWN, TRUSTEE PLAINTIFF
VS. ADVERSARY NO. 99-5033
FLOYD CARPER, ET AL. DEFENDANTS
FINDINGS OF FACT:
David S. Carper died on March 12, 1992 at the University of Kentucky Medical School Markey Cancer Center. In January or February of 1992 he summoned his attorney, Paul Darryl Stith, to his room at the Cancer Center to discuss guardianship and estate plans for his minor children, Travis Michael Carper, age 7, and Jessica Lynn Carper, age 5. The children’s mother, Tina Carper, had died in 1991. Over a period of several days David S. Carper met with his parents, Floyd W. and Marjorie A. Carper, his attorney, Mr. Stith, and the debtor, Lew Perrin McGee, a trusted friend of the family, to discuss guardianship of and financial planning for the children.
By his will dated February 15, 1992 David S. Carper appointed his father, Floyd Carper, as Executor. In the event his father was unable or unwilling to serve, he appointed as successor executors his mother, Marjorie A. Carper, and finally the debtor, Lew Perrin McGee, and requested that no bond be required of any of them. Will, Art. V.
Article II of the will provided that proceeds from the sale of the decedent’s real and personal property, after payment of costs of sale and expenses of administration of the estate, be placed in two equal trusts, one for each of the children. The decedent named his father, Floyd W. Carper as trustee of the trusts. The will states “[u]se of the word ‘trustee’ herein shall apply equally to my trustee, Floyd Carper, or, if he should fail or decline to serve, to my successive Alternate Trustees in this order, Marjorie A. Carper, an Perrin McGee.” The will authorized the trustee or alternate trustee to serve without bond or surety except such as may be required by the court.
In Article IV of the will the decedent named Sheila Matthews and Bruce Matthews as initial guardians of the children, and the decedent’s father and mother, Floyd W. Carper and Marjorie A. Carper, as successor guardians. However, prior to his death the decedent advised the Matthews of his intent to change his will to name his father, Floyd W. Carper, as guardian, and his mother, Marjorie A. Carper, as successor guardian.
The will was admitted to probate by the Fayette District Court on May 26, 1992, on which date, Floyd W. Carper, the decedent’s father, was appointed executor of the estate, trustee of the trusts established by the will, and guardian of the children. The evidence indicates the debtor, Lew Perrin McGee, attended the court hearing at which the will was probated.
The record indicates the debtor was well aware the funds which are the subject of this adversary proceeding and which were turned over to the debtor by Floyd W. Carper for investment were guardianship and trust funds of the minor Carper children. See the affidavit of Floyd W. Carper dated August 26, 1996 submitted in support of Mr. Carper’s motion for an order requiring the debtor to file an accounting and to turn over guardianship and trust funds of the Carper children.
From 1991 to early 1995 the defendant debtor, Lew Perrin McGee, was a registered broker-dealer agent employed by Equico Securities, Inc. as well as a registered insurance agent for Equico’s parent company, The Equitable Life Assurance Society of the United States. The debtor was the proprietor of an insurance agency which he operated under the name of Perrin McGee & Company, in which capacity he was also agent for other insurance companies. The debtor’s employment with Equico and Equitable was terminated on April 4, 1995. However, his license to sell securities was not promptly terminated by the Commonwealth of Kentucky Department of Financial Institutions, nor was his license as a registered insurance agent. The debtor was able to continue operation of his Ponzi scheme activities until late 1996.
Commencing perhaps as early as 1989, but at least from 1993 through 1996, as evidenced by the June 8, 1999 affidavit of Robert J. Brown, Trustee in opposition to defendants’ motion to dismiss the complaint herein, and by Exhibit A to the complaint, the debtor used his insurance agency as a front for operation of a Ponzi scheme whereby he obtained monies from investors upon representations that he could and would invest the monies for them at favorable interest rates. In many instances the investors wrote checks payable to the debtor, Perrin McGee, individually. In exchange therefor the debtor gave to the investors the debtor’s personal note payable in three years with interest at the rate of 8.5% To induce customers to turn over to him monies for investment or to accept renewal notes for notes that had come due, the debtor made various representations which were false.
Although Floyd W. Carper invested some of his own funds with the debtor based on these representations, as indicated by his affidavit of August 26, 1996 and Exhibit A to the complaint, Items 35, 54 and 56, there is no evidence guardianship and trust funds of the Carper children were turned over to the debtor for investment in connection with the Ponzi scheme. The debtor did not issue personal notes to Floyd W. Carper in exchange for the guardianship or trust funds of the children and he provided to Mr. Carper annual reports indicating the childrens’ monies were invested through Equico in mutual funds. The will of David S. Carper specified the monies were to be invested in accordance with the standard of a reasonable and prudent trustee under the laws of Kentucky. Will, Art. II, paragraph 2.
The funding of the guardianship accounts which Floyd W. Carper established with the assistance of the debtor, Perrin McGee, at Central Bank & Trust Company, initially consisted of monthly social security checks received by the children. The debtor frequently visited the Carper home and worked with Mr. Carper extensively in reviewing bank statements and canceled checks while advising Mr. Carper. See Mr. Carper’s affidavit of August 26, 1996, paragraphs 7 and 8.
Mr. Carper invested some of the monies in the guardianship accounts through the debtor with Equico Securities, Inc., as shown by checks on the guardianship bank accounts issued to Equico, and not to the debtor individually.
Mr. Carper purchased through the debtor’s insurance agency an Equitable Variable Life Insurance Policy on each of the children and paid the premiums thereon from the guardianship bank accounts. On or about December 15, 1995, for reasons that are not clear, the Equitable policies were cashed in and replaced by adaptable life insurance on each of the children purchased through the debtor’s insurance agency from Time Insurance Company of Milwaukee, Wisconsin.
The final report of Floyd W. Carper as executor of his son’s estate indicates that on October 27, 1993 he sold the decedent’s residence and from the proceeds of sale deposited $37,075.00 in each of the testamentary trusts established for the Carper children by the son’s will. Also, on October 27, 1993 from these monies and other monies previously deposited in the trust accounts, he wrote checks on each account in the amount of $39,796.00 payable to Equico Securities, Inc. for investment in behalf of the children. These checks were not made payable to the debtor. The estate of David S. Carper was closed on December 23, 1993 and Floyd W. Carper was released from his duties as executor on that date, but he was continued in his capacity as guardian of and as trustee of the trusts established by the son’s will for the children.
In his annual Settlement of Trust Reports filed with the Fayette District Court Probate Division for the period ending May 31, 1994, Floyd W. Carper states in note 3 thereto –
The investment through Equico Securities, Inc., along with the value of the respective investments is substantiated by the enclosed letter from Perrin McGee & Co. dated June 21, 1994. Perrin McGee has been a family friend and advisor to Floyd W. Carper for more than ten years and has assisted him in securing life insurance policies and investments for Travis Michael Carper and his sister, Jessica Lynn Carper.
The June 21, 1994 letter of Perrin McGee to Mr. Carper is as follows:
I want to give you a breakdown of the various accounts that Jessica and Travis Carper have as of May 31, 1994.
I.) Social Security Accounts – Central Bank (interest bearing)
Jessica - $2,336.63
Travis - $2,443.00
II.) Trust Checking Account – Central Bank (interest bearing)
Jessica - $1,027.73
Travis - $1,025.73
III.) Equitable Variable Life Insurance Company Policies
Jessica - $4,291.17
Travis - $4,398.90
IV.) Investment Trust Accounts
Jessica – American Funds
The Bond Fund of America $10,485.99
Washington Mutual 17,645.32
Travis - American Funds
The Bond Fund of America $10,485.99
Washington Mutual 17,688.32
Floyd, you can see we are well diversified and protected. The total assets for Jessica as of May 31, 1994 is $44,250.48 and for Travis is $44,505.58. Again, refer to your prospectus for additional information. (Underscoring supplied)
Mr. Carper’s annual settlement as guardian of his grandchildren and as trustee of the trusts established by the will of his son for the following year ending May 31, 1995, similarly relies on and incorporates a letter from Perrin McGee & Co. to Mr. Carper’s attorney, Darryl Stith, as follows:
Mr. Darryl Stith June 21, 1995
226 Jesselin Drive
Lexington, KY 40503
This is the information you needed for your reporting of Jessica and Travis Carper year-end investment values as of May 31, 1995. The “American Funds” are as follows:
1.) Washington Mutual Investors Fund
Travis M. Carper $19,960.43
Jessica Lynn Carper $19,914.64
2.) The Bond Fund of America
Travis M. Carper $10,984.67
Jessica Lynn Carper $10,984.67
3.) Kemper Retirement fund, Series IV
Travis M. Carper $10,304.20
Jessica Lynn Carper $10,304.20
These three funds for Travis totals (sic) $41,249.30 and Jessica’s total is $41,203.51.
Travis and Jessica also have an Equitable Variable Life Insurance policy each (EVLICO) and Travis’ cash value totals $4,643.42 and Jessica’s cash value is $4,751.84.
As you also know, Jessica and Travis each have a Trust checking account at Central Bank and also each have a social security bank account. The values of these, I do not have, but I know that Mr. Floyd Carper, Trustee, can furnish those figures.
I hope this will be of help.
The letter of June 21, 1995 appears to be inaccurate with respect to the investments of the Carper children as of that date. The record before the court indicates the investments of the children in the American and Kemper funds were cashed out on April 11, 1995 and deposited in the children’s respective trust fund accounts on April 12, 1995. On or about April 12, 1995 Mr. Carper issued a check payable to Perrin McGee in the amount of $41,249.30 on the trust account of Travis Michael Carper, and a check payable to Perrin McGee in the amount of $41,203.51 on the trust account Jessica Lynn Carper. The checks bear the notations “Jessica Carper account” and “Travis Carper account.” See checks attached as exhibits to August 19, 1996 letter of Paul Darryl Stith to Honorable Laurance VanMeter, Judge, Fayette District Court. According to Mr. Carper’s letters of August 3, 1995 and February 12, 1996 to McGee requesting an accounting, these funds were entrusted to McGee to invest in similar funds as ours. See Mr. Carper’s letters of August 3, 1995 and February 12, 1996, attached to his affidavit of August 26, 1996 filed in the Fayette District Court in support of his motion for an accounting.
The record indicates the debtor Perrin McGee deposited the aforementioned checks in his personal bank account at Bank One, Account No. XXX-1843 on April 17, 1995. See Exhibits D and E to plaintiff’s brief filed August 19, 1999 in opposition to defendant’s motion for summary judgment. The debtor’s letter of June 21, 1995 indicating the children’s trust fund monies were still on deposit in the American and Kemper funds was inaccurate.
In 1995 Mr. Carper’s grandchildren for whom he was serving as guardian inherited a 1992 Dodge Sundance automobile and $73,192.67 from their maternal grandmother, Lovealee Travis. On December 15, 1995 Mr. Carper deposited $36,596.34 of the inherited monies to the guardianship account of Jessica Lynn Carper and $36,596.33 to the guardianship account of Travis Michael Carper. On the same date Mr. Carper issued checks on each of the guardianship accounts in the amount of the aforementioned deposits, payable to Perrin McGee. The checks bear the notation “Time Ins. Co.” The debtor Perrin McGee deposited these checks in his personal account at Bank One, Account No. XXX-1843, on December 17, 1995.
On February 12, 1996 Mr. Carper wrote to the debtor, Perrin McGee, reminding him of Carper’s unanswered request of August 3, 1995 for an accounting, thanking McGee as a cherished friend for volunteering to help with his financial know-how, and again requesting an accounting of the children’s investments and of Mr. Carper’s and his wife’s personal investments with McGee. The letter concludes “we are acting in total trust with you, but we are responsible and should have this information and not be totally in the dark.”
On March 27, 1996 Mr. Carper, by letter of that date, requested of the debtor, Perrin McGee, copies of life insurance policies for the children, a statement of the trust accounts for the children and other added investments, a statement of Lovealee Travis’ account for the children, and a statement of his and his wife’s money invested with the debtor.
On April 19, 1996 Paul Darryl Stith, Mr. Carper’s attorney, wrote to Mr. McGee in Mr. Carper’s behalf stating his client was concerned about not being provided documentation since the previous April regarding the investments for the trusts and guardianships established for Travis and Jessica, and for lack of information concerning Mr. Carper’s personal investments.
On April 26, 1996 the debtor responded to Mr. Stith’s letter as follows:
This is the information you needed for your reporting of Jessica and Travis Carper year-end investments values as of April 26, 1996.
I cashed out the American Funds and at present that money is in a Special Account #1 at Bank One, Lexington, KY. The account number is XXXXX4902. The total balance as of this date is $89,873.56. Travis M. Carper’s share is one half of the balance which equals $44,936.78, and Jessica L. Carper’s share is the other half of the balance which equals $44,936.78. As you know, this is from their father’s estate, David Carper.
Also, Travis and Jessica Carper have a Time Insurance policy each, and Travis’ cash value is $2,761.73. Jessica’s cash value is the same at $2,761.73.
I also have a Special Account #2 at Bank One, Lexington, KY. This account number is XXXXX4910. The total balance as of this date is $78,397.24. This money is from Travis’s and Jessica’s grandmother’s estate-Lovealee. Travis M. Carper’s share is one half the balance which equals $39,198.62. Jessica L. Carper’s share is the other half of the balance which equals $39,198.62. The reason for the two special accounts is that I wanted to keep the money from David Carper’s and Lovealee’s estates separated.
Travis and Jessica each have a trust checking account at Central Bank, Lexington KY, and each have a social security checking account at Central Bank, Lexington KY. I do not know the balances in these accounts, but Mr. Floyd Carper, trustee, knows these amounts. I hope these will be of some help.
Apparently, the debtor responded to Mr. Carper’s letter of March 27, 1996 separately, because on May 17, 1996 Mr. Carper wrote the debtor thanking him for “your action on the children’s accounts,” and stating:
I believe you are on the right track on our account. While everything is fresh in your mind we wish you could come with a finished report.
On August 6, 1996 Mr. Stith, Mr. Carper’s attorney, sent the debtor, Perrin McGee, a demand letter for a full accounting of the amounts and location of the guardian and trustee funds and investments with which the debtor had been entrusted. The letter stated:
You gained Floyd’s confidence by managing his personal retirement funds and by helping him in the troubled times following the death of Travis and Jessica’s father, David. Floyd encountered considerable delay and inconsistencies in information, including missing checks made payable to you, in collecting the data for the Annual Settlements for the Guardian and Trustee accounts.
Floyd now advises me that he has reason to believe that the account documentation from the banks and other sources may have been accurate as of the dates reflected, but that shortly thereafter you moved these funds to your personal or business accounts. Some of the documentation does not reflect that Floyd is holding the funds and investments as Guardian or Trustee for Travis and Jessica.
A copy of the letter was sent to the Fayette district Judge Laurance VanMeter.
On August 9, 1996 James W. Gardner sent the debtor, Perrin McGee, a similar letter stating he also was representing Floyd and Marjorie Carper in their demand for an accounting of their personal investments as well as the investments of their grandchildren.
On August 14, 1996, at the request of Floyd W. Carper and his wife Marjorie, the Fayette District Court appointed Donald and Alicia Allen, as co-guardians of the Carper grandchildren. This action was taken because of Mr. Carper’s age and Mrs. Carper’s treatment for cancer. The Allens were represented by attorney James W. Gardner.
On August 15, 1996 the debtor, Perrin McGee, responded to the letter requests of attorneys Stith and Gardner for an accounting, asking for more time to prepare an accounting and promising to provide an accounting by the first part of the week of August 26, 1996, or sooner.
On August 26, 1996 the debtor by unsigned letter of that date provided Mr. Stith an accounting in which the debtor indicated he was in the process of setting up accounts in Kentucky Triple Tax Exempt Funds and Utility Income Funds with the trust fund monies of the children. He also indicated that the monies the children inherited from their grandmother, Lovealee Travis, had been used to purchase insurance policies on the children. He did not account for the “side fund” monies, the monies not used in payment of premiums for insurance policies on the children. This purported accounting does not inform as to the location of the trust and guardianship funds of the children.
On August 27, 1996, Floyd W. Carper, as former guardian of the children and as trustee of the trusts established for them by his son’s will, by counsel, and Donald Allen and Alicia Allen, as successor guardians of the children, by counsel, filed a joint motion in the Fayette District Court for an order requiring the debtor, Perrin McGee, to render an accounting and to turn over assets of the guardianship and trust accounts of the Carper children under his management. The motion was accompanied by the affidavit of Mr. Carper and correspondence of Mr. Carper, and attorney Stith, detailing their prior requests to McGee for an accounting. The motion was served on Perrin McGee by mail on August 27, 1996 and was noticed for hearing before the Fayette District Court, Probate Division, on September 3, 1996.
On September 3, 1996 the Fayette District Court entered an order directing the debtor, Perrin McGee, “to tender full funds to James W. Gardner Escrow Account (approximate sum of $175,000) by September 6, 1996, before 4:00 p.m. full accounting from beginning to end on or before September 17, 1996.”
Under the Kentucky statutory law the state district courts have exclusive jurisdiction in matters involving probate, except matters contested in an adversary proceeding, which must be filed in the circuit court. KRS 24A.120(1)(b). The debtor, Perrin McGee, did not contest the action of the district court in treating him as a court-appointed fiduciary of the Carper children under the will of David Carper by requiring the debtor to turn over the funds of the children under his management and to file an accounting.
During the period August 27 through September 5, 1996, the debtor wrote a series of checks on his personal bank account no. XXX-1843 at Bank One, Lexington NA.
On August 27, 1996 he wrote check no. 7002 on his personal account payable to Bank One Lexington in the amount of $29,957.84. The check bears the memo “Merrill Lynch – Carper.” With these funds on September 6, 1996 the debtor acquired two Merrill Lynch checks each in the amount of $14,136.32 payable to “Floyd Carper TTEE U/W David Carper FOB Jessica L. Carper College Education Trust” and “Floyd Carper TTEE U/W David Carper FBO Travis M. Carper College Education Trust.”
On August 30, 1996 the debtor wrote check no. 7046 in the amount of $59,070.26 payable to himself bearing the memo “Deposit to XXXXX4902.” On September 5, 1996 he wrote check no. 7053 in the amount of $1,700.00 payable to “Perrin McGee, David Carper Children” bearing the memo “Deposit XXXXX4902.” These deposits totaled $60,770.26. According to the debtor’s letter of April 26, 1996 to attorney Stith this was Special Account #1 at Bank One in which he had deposited $89,873.56 when he cashed out the children’s investments in the American and Kemper funds. The share of each child was represented to be $44,936.78. On September 6, 1996 the debtor wrote a check in the amount of $61,600.92 on this Special Account No. 1 at Bank One payable to James W. Gardner, Escrow Account. Mr. Gardner is the attorney for Donald and Alicia Allen, the successor and current guardians of the children. There is no explanation of the discrepancy between the $89,873.56 represented to have been the amount on deposit in the account upon cash out of the children’s American and Kemper funds investments and the amount paid out of the account to Mr. Gardner’s escrow account.
On August 30, 1996 the debtor wrote check no. 7047 on his personal account at Bank One in the amount of $10,374.90 payable to himself and bearing the memo “Deposit into XXXXX4910.” On September 5, 19969 the debtor wrote check no. 7052 on his personal account at Bank One in the amount of $73,292.66 payable to “Perrin McGee Lovealee-Carper children,” bearing the memo “Deposit to XXXXX3910.” The account into which these checks were deposited is described in the debtor’s letter of April 26, 1996 as Special Account #2 at Bank One containing a balance as of that date of $78,397.24, being the monies the children received from the estate of their maternal grandmother Lovealee Travis. The amount of the deposits the debtor made into this account on August 30, 1996 and September 5, 1999 total $83,667.56. On September 6, 1996 the debtor wrote checks on this account in the amount of $10,748.44 and $73,192.66 payable to James W. Gardner, Escrow Account.
Including the two Merrill Lynch checks made payable to Mr. Carper as trustee and the three checks made payable to Mr. Gardner as counsel for the current guardians of the Carper children in compliance with the September 3, 1996 order of the Fayette District Court, the debtor remitted $173,814.66 to the children’s fiduciaries on September 6, 1996.
On October 3, 1996 Floyd W. Carper resigned as trustee of the trusts established by the will of David S. Carper for the Carper children, and, as permitted by KRS 395.326, appointed Central Bank & Trust Company as successor trustee. This designation of the bank as successor trustee was filed with the Fayette District Court, Probate division, on October 4, 1996.
The debtor, Perrin McGee, filed an accounting with the Fayette District Court, Probate Division, on October 11, 1996, in which he states that pursuant to orders of the court he tendered $173,814.66 in funds which, according to the report, represented funds invested by him on behalf of the minor Carper children.
The debtor, Lew Perrin McGee, filed a petition for relief under chapter 7 of the Bankruptcy Code in this court on February 5, 1997.
Robert J. Brown, the plaintiff in this adversary proceeding, is the duly appointed and qualified trustee of the debtor’s bankruptcy estate.
The tangible assets of the debtor’s bankruptcy estate were meager. It appears that the debtor used much of the money he bilked from investors during the operation of his Ponzi scheme to purchase outright or an interest in insurance agencies in Kentucky and other states in an attempt to build an empire, which, like his Ponzi scheme, collapsed.
On January 12, 1998 the debtor was indicted by a Fayette County Grand Jury on 41 counts of theft by deception, 54 counts of securities fraud, and 54 counts of sale of an unregistered security. On March 13, 1998 the debtor entered an Alford plea of guilty to 30 counts of theft by deception, a guilty plea to 7 counts of deception, and a guilty plea to 7 counts of sale of unregistered securities, for all of which the debtor is serving time in a Kentucky state prison.
The trustee commenced the present action on February 4, 1999 against the defendants Floyd Carper, Central Bank & Trust Company, unknown defendants #1 through #5, and the debtor, Lew Perrin McGee. Donald and Alicia Allen, the present co-guardians of the Carper children, are not named as defendants, nor is James W. Gardner the immediate transferee of some of the payments in question.
By his complaint the trustee seeks to recover the $173,814.66 paid to the defendant, Floyd W. Carper, or his intermediaries or successors in interest, by the debtor on September 6, 1996, which was within six months of the commencement of the debtor’s bankruptcy case on February 5, 1997.
The complaint alleges that the five payments totaling the above amount made by the debtor to the defendants on September 6, 1996 are avoidable and recoverable by the trustee under KRS 378.010 as transfers of property of the debtor made with actual intent to hinder, delay, or defraud creditors (Count 1 of the complaint); under KRS 378.020 as constructively fraudulent transfers of property of the debtor without fair consideration (Count II of the complaint); and under KRS 378.060 as preferential transfers of property of the debtor (Count V of the complaint).
Title 11 U.S.C. § 544(b) empowers a trustee in bankruptcy to stand in the shoes of an unsecured creditor of the debtor for the purpose of avoiding a transfer of property of the debtor that could be avoided by such creditor under state law. The reachback (limitation) period for avoiding fraudulent transfers of property of a debtor under Kentucky law is five years. KRS 413.120(12); the reachback period for avoiding preferential transfers of property of a debtor under Kentucky law is six months. KRS.378.070.
The complaint of the trustee also seeks to avoid and recover the payments in question under title 11 U.S.C. § 548(a)(1)(A) or 548(a)(1)(B) as actual or constructively fraudulent transfers of property of the debtor. (Counts III and IV of the complaint). The reachback period under this statute is one year.
The 90-day reachback period for avoidance and recovery by the trustee of preferential transfers of property of the debtor under the Bankruptcy Code, title 11 U.S.C. § 547, expired before the debtor filed bankruptcy. The trustee does not seek recovery of the payments in question under this federal preference statute.
CONCLUSIONS OF LAW:
The fact the debtor remitted the monies in question to the fiduciaries of the Carper children somewhat involuntarily under compulsion of an order of the state probate court mitigates against a finding that the payments in question were made by the debtor with intent to hinder, delay or defraud the unsecured creditors in whose shoes the trustee stands. The debtor’s failure to obey the order might have subjected him to imprisonment. The predominant motive of the debtor in making the payments involuntarily appears to have been to protect himself from further court action.
In his letters to the defendant Floyd W. Carper and to Mr. Carper’s attorney, Paul Darryl Stith, the debtor persisted in representations that the guardianship and trust funds of the children were invested in mutual funds or were deposited in special or segregated bank accounts, preliminary to investment in tax exempt funds. While Mr. Stith’s letter of August 6, 1996 and attorney James W. Gardner’s letter of August 9, 1996 indicate Mr. Carper had begun to suspect otherwise, there is no evidence Mr. Carper or his attorneys knew with certainty that in order to turn over the monies of the children entrusted to him for investment, the debtor would have to transfer funds from his personal bank account to the special or separate bank accounts in which he represented the trust and guardianship funds of the children were deposited. Mr. Stith’s letter of August 19, 1996 indicates that as of that date Mr. and Mrs. Carper were still reluctant to request court action against the debtor.
Whatever the motive of the debtor in making the payments in question, the court is unable to find that the payments were accepted by the defendants with actual intent to hinder, delay, or defraud creditors of the debtor. Mr. and Mrs. Carper were creditors of the debtor. It is not apparent they were intent on participating in a fraud on themselves. The court is convinced Mr. Carper dealt with the debtor in total trust and good faith, as indicated by Mr. Carper’s letters to the debtor. The debtor’s Ponzi scheme operation had not come to light at this time. As a transferee who took for value and in good faith, Mr. Carper warrants the protection provided by title 11 U.S.C. §548(c). The last sentence of KRS 378.010 provides similar protection for a transferee. For this reason the defendants are entitled to summary judgment dismissing Count I of the complaint grounded on KRS 378.010 and Count III of the complaint grounded on title 11 U.S.C. § 548(a)(1)(A).
The payments made by the debtor to the fiduciaries of the Carper children were in satisfaction of lawful antecedent debts owed by the debtor to the children. Transfers of property of the debtor in satisfaction of such antecedent debts cannot be avoided and recovered by the trustee as constructively fraudulent under title 11 U.S.C. § 548(a)(1)(B)(i), because they were transfers for reasonably equivalent value. 11 U.S.C. § 548(d)(2)(A). Nor can the payments be avoided and recovered as constructively fraudulent conveyances under KRS 378.020. See Farmers Bank & Trust Co. v. Peter’s, 226 Ky. 403, 11 S.W.2d 103 (Ky. Ct. App. 1928). Accordingly, the defendant fiduciaries are entitled to summary judgment dismissing Counts II and IV of the complaint.
Count V of the complaint (erroneously numbered as a second Count IV) is grounded on the Kentucky preference statute, which is as follows:
378.060. Preferential conveyance, encumbrance or other act in contemplation of insolvency – Effect – Exception. – Any sale, mortgage or assignment made by a debtor and any judgment suffered by a defendant, or any act or device done or resorted to by a debtor in contemplation of insolvency and with a design to prefer one or more creditors to the exclusion, in whole or in part, of others, shall operate as an assignment and transfer of all of the property of the debtor, and shall inure to the benefit of all his creditors, except as provided in subsection (2) of KRS 378.090, in proportion to the amount of their respective demands including those which are future and contingent.
The exception in the above statute incorporated by reference to subsection (2) of KRS 378.090 is as follows:
378.090. Distribution of assets by the court – Appeal. Preferred claims (1) . . .
(2) In the distribution of the assets of any debtor, after payment of the costs and expenses of the action, the debts due as guardian, personal representative or trustee, if the trust was created by deed or will duly recorded in the proper clerk’s office, shall have priority over the debts due general creditors.
The latter statute presents a problem of interpretation because of the dual meaning of the word “due” as used in the statute. As used at the end of the quoted sentence “the debts due general creditors” obviously means debts of the debtor owed to general creditors. As used earlier in the statute in the phrase “the debts due as guardian, personal representative, or trustee” the word “due” could mean debts of the debtor owing to a creditor as guardian, etc., or it could mean debts of the debtor owed as (in the capacity of) guardian, personal representative or trustee. The omission of the phrase “by the debtor” after the word “due” creates this problem in statutory construction.
For example, a similar statute appearing in Chapter 379 of the Kentucky Revised Statutes governing voluntary assignments reads as follows:
379.010. Voluntary assignments for benefits of creditors – Preferred claims. --
(3) Debts due by the assignor as guardian, committee, trustee of an express trust created by deed or will or as personal representative shall be paid in full before general creditors receive anything. (Underscoring supplied)
The latter statute makes clear, that what is meant is debts of the assignor due as a fiduciary must be paid first. The language of KRS 378.090 is not quite so clear.
In any event, the court will assume what is meant is debts owed by the debtor in the capacity of guardian, personal representative, or trustee.
Chapter 395 of the Kentucky Revised Statutes entitled Personal Representatives, does not define that term. It does define “fiduciary” to include any person “appointed by, or under the control of, or accountable to, the District Court,” “including” testamentary trustees and guardians. KRS 395.001. (Underscoring supplied). “Including” is not a limiting term. Certainly, in this instance, the Fayette District Court, which had exclusive jurisdiction of this probate matter, determined that the debtor was under the control of and was accountable to that court for the guardianship and trust funds of the Carper children in his possession. This court is of the opinion the Fayette District Court, in ordering a turnover of funds and an accounting by the debtor, to which the debtor did not object, necessarily determined the debtor was a personal representative or executor de son tort.
There was no appeal from the foregoing order. In such circumstances the state circuit courts are precluded from interfering with the exclusive jurisdiction of the district courts in probate matters. Riedinger v. Murphy, 337 S.W.2d 22 (Ky. Ct. App. 1960).
The court believes that because of the nefarious assistance which the debtor provided to Mr. Carper as guardian and trustee and because of the debtor’s intermeddling in the administration of the guardianship and trust fund monies of the Carper children, the debtor became a personal representative de son tort of the children and is therefore a personal representative within the meaning of KRS 378.090.
Kentucky recognizes the common-law doctrine of executor de son tort. For a discussion of this common-law doctrine see Executors and Administrators, 31 Am.Jur.2d §§ 34-51, pgs. 59-65; Executors and Administrators, 34 C.J.S. §§ 989-993, pgs. 778-784.
By not opposing the motion for turnover and an accounting of the trust and guardianship funds of the Carper children the debtor acknowledged he was liable as a personal representative of the children and thereby became an executor de son tort. Davis v. Connelly’s Executor, 43 Ky. 136 (1843). Kentucky recognizes as an executor de son tort someone who is not appointed as an executor who takes possession of property of the deceased. Johnston v. Duncan, 13 Ky. 163 (1823). An executor de son tort is liable as any other executor. Finnell v. Meavy, 66 Ky. 449 (1867). He must account for all of the assets of the deceased in his possession. Brown’s Executors v. Durbin’s Administrator, 28 Ky. 170, 172 (1830). An executor de son tort is subject to imprisonment if he fails to comply with an order of the district court to turn over and account for assets of the deceased of which he has taken possession. Rudd v. Rudd, 184 Ky. 400, 214 S.W. 791 (1919).
In view of the fact the payments made by the debtor on September 6, 1996 were in satisfaction of debts which he owed as a fiduciary of the Carper children, which under state law are entitled to priority in distribution, the court finds the payments did not result in preferential transfers of property of the debtor that are avoidable under the Kentucky preference statute.
The court recognizes that if these funds were ordered turned over to the trustee the claims of the defendant trustee and guardians would not enjoy priority in distribution under section 507 of the Bankruptcy Code, 11 U.S.C. § 507.
Because the court is interpreting a state preference statute, the court is deciding this matter in the manner the court believes a state court would decide the matter on the facts presented.
Dated this _____ day of November 2000
By the court –
JOE LEE, U.S. BANKRUPTCY JUDGE
Mary L. Fullington, Esq.
Robert J. Brown, Esq.
Kevin G. Henry, Esq.
James W. Gardner, Esq.
UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
LEW PERRIN MCGEE CASE NO. 97-50234
ROBERT J. BROWN, TRUSTEE PLAINTIFF
VS. ADVERSARY NO. 99-5033
FLOYD CARPER, ET AL. DEFENDANTS
In conformity with the memorandum opinion of the court this day entered, the court finds the complaint of the trustee in this adversary proceeding should be and hereby is DISMISSED.
Dated this _____ day of November 2000
By the court –
JOE LEE, U.S. BANKRUPTCY JUDGE
Mary L. Fullington, Esq.
Robert J. Brown, Esq.
Kevin G. Henry, Esq.
James W. Gardner, Esq.
 This change in the will was not made before the son died, but in affidavits of the Matthews concerning their conversations with the son prior to his death they advised the probate court of the son’s intent to change his will to name his father as initial guardian of the children.
 The debtor represented he could and would invest the monies in his retirement fund with Equitable. This was false because the debtor’s retirement fund was noncontributory so that even he could not contribute to the fund. He represented he could and would invest the monies in a special investment fund at Equitable available only to the company’s best agents. There was no such “special” investment fund available to the company’s best agent. He represented he could and would invest the monies at an annual rate of 8.5% over three years. There is no evidence such investments were ever made. He represented he could and would invest the monies in a bank in California that was making a limited special offer. There is no evidence of such a special offer having been made by a California bank. See Findings and Conclusions and Agreed Order entered into between the debtor and the Commonwealth of Kentucky Department of Financial Institutions on June 13, 1997.
 Title 11 U.S.C. §§ 545 and 547 are inapplicable and the court has determined the trustee is not entitled to recovery under § 544(b).
 This is a stockbroker liquidation case in which the claims of securities holders are to be satisfied first. The anticipated assets of the estate are insufficient to satisfy such claims. Thus, there is no possibility of recovery by the defendants of any portion of funds surrendered to the bankruptcy estate.