As for insider status—at least in the Ninth Circuit, an entity who is not automatically an insider is considered one if (1) the closeness of its relationship with the debtor is comparable to that of the enumerated insider classifications in the Bankruptcy Code; and (2) the relevant transaction is negotiated at less than arm’s length.
If the entity conducting the transfer was solvent and the money was clean at the time of transfer, then the nonprofit should be in the clear. Doesn’t matter if the donor (or the donor’s officers in their capacity as such) later committed fraud, or the donor later became insolvent. If potential taint exists, it is based on the time of transfer.
This is generally true even if the donor’s officers are on the board of the nonprofit. There’s no general legal basis of which I am aware to hold a nonprofit financially responsible for the criminal or fraudulent actions of its directors if those were (1) outside the scope of the directors’ work with the nonprofit and (2) not the subject of tort liability for another reason.
Likewise, if the entity conducting the transfer was insolvent, then the fact that the nonprofit was wholly independent may offer limited protection to the nonprofit. Generally, to get protection, there needs to be an exchange of reasonably equivalent value.
Insider status does have relevance—for example, the 90-day period for clawing back preferences under 11 USC 547 is extended to one year under 11 USC 547(b)(4)(B). However, even then, if the insider transferee transfers to a non-insider, you can only go after the non-insider if the initial transfer was made within 90 days of the filing. See 11 USC 550(c). So while it is definitely better for the nonprofit to be a non-insider, the significance may not be as great as one might think. I’m not aware of any clear relevance to the FTX case, although I haven’t thought about it that much.
As for insider status—at least in the Ninth Circuit, an entity who is not automatically an insider is considered one if (1) the closeness of its relationship with the debtor is comparable to that of the enumerated insider classifications in the Bankruptcy Code; and (2) the relevant transaction is negotiated at less than arm’s length.
If the entity conducting the transfer was solvent and the money was clean at the time of transfer, then the nonprofit should be in the clear. Doesn’t matter if the donor (or the donor’s officers in their capacity as such) later committed fraud, or the donor later became insolvent. If potential taint exists, it is based on the time of transfer.
This is generally true even if the donor’s officers are on the board of the nonprofit. There’s no general legal basis of which I am aware to hold a nonprofit financially responsible for the criminal or fraudulent actions of its directors if those were (1) outside the scope of the directors’ work with the nonprofit and (2) not the subject of tort liability for another reason.
Likewise, if the entity conducting the transfer was insolvent, then the fact that the nonprofit was wholly independent may offer limited protection to the nonprofit. Generally, to get protection, there needs to be an exchange of reasonably equivalent value.
Insider status does have relevance—for example, the 90-day period for clawing back preferences under 11 USC 547 is extended to one year under 11 USC 547(b)(4)(B). However, even then, if the insider transferee transfers to a non-insider, you can only go after the non-insider if the initial transfer was made within 90 days of the filing. See 11 USC 550(c). So while it is definitely better for the nonprofit to be a non-insider, the significance may not be as great as one might think. I’m not aware of any clear relevance to the FTX case, although I haven’t thought about it that much.