The test for good faith under Section 548(c) is not whether the defendant was guilty of any sort of bad faith in requesting and receiving the transfer.

The test is whether the defendant obtained a transfer after learning of a “red flag” which, under an “objective” standard, should have put the defendant on “inquiry notice” of some infirmity in the debtor or the integrity of the debtor's management. The rule does not require that the “red flag” be of such specificity as to put the recipient on “inquiry notice” of the actual fraud, or embezzlement, or looting, or whatever ultimately proves to be the cause of loss. It is sufficient if the red flag puts the defendant on notice of some potential infirmity such that a reasonable investor would recognize the need to conduct some investigation.

The “diligent investigation” is required not because of any duty to inquire owed to a third party. It is required only to prove the plausibility of the defendant’s asserted good faith reason for completing the transfer independent of the red flag, notwithstanding his knowledge of the red flag, by showing that the facts learned upon inquiry reasonably allayed any concern raised by the red flag.

In a fraudulent transfer case, specificity in pleading fraud (i.e., the property that was allegedly conveyed, the timing and frequency of those allegedly fraudulent conveyances, [and] the consideration paid) is required for actual fraud claims, but not constructive fraud claims.

To establish that a series of transactions should be collapsed for fraudulent transfer purposes, the plaintiff must prove that the defendants had actual or constructive knowledge of the debtor/s plan to make transfers to affiliates. The plaintiff must allege some specific facts that support an inference of such knowledge. Conclusory allegations of insolvency or inadequate consideration are insufficient for this purpose.