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Keywords

contractsettlementappealtrustbankruptcy
contractsettlementappealtrustbankruptcy

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Peterson v. Somers Dublin Ltd., 729 F.3d 741, 58 Bankr.Ct.Dec. 114, Bankr. L. Rep. P 82,548

Facts

After the Lancelot hedge funds collapsed in late 2008, the trustee in bankruptcy filed adversary actions against investors who redeemed shares before the bankruptcy, claiming they received preferential transfers or fraudulent conveyances. The funds had invested in notes issued by Thousand Lakes, LLC, which was operated by Thomas Petters, who was running a Ponzi scheme. The trustee argued that the investors' redemptions constituted recoverable transfers under the Bankruptcy Code, but the bankruptcy court found that the transfers were protected under the safe harbor provision of the Code.

After the Lancelot hedge funds collapsed in late 2008, the trustee in bankruptcy filed adversary actions against investors who redeemed shares before the bankruptcy, claiming they received preferential transfers or fraudulent conveyances.

Issue

Whether the transfers made to investors by the hedge funds could be avoided by the trustee under the Bankruptcy Code, specifically in light of the safe harbor provisions.

Whether the transfers made to investors by the hedge funds could be avoided by the trustee under the Bankruptcy Code, specifically in light of the safe harbor provisions.

Rule

Under 11 U.S.C. § 546(e), a trustee may not avoid a transfer made to a financial participant in connection with a securities contract, except under 11 U.S.C. § 548(a)(1)(A) for actual fraud.

Under 11 U.S.C. § 546(e), a trustee may not avoid a transfer made to a financial participant in connection with a securities contract, except under 11 U.S.C. § 548(a)(1)(A) for actual fraud.

Analysis

The court determined that the transfers to the investors were indeed settlement payments made in connection with a securities contract, thus falling under the protection of the safe harbor provision. The trustee did not invoke the actual fraud exception, which would have allowed for recovery of the transfers. The court emphasized that the statutory language must be applied as written, and the transfers could not be avoided under the circumstances presented.

The court determined that the transfers to the investors were indeed settlement payments made in connection with a securities contract, thus falling under the protection of the safe harbor provision.

Conclusion

The Court of Appeals affirmed the bankruptcy court's ruling, concluding that the transfers were protected under the safe harbor provision of the Bankruptcy Code and could not be recovered by the trustee.

The Court of Appeals affirmed the bankruptcy court's ruling, concluding that the transfers were protected under the safe harbor provision of the Bankruptcy Code and could not be recovered by the trustee.

Who won?

Investors prevailed in the case because the court found that the transfers they received were protected under the safe harbor provisions of the Bankruptcy Code.

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