Bankruptcy — breach of fiduciary duty

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United States Court of Appeals For the Seventh Circuit

Civil

Bankruptcy — breach of fiduciary duty

Where fiduciaries failed to stop a wire transfer of client funds to satisfy their own obligations, they breached their fiduciary duty.

“At the second trial, Farrel testified that Griffin Trading’s London account of segregated customer funds existed to secure customer activity out of its London office; that is, those funds were supposed to ‘satisfy all of its current obligations to foreign futures.’ This means that all of the money in that account was subject to the strictures of § 30.7. Yet the CFTC reported that, at the close of the day on December 22, Griffin Trading’s account was underfunded by over $7 million. Because the margin call was valued at approximately $3 million, the entire transfer must have been made using customer funds. And, despite the bankruptcy court’s concern, this would be the case whether or not the $7 million shortfall was the reason for the pending wire transfer. Furthermore, Park’s account with Griffin Trading was running a deficit at the time of the wire transfer, and so it cannot be the case that Griffin Trading used Park’s money to satisfy the margin call. (If Park’s account had not been in the red, it would have been perfectly allowable for Griffin Trading to draw on it, since, as we explained earlier, the debt was actually Park’s.) This evidence demonstrates that Griffin Trading necessarily used restricted funds that its customers had entrusted to it in order to satisfy its own obligations to MeesPierson.”

Reversed and Remanded.

10-3607 In re Griffin Trading Co.

Appeal from the United States District Court for the Northern District of Illinois, Castillo, J., Wood, J.