In Kelley v. Safe Harbor Managed Account 101,
Ltd.,1 the Eighth Circuit Court of Appeals endorsed
a broad view of parties protected from avoidance claims related to
certain derivative and financial contracts (“QFCs”),
including a securities contract (e.g., purchase and sale
of securities).
In a case arising from the Thomas Petters Ponzi scheme, the St.
Louis-based appellate court found that (a) a note purchase
agreement “fit plainly” within the statutory definition
of a securities contract (e.g., purchase and sale of a
security),2 and (b) the customer of a financial
institution is a safe harbor-protected entity if the financial
institution acts as a custodian for the customer.3
In its ruling, the Eighth Circuit becomes the first Circuit
Court to endorse the Second Circuit Court of Appeals’ view,
espoused in its Tribune decision,4 that bank
customers are within the protections afforded parties to a safe
harbor-protected transaction if the bank acts as agent or custodian
for the customer.
The Bankruptcy Code provides broad protections to specified
parties under QFCs, including nonavoidance of related transfers,
including margin and settlement payments. See, e.g., 11
U.S.C. § 546(e) (transfers related to securities contracts).
Financial institutions (e.g., banks) and financial
participants (e.g., entities conducting certain high-value
transactions) are among the protected parties. The safe harbor
provisions are broadly worded with the goal of…
