Securities Clearing Firms: Beware Fraudulent Transfers

Law360, New York (August 3, 2012, 1:08 PM EDT) -- On July 3, 2012, the United States Court of Appeals for the Second Circuit refused to vacate an arbitration award against Goldman Sachs Execution & Clearing LP. The court left intact the arbitration panel’s finding that the clearing firm was liable as the “initial transferee” of a fraudulent transfer by a customer engaged in a Ponzi scheme.

The Second Circuit’s decision weakens the “mere conduit” defense that has traditionally shielded clearing firms from fraudulent transfer claims, and may increase the risk associated with accepting deposits from...
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