The Seventh Circuit has explicitly adopted the Second Circuit’s broad interpretation of the terms “transfer” and “settlement payment” in the Bankruptcy Code’s safe harbor provisions. See Peterson v. Somers Dublin Ltd., No. 12-2463, --- F.3d ----, 2013 WL 4767495 (7th Cir. Sept. 6, 2013) (citing In re Quebecor World (USA) Inc., 719 F.3d 94 (2d Cir. 2013); Enron Creditors Recovery Corp. v. Alfa, S.A.B. de C.V., 651 F.3d 329 (2d Cir. 2011)).
In that case, the trustee of a bankrupt Ponzi scheme sought to avoid and recover payments made to investors as constructively fraudulent transfers. The transferee-defendants were granted summary judgment based on section 546(e) of the Bankruptcy Code, which protects “transfers” or “settlement payments” made to financial participants in connection with a securities contract, except in cases of actual fraud. The trustee appealed, arguing that the legislative history of section 546(e) indicated that it was only intended to protect honest investors where a leveraged buy-out or similar transaction technically rendered a firm insolvent. The Seventh Circuit declined to restrict section 546(e) in this way. Instead, it cited and joined in the Second Circuit’s broad interpretations of “transfer” and “settlement payment” to find that the payments at issue were indeed protected by the plain language of the section 546(e) safe harbor.