Publication Date

Fall 2019

Journal

American Bankruptcy Law Journal

Abstract

"Mere conduit" is a legal fiction in fraudulent transfer and other avoidance cases. This article argues that the legal fiction is misleading, unnecessary and rendered obsolete by the Supreme Court's recent opinion in Merit Management Group v. FTI Consulting, Inc. (2018). The article further contends that a huge majority of leading cases confound fraudulent transfer law with the law of corporate theft. This error leads to depriving financial intermediaries of their opportunity to avoid liability on the ground of being bona fide transferees for value. Finally, courts often mistake banks as initial transferees of fraudulent transfers (absolutely liable in spite of good faith and value) when they are really transferees of the initial transferee (entitled to the good faith transferee for value defense). Courts paper over this error on an ad hoc basis by announcing that banks are mere conduits. Special scorn is reserved for Bonded Financial Services v. European American Bank (7th Cir. 1987), the leading case on "mere conduit," which will be revealed as contradictory. Bonded has led directly to the astonishing declaration in Meoli v. Huntington National Bank (6th Cir. 2017) that bad faith banks which service Ponzi schemes are innocent of liability for fraudulent transfers since they are "mere conduits." The goal of this article is to retire "mere conduit" from the lexicon forever.

Volume

93

Issue

3

First Page

475

Last Page

570

Publisher

National Conference of Bankruptcy Judges

Keywords

conduit, fraudulent transfer, fraudulent conveyance, conversion, deposit accounts, banking, bankruptcy, Ponzi schemes

Disciplines

Bankruptcy Law | Contracts | Education Law | Law

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