In re Griffin Trading Co.

--- WL ---, No. 10-3607 (7th Cir. June 25, 2012)
Reversing the decisions of the District Court and Bankruptcy Court below, the Court ruled that the principals of the debtor entity were liable for breach of fiduciary duty not under Illinois law, as previously held by the courts below, or under the law of other countries, as argued by the principals, but as a result of admissions made by those same principals at trial. Moreover, the Court ruled that the breach of duty violated applicable Commodity Futures Trading Commission regulations regarding safeguarding customer funds in trading activity on foreign exchages, thus causing losses comprising recoverable damages.
Procedural context:
Appeal from the District Court for the Northern District of Illinois affirming decision of Bankruptcy Court for the Northern District of Illinois finding principals of debtor entity not liable in adversary proceeding by Chapter 7 Trustee for breach of fiduciary duty.
Customer of futures commission merchant incurred substantial losses, resulting in series of margin calls on merchant and customer. Merchant permitted payment to cover the margin call to upstream clearing broker with funds from accounts designated as segregated for other customers. Futures merchant filed bankruptcy case and Trustee subsequently brought action against its principals for breach of fiduciary duty for failing to prevent or rescind the transfer of the segregated funds.
Easterbrook, Wood, Tinder

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