In re Griffin Trading Company

Griffin Trading Company (Griffin) (debtor) was a commodities broker. Griffin traded and cleared trades on the Chicago Mercantile Exchange as well as the London Clearing House and the London International Financial Futures and Options Exchange. For Griffin’s trades involving non-U.S. exchanges, customer funds were held on account in its London office, regardless of whether the customer was located in or had contact with London. In December 1998, a rogue trader, John Ho Park, through the assistance of a third party, traded in excess of his margin limits. The markets moved against Park, who lost more than $10 million overnight. This resulted in Griffin being unable to meet the minimum financial requirements imposed by the Commodity Futures Trading Commission (CFTC), as well as the requirements of United Kingdom regulators. Griffin was placed into Chapter 7 bankruptcy. There were insufficient funds in Griffin’s customers’ accounts to pay all customers in full. If all bankruptcy-estate funds were utilized, however, the customers would be paid in full. The bankruptcy trustee filed a motion seeking authority to use all of the bankruptcy estate’s assets to pay Griffin’s customers, which in effect would result in there being nothing left to pay all general unsecured creditors. In doing so, the trustee relied on the Bankruptcy Code’s provisions providing that commodity customers receive the highest priority in the distribution of segregated customer accounts and other “customer property” in the commodity broker’s bankruptcy estate. The trustee also relied on 17 C.F.R. § 190.08, in which the CFTC provided that if there was a shortfall of customer property as defined in the Bankruptcy Code, virtually all other estate property could be considered customer property. One general unsecured creditor, MeesPierson N.V., objected to the trustee’s motion, arguing that the CFTC’s definition of customer property impermissibly expanded the definition of customer property under the Bankruptcy Code and, therefore, the narrower definition in the Bankruptcy Code must apply.