In the summer of 2007, we reported on Gredd v. Bear, Stearns Securities Corp. (In re Manhattan Investment Fund, Ltd.),1 decided by the United States Bankruptcy Court for the Southern District of New York.

In Bear Stearns High-Grade Structured Credit Strategies Master Fund, Ltd.,1 the United States Bankruptcy Court for the Southern District of New York refused to allow the foreign representatives of two Bear Stearns funds2 to institute ancillary proceedings under new chapter 15 of the United States Bankruptcy Code. There, Judge Lifland held that, even though the Funds were in liquidation proceedings in the Cayman Islands, those proceedings constituted neither “foreign main” nor “foreign non-main” proceedings for purposes of the U.S.

While the Bankruptcy Code’s safe harbor provision in section 546(e) previously provided comfort for brokerdealers, the Bankruptcy Court’s decision in Gredd v. Bear, Stearns Securities Corp. (In re Manhattan Investment Fund, Ltd.), 359 B.R. 510 (Bankr. S.D.N.Y. 2007), chips away at this provision and creates new risks for those providing brokerage account services. Always at risk as a deep pocket, new duties have been thrust upon brokerdealers that go far beyond the terms of the account agreement.

Factual Background

Many of the cases we have reported on continue to be hotly debated among the parties and are subject to appeals or motions for reconsideration. In an effort to keep you updated, we have highlighted some of these developments below.

Musicland

As recently reported in our Fall 2007 issue, Judge Lifland’s decision in In re Bear Stearns High-Grade Structured Credit Strategies Master Fund, Ltd.,1 limited the ability of offshore funds in financial distress to utilize chapter 15 of the Bankruptcy Code.

In a recent decision, the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) granted protection over the U.S. assets of a Cayman Islands exempted company in liquidation. See Revised Order Recognizing Foreign Proceeding (the “Order”), In re Saad Investments Finance Company (No.5) Limited (“SIFCO5”), Case No. 09-13985 (KG) (Bankr. D. Del. Dec. 17, 2009) (Docket No. 47). The company, SIFCO5, is subject to official liquidation proceedings in the Cayman Islands, which the Bankruptcy Court found was eligible for relief under chapter 15 of the U.S.

Summary

On Tuesday, the FDIC held the first in a series of proposed roundtable discussions on the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which is intended to bring transparency to the rulemaking process. Government officials, industry executives, academics and investors were invited to participate in the discussion.

Yesterday afternoon, the House Judiciary Committee held Part II of its series of hearings entitled “Too Big to Fail – the Role for Bankruptcy and Antitrust Law in Financial Regulation Reform.” Yesterday’s hearing focused on proposed financia