As a general rule, a bank acting as a “mere conduit” for funds, without any control over their ultimate disposition, is not liable in a fraudulent transfer suit. In a decision issued on August 27, 2010, the United States Court of Appeals for the Seventh Circuit considered this rule and, vacating the decisions of the bankruptcy and district courts, held that a bank acting as trustee for holders of asset securitization corporation commercial mortgage pass-through certificates was an “initial transferee” of certain repayments on the certificates and therefore the appropriate subject of an avoidance action to recover those sums.
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