## Facts

- Volume Investors Corporation (Volume) was a member of the Commodities Exchange, Inc. (COMEX), a member of Comex Clearing Association (CCA), and a futures commission merchant (FCM) registered with the Commodity Futures Trading Commission (CFTC).
- In its role as an FCM and as a COMEX/CCA member, Volume carried accounts for members of the public and for other FCMs.
- Flo-Arb Partners (Flo-Arb) was also a CFTC-registered FCM; to clear its COMEX trades, Flo-Arb placed its accounts with Volume and cleared through the CCA structure.
- Through a guarantee issued by Volume, Flo-Arb was permitted to act as a floor broker on COMEX.
- Flo-Arb’s general partners, Ronny Apfel and Abraham (A.R./Ramy) Goldstein, had prior market experience and knew futures trading involved high risk.
- Volume permitted certain customers to maintain large gold futures positions without sufficient margin; when gold prices moved sharply, those customers could not meet margin calls.
- As those customers defaulted, Volume could not satisfy margin demands owed to CCA, leading to Volume’s financial collapse.
- Flo-Arb was not among the Volume customers who failed to meet margin requirements, but it asserted claims arising out of the collapse and the handling of positions in the receivership period.
- A temporary receiver appointed by the federal district court liquidated Volume’s positions; a receiver then proceeded to wind up Volume’s estate and make distributions to Volume’s customers.
- Flo-Arb filed federal court claims against CCA (which acted as successor to the receiver/Volume for certain purposes) and also pursued claims against Volume; those claims became a major obstacle to concluding the windup and distributing the estate.

## Issues

1. Whether, in the receivership and windup of Volume’s insolvent estate, Flo-Arb could shift losses connected to Volume’s collapse to CCA/Volume and obtain a recovery different from other victims of the collapse.
2. How the court should allocate losses among Volume’s customers and other claimants in light of the COMEX/CCA clearing framework, the parties’ clearing relationship, and equitable receivership considerations.

## Decision

- The court rejected Flo-Arb’s attempt to obtain a preferred recovery from CCA/Volume based on Volume’s collapse and the post-collapse administration of accounts and positions.
- The court treated Flo-Arb as a knowledgeable market participant that chose to clear through Volume and accepted the benefits and risks of that arrangement.
- Exercising its authority in the receivership, the court resolved the dispute in a manner that permitted the receiver and CCA (as successor to the receiver/Volume) to complete the windup and proceed with distributions without granting Flo-Arb the priority or recovery it sought.

## Legal Principles

- In an FCM insolvency administered through a federal equity receivership, the court may resolve competing claims by considering both the contractual/market structure (including exchange and clearing arrangements) and equitable treatment of similarly situated claimants.
- A clearing and carrying relationship can place the risk of an intermediary’s default on the party that chose that relationship, especially where the claimant is an FCM operating for its own account rather than a retail customer seeking customer-protection remedies.
- Equity generally disfavors giving a professional market intermediary a special payment position where doing so would reduce recoveries available to the broader group of customers harmed by the collapse.
- A receiver (and a successor acting on the receiver’s behalf) may oppose claims that would impede an orderly liquidation and distribution, and the court may reject claims that would distort the distribution scheme for the estate.

## Conclusion

Comex Clearing Association, Inc. v. Flo-Arb Partners addressed the aftermath of Volume’s collapse as a COMEX clearing member and FCM. With the estate in receivership and distributions pending, Flo-Arb’s litigation sought to place its losses on CCA/Volume and obtain a better recovery than other victims. The court denied that effort, reasoning that Flo-Arb’s role as an experienced FCM that chose to clear through Volume did not justify a preferred result, and it resolved the dispute so the receiver could finish the windup and distribute the estate on a fair basis.


Comex Clearing Association, Inc. v. Flo-Arb Partners, 711 F. Supp. 1169 (1989)