## Facts

- Griffin Trading Company, a Delaware commodities broker headquartered in Chicago with a London branch, executed trades on U.S. and non-U.S. exchanges.
- For non-U.S. market trades, customer funds were maintained in accounts at Griffin’s London office, regardless of customers’ residence.
- A London-based trader exceeded margin limits and incurred losses exceeding $10 million, leaving Griffin unable to meet regulatory financial requirements.
- Griffin filed a Chapter 7 bankruptcy case; customer accounts had a shortfall if distribution was limited to “customer property” as defined in the Bankruptcy Code.
- The Chapter 7 trustee, supported by the CFTC, sought authorization to treat essentially all estate assets as “customer property” under CFTC Regulation 17 C.F.R. § 190.08 to pay customers in full.
- MeesPierson, a general unsecured non-customer creditor, objected, arguing (i) English law should govern distribution for London-executed trades, and (ii) the CFTC lacked authority to expand “customer property” beyond the Bankruptcy Code’s definition in 11 U.S.C. § 761(10).

## Issues

1. Whether U.S. bankruptcy law or English law governs distribution of the estate to customers whose claims arose from London-executed trades, including the effect of contractual choice-of-law provisions.
2. Whether the CFTC exceeded its statutory authority by defining “customer property” in a manner that sweeps virtually all estate assets into customer property, altering the Bankruptcy Code’s distribution scheme.

## Decision

- The court held U.S. bankruptcy law governs distribution in the Chapter 7 commodity broker case, notwithstanding London trading activity and contractual choice-of-law clauses.
- The court held the CFTC exceeded its statutory authority to the extent its regulation expanded “customer property” beyond the Bankruptcy Code’s definition.
- The court denied the trustee’s motion to use all estate assets to pay customer claims in full.
- Distribution would proceed under the Bankruptcy Code’s framework: customers receive priority from statutory customer property, and any remaining shortfall is addressed by sharing in non-customer estate property with other general unsecured creditors.

## Legal Principles

- Bankruptcy distribution priorities are statutory; contractual choice-of-law provisions in customer agreements do not control the law governing distribution of a U.S. bankruptcy estate.
- In a commodity broker liquidation under Chapter 7, Subchapter IV (11 U.S.C. §§ 761–767) supplies the governing distribution scheme, including the Code’s definition of “customer property” in 11 U.S.C. § 761(10).
- An agency may promulgate regulations to implement a statute, but may not adopt rules that contradict or effectively rewrite Congress’s distribution framework.
- Regulations that collapse the statutory distinction between “customer property” and other estate property, and thereby eliminate the Code’s contemplated sharing with general unsecured creditors when customer property is insufficient, are unenforceable to that extent.

## Conclusion

The bankruptcy court applied U.S. bankruptcy law to the estate’s distribution and refused to enforce the CFTC’s broadened regulatory definition of “customer property” where it conflicted with the Bankruptcy Code, preventing customers from being paid in full from the entire estate and preserving pro rata participation rights for general unsecured creditors in non-customer property.


In re Griffin Trading Co., 245 B.R. 291 (Bankr. N.D. Ill. 2000)