Lehman Brothers Financial SA (LEHNQ)

[cottonisking]

"JPMorgan ultimately applied
the Disputed Collateral Transfers to safe harbored contracts, but the Plaintiffs argued that the
Disputed Collateral Transfers were not protected by section 546(e) because at the time the
transfers were made, they “had nothing to do with” JPMorgan’s exposure under the Clearance
Agreement or any derivatives contracts."


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Another key issue addressed by the Court was whether the Disputed Collateral Transfers were
transfers made in connection with safe harbored securities contracts. JPMorgan ultimately applied
the Disputed Collateral Transfers to safe harbored contracts, but the Plaintiffs argued that the
Disputed Collateral Transfers were not protected by section 546(e) because at the time the
transfers were made, they “had nothing to do with” JPMorgan’s exposure under the Clearance
Agreement or any derivatives contracts.6 In essence, the Plaintiffs argued that JPMorgan should
not be permitted to retroactively sanitize the Disputed Collateral Transfers by applying them to safe
harbored contracts. The Court disagreed, finding that section 546(e)’s requirement that a transfer
be “in connection with” a securities contract does not contain a temporal requirement. Accordingly,
the Court held that LBHI and the Committee could not avoid the Disputed Collateral Transfers
because they were made in connection with safe harbored agreements.