CFTC v. Lake Shore Asset Management Ltd. (Claims Procedure)
646 F.3d 401 (7th Cir. 2011)
CFTC v. Lakeshore Asset Management Ltd. (“LSAM”) is an important case because it defines the rule for the acceptance of late-filed claims in federal receiverships in the 7th circuit. The order appointing the receiver for LSAM provided that late claims would be barred “unless they can demonstrate to the [District] Court good cause for the delay, all reasonable diligence in submitting the information at the earliest possible date thereafter, and absence of any prejudice to the receivership estate.” However, the court found that the proper standard was “excusable neglect” a lower standard which requires weighing the strength of the excuse against the prejudice to the receivership estate. However Judge Posner, writing for the 7th Circuit, found that the investor, an Andorran bank, could not meet even this lower standard because it had actual notice of the case against LSAM, and the claim for was delivered to the bank by FedEx, and that the fact that the claim form did not include the name of the officer at the bank who was in charge of the investment in LSAM in the address was no excuse.
The case also involved an appeal by another investor who claimed they were a creditor and should have priority over other investors. However, the court found that, although LSAM gave investors the option of investing in shares of the commodity pools or having their investment placed in a separate “portfolio management account” of which LSAM would be custodian, there was no functional difference between the two arrangements, and therefore the investor should not be given priority as a creditor.