In the

United States Court of Appeals

For the Seventh Circuit ____________________

Nos. 12-2463, 12-2464, 12-2493, 12-2494 & 12-2495

RONALD R. PETERSON, as Trustee for the estates of Lancelot 

Investors Fund, L.P., and related entities,

Plaintiff-Appellant,

v.

SOMERS DUBLIN LTD., et al.,

Defendants-Appellees.

____________________

Appeals from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 08 B 28225 — Jacqueline P. Cox, Bankruptcy Judge.

____________________

ARGUED APRIL 8, 2013 — DECIDED SEPTEMBER 6, 2013

____________________

Before EASTERBROOK, Chief Judge, and BAUER and SYKES,

Circuit Judges.

EASTERBROOK, Chief Judge. After Gregory Bell’s mutual 

funds, known as the Lancelot or Colossus group (collectively 

“the Funds”), folded in late 2008, their trustee in bankruptcy 

filed many independent suits or adversary actions seeking to 

recover from solvent third parties. Last year we considered 
Nos. 12-2463 et al. 2

the Trustee’s claims against the Funds’ auditor. Peterson v. 

McGladrey & Pullen, LLP, 676 F.3d 594 (7th Cir. 2012). These 

appeals concern the Trustee’s claims against some of the 

Funds’ investors, which the Trustee believes received preferential transfers or fraudulent conveyances. Another appeal, 

also decided today, addresses a suit against one of the 

Funds’ law firms.

The Funds invested in notes issued by Thousand Lakes, 

LLC, and other ventures operated by Thomas Petters. For 

simplicity we refer to Thousand Lakes as the only borrower. 

Although Bell may have believed at the outset that Thousand Lakes was a commercial factor—that is, a lender financing other businesses’ inventory—Petters did not have customers and was running a Ponzi scheme, paying old investors with newly raised money. Ponzi schemes must grow to 

survive, and eventually they collapse when they cannot 

maintain the necessary growth. See Saul Levmore, Rethinking 

Ponzi-Scheme Remedies in and out of Bankruptcy, 92 Boston U. 

L. Rev. 969 (2012).

In fall 2007 Thousand Lakes stopped remitting money to 

the Funds. It contended that Costco, a customer, had been 

late in paying; the Funds extended the notes’ due dates. By 

February 2008 Thousand Lakes still had not paid, and Bell at 

last discovered the problem. (He may have learned earlier, 

or been wilfully blind to what Petters was doing, but we 

need not decide.) Instead of taking the news to prosecutors, 

Bell began operating the Funds as a second-tier Ponzi 

scheme. He placed “new” investments with Thousand 

Lakes, which used the money the same day to repay outstanding notes. These round-trip transactions meant that the 

Funds were not receiving any net cash from Thousand Lakes 
3 Nos. 12-2463 et al.

and thus needed to pay their own investors, when they

sought to redeem shares, with newly raised money. But by 

fall 2008 that was no longer possible. Both the Funds and 

Petters’s empire collapsed; about 60% of the roughly $2.5 billion nominally held by the Funds had been stolen or disappeared. Bell pleaded guilty to fraud and was sentenced to 37 

months’ imprisonment. Petters denied liability but was convicted after a trial and sentenced to 50 years’ imprisonment. 

United States v. Petters, 663 F.3d 375 (8th Cir. 2011).

The Trustee contends in the current proceedings, filed as 

adversary actions in the Funds’ bankruptcy, that investors 

who redeemed shares before the bankruptcy received preferential transfers, 11 U.S.C. §547, or fraudulent conveyances, 

11 U.S.C. §548(a)(1)(B). The Trustee also invoked the Illinois 

fraudulent-conveyance statute, using the avoiding power of

11 U.S.C. §544. These parts of the Bankruptcy Code allow 

trustees to recoup payouts for the benefit of all creditors. The 

bankruptcy judge granted summary judgment to the investors, 467 B.R. 643 (Bankr. N.D. Ill. 2012), relying on 11 U.S.C. 

§546(e), which provides:

Notwithstanding sections 544, 545, 547, 548(a)(1)(B), and 

548(b) of this title, the trustee may not avoid a transfer that 

is a margin payment, as defined in section 101, 741, or 761 

of this title, or settlement payment, as defined in section 

101 or 741 of this title, made by or to (or for the benefit of) 

a commodity broker, forward contract merchant, stockbroker, financial institution, financial participant, or securities clearing agency, or that is a transfer made by or to (or 

for the benefit of) a commodity broker, forward contract 

merchant, stockbroker, financial institution, financial participant, or securities clearing agency, in connection with a 

securities contract, as defined in section 741(7), commodity 
Nos. 12-2463 et al. 4

contract, as defined in section 761(4), or forward contract, 

that is made before the commencement of the case, except 

under section 548(a)(1)(A) of this title.

Deleting words not relevant to the current dispute, and 

omitting ellipses, we have: “the trustee may not avoid a settlement payment or transfer made to a financial participant 

in connection with a securities contract, except under section 

548(a)(1)(A) of this title.”

The bankruptcy court entered its decision on May 11, 

2012, and on May 24 the Trustee appealed to the district 

court. The Trustee and the defendants agreed to request direct review by this court, bypassing a district judge, as 28 

U.S.C. §158(d) allows. Certifications under Fed. R. Bankr. P. 

8001(f) were filed on June 19 and 20, and a joint petition under Fed. R. App. P. 5 was filed on July 16. This court authorized the appeals but directed the parties to discuss whether 

they are timely. That is the first question we must address—

and, if the papers are late, we must decide whether any 

problem is a jurisdictional defect.

An interlocutory appeal from a bankruptcy judge’s decision to the court of appeals requires three steps: first a certification by the bankruptcy judge, district judge, or the parties acting jointly; second a petition to the court of appeals 

under Rule 5; and finally a discretionary decision by the 

court of appeals. Bankruptcy Rule 8001(f)(3)(A) says that a 

“request” for certification must be filed “within the time 

specified by 28 U.S.C. § 158(d)(2)”. This provision governs 

requests by a party to a judge. Rule 8001(f)(4) covers certification on a judge’s initiative. As far as we can see Rule 8001 

does not set a time limit for certification on a judge’s initiative or by agreement of the litigants. In re American Mortgage 
5 Nos. 12-2463 et al.

Holdings, Inc., 637 F.3d 246, 254 (3d Cir. 2011), says that the 

outer limit for the parties’ joint certification is 60 days, which 

it drew from §158(d)(2)(E). But that provision deals with a 

request to a judge, not with the litigants’ joint certification. 

Section 158(d)(2)(E) reads: “Any request under subparagraph (B) for certification shall be made not later than 60 

days after the entry of the judgment, order, or decree.” Subparagraph (B) deals with judicial certification, while subparagraph (A) is what authorizes certification by the parties.

We have considered the possibility that Rule 5(a)(2) supplies a time limit. It reads: “The petition must be filed within 

the time specified by the statute or rule authorizing the appeal or, if no such time is specified, within the time provided 

by Rule 4(a) for filing a notice of appeal.” Because Bankruptcy Rule 8001(f) does not supply a time, Appellate Rule 

5(a)(2) sends us to Appellate Rule 4(a), which specifies 30 

days. By that standard, the joint certification would be late. 

But Rule 5(a) deals with petitions for leave to appeal—the 

second step in the process under §158(d)—rather than with 

certifications by judges or litigants. The parties’ petition under Rule 5(a) came within 30 days of the joint certification, so 

Rule 5(a) has been satisfied.

This leaves the conclusion that there is no time limit for a 

joint certification. Probably none is necessary. If the parties 

take too long, the court of appeals can deny the petition for 

interlocutory review. But whether or not a time limit would 

be a good idea, a court must follow the statute and rules as 

written. See, e.g., Spivey v. Vertrue, Inc., 528 F.3d 982 (7th Cir. 

2008).

If we are wrong about this, and there is either a 30-day 

limit from Rules 4(a) and 5(a) or a 60-day limit from 
Nos. 12-2463 et al. 6

§158(d)(2)(E), we still would hear these appeals, which present legal issues not yet addressed in this circuit. If the limit 

is 60 days, the certifications are timely. And if the limit is 30 

days, none of the parties has asked us to dismiss the appeal 

on that account. The time established by Rule 5(a) is not a 

limit on appellate jurisdiction. See In re Turner, 574 F.3d 349, 

354 (7th Cir. 2009).

Statutory time limits for appeal can be jurisdictional, 

see Bowles v. Russell, 551 U.S. 205 (2007), but time limits in 

the Rules of Appellate Procedure are not. See United States v. 

Neff, 598 F.3d 320 (7th Cir. 2010); Carter v. Hodge, No. 13-2243 

(7th Cir. Aug. 8, 2013). See also Kontrick v. Ryan, 540 U.S. 443 

(2004) (time limits in Federal Rules of Bankruptcy Procedure 

are not jurisdictional). A mandatory, though nonjurisdictional, rule must be enforced if a party invokes its 

protection, but no one wants us to dismiss these appeals.

A second issue potentially affects jurisdiction. Stern v. 

Marshall, 131 S. Ct. 2594 (2011), holds that bankruptcy judges, who lack tenure under Article III of the Constitution, 

cannot entertain certain actions by debtors or trustees in 

bankruptcy. We concluded in In re Ortiz, 665 F.3d 906 (7th 

Cir. 2011), that, when a bankruptcy judge is not entitled to 

enter a dispositive order, 28 U.S.C. §158(d) does not allow 

the court of appeals to review the decision; instead the case 

must be heard initially by a district judge.

The parties, well aware of Stern, sought to eliminate any 

problem by consenting to the bankruptcy court’s exercise of 

jurisdiction. It is established that parties may consent to the 

entry of final decision by a magistrate judge under 28 U.S.C. 

§636(c), followed by an appeal that bypasses the district 

court, even though a magistrate judge lacks Article III ten-
7 Nos. 12-2463 et al.

ure. See, e.g., Roell v. Withrow, 538 U.S. 580 (2003); Geras v.

Lafayette Display Fixtures, Inc., 742 F.2d 1037 (7th Cir. 1984); 

Gibson v. Gary Housing Authority, 754 F.2d 205 (7th Cir. 1985). 

The parties assumed that consent to decision by a bankruptcy judge would be treated the same way. But a panel stated

in Wellness International Network, Ltd. v. Sharp, No. 12-1349 

(7th Cir. Aug. 21, 2013), that Article III forbids decision by a 

bankruptcy judge on the basis of a party’s waiver.

The issue in Wellness International Network was forfeiture 

rather than waiver. None of the parties objected to the bankruptcy judge’s handling of the case until it reached the district court, when the loser in the bankruptcy court first relied 

on Stern. A case pending in the Supreme Court—In re Bellingham Insurance Agency, Inc., 702 F.3d 553 (9th Cir. 2012), 

cert. granted under the name Executive Benefits Insurance 

Agency v. Arkison, 133 S. Ct. 2880 (2013) (No. 12-1200)—

likewise arises from a belated objection rather than a unanimous consent.

Wellness International Network did not discuss this circuit’s 

decisions in Geras or Gibson, which hold that consent on the 

record authorizes decision by an untenured magistrate 

judge, even though the parties’ failure to object does not. The 

panel also reserved judgment on the constitutionality of 28 

U.S.C. §157(c)(2), which authorizes the parties to consent to 

adjudication by a bankruptcy judge of certain proceedings 

that otherwise would go to a district judge. Wellness International Network, slip op. 39. So we think the effect of an express and mutual waiver open in this circuit. Given the grant 

of certiorari in Executive Benefits Insurance Agency, the fact 

that the parties have not filed briefs discussing the distinction between waiver and forfeiture, and the fact that the 
Nos. 12-2463 et al. 8

bankruptcy court’s authority over these proceedings does 

not depend on consent, we do not try to resolve today

whether waiver and forfeiture should be treated the same 

way.

The current dispute comes within a bankruptcy judge’s 

authority, notwithstanding Stern, because all of the defendants submitted proofs of claim as the Funds’ creditors and 

thus subjected themselves to preference-recovery and fraudulent-conveyance claims by the Trustee. See 11 U.S.C.

§502(d). The Supreme Court held in Katchen v. Landy, 382 

U.S. 323, 329–36 (1966), and Langenkamp v. Culp, 498 U.S. 42, 

44–45 (1990), that Article III authorizes bankruptcy judges to 

handle avoidance actions against claimants. See also Granfinanciera S.A. v. Nordberg, 492 U.S. 33, 57–59 (1989). Stern stated that its outcome is consistent with those decisions. 131 S. 

Ct. at 2616–18. Wellness International Network likewise observes (slip op. 44–45) that there is no constitutional problem 

when a bankruptcy judge adjudicates a trustee’s avoidance 

actions against creditors who have submitted claims. The 

bankruptcy judge thus acted within her authority, and 28 

U.S.C. §158(d) allows a direct appeal.

To the merits. Here again is the short version of §546(e): 

“the trustee may not avoid a settlement payment or transfer 

made to a financial participant in connection with a securities contract, except under section 548(a)(1)(A) of this title.”

The Trustee does not deny that entities that invested in the 

Funds were “financial participants”—a term that 11 U.S.C. 

§101(22A) defines as an investor whose stake exceeds $1 million, which was the Funds’ minimum-purchase requirement—or that, when the Funds redeemed some or all of an 

investor’s holdings, a “transfer [was] made” to that investor. 
9 Nos. 12-2463 et al.

It seems to follow that the transfer cannot be recovered “except under section 548(a)(1)(A) of this title.” That subparagraph covers a payment “made ... with actual intent to hinder, delay, or defraud any entity to which the debtor was or 

became ... indebted”.

The Trustee did not rely on §548(a)(1)(A) in the bankruptcy court or his appellate briefs. At oral argument the 

Trustee confirmed that he made a conscious choice not to 

invoke the exception. We are puzzled by that decision, because “actual intent to ... defraud” seems an apt description 

of a Ponzi scheme’s payouts. The round-trip transactions 

that began in February 2008 extended the life of the Petters 

scam and turned the Funds themselves into a Ponzi scheme. 

Such schemes can operate only as long as they pay existing 

investors’ claims. Once they stop paying old investors, new 

investments stop coming in and the scams collapse. Thus 

ongoing payments are integral to the fraud. Although some 

of the payments the Trustee wants to recover predate February 2008, the Trustee has contended in other litigation that 

Bell knew the truth about Petters’s business earlier; and, at 

all events, even if the §548(a)(1)(A) exception to §546(e) were 

available only for payments the Funds made after Bell threw 

in with Petters, still some recovery is better than none. The 

Trustee said at oral argument that he understands the exception to be limited to an investor’s profits, as opposed to the 

return of principal, in light of §548(c). Given the Trustee’s 

decision not to rely on the exception, we need not decide 

whether that understanding is correct.

What the Trustee does contend is that §546(e) contains 

some ambiguities, such as what is a “settlement payment” 

and when is a payment made “in connection with” a securi-
Nos. 12-2463 et al. 10

ties or commodities contract. “Settlement payment” is a defined term, but the definitions in 11 U.S.C. §§ 101(51A) and 

741(8) are circular. Section 741(8) says that a settlement 

payment “means a preliminary settlement payment, a partial 

settlement payment, an interim settlement payment, a settlement payment on account, a final settlement payment, or 

any other similar payment commonly used in the securities 

trade”. Section 101(51A) has similar language about the 

commodities trade. “In connection with” does not have a 

definition in the Bankruptcy Code—or for that matter the 

statutes covering the commodities and securities businesses.

Given statutory ambiguity, the Trustee turns to the legislative history. It is easy to sum up what the Trustee finds 

there: Congress enacted §546(e) to ensure that honest investors will not be liable if it turns out that a leveraged buyout 

(LBO) or other standard business transaction technically 

rendered a firm insolvent. For a recap of the legislative history see Peter S. Kim, Navigating the Safe Harbors: Two Bright 

Line Rules to Assist Courts in Applying the Stockbroker Defense 

and the Good Faith Defense, 2008 Colum. Bus. L. Rev. 657. Often the goal of a transaction is to replace equity with debt in 

order to change managers’ incentives. If the business fails, a 

trustee may attempt to argue that the very nature of the 

transaction made the debtor insolvent and subjected the investors to liability. Section 546(e) prevents that. The Trustee 

concludes that §546(e) is designed “to protect this country’s 

legitimate market transactions that promote the stability of 

and confidence in the financial markets.” But the Funds 

were not operating “legitimately” at the end and were conduits for the Petters scam all along. The Trustee concludes 

from this that §546(e) is irrelevant.
11 Nos. 12-2463 et al.

It is fair to say that some courts have been restive at the 

idea that people who received money from a crooked enterprise can keep it, to the detriment of other investors who did 

not get out while the going was good, and have interpreted 

§546(e) narrowly. See the discussion in Samuel P. Rothschild, Bad Guys in Bankruptcy: Excluding Ponzi Schemes From 

the Stockbroker Safe Harbor, 112 Colum. L. Rev. 1376 (2012). 

For example, In re Slatkin, 525 F.3d 805 (9th Cir. 2008), and In 

re Wider, 907 F.2d 570 (5th Cir. 1990), hold that the operators 

of particular Ponzi schemes were not “stockbrokers” for the 

purpose of the statute, which therefore did not block recoupment. But the second circuit has held §546(e) fully applicable to businesses that engaged in fraud. See In re Quebecor World (USA) Inc., 719 F.3d 94 (2d Cir. 2013) (“transfer” 

has its normal meaning); Enron Creditors Recovery Corp. v. Alfa, S.A.B. de C.V., 651 F.3d 329 (2d Cir. 2011) (“settlement 

payment” has its normal meaning).

The Trustee is not asking us to choose sides in a debate 

about interpretive method so much as he is asking us to 

chuck §546(e) out the window. Yet a court can’t say “this 

statute is ambiguous, so we will implement the legislative 

history unencumbered by enacted text.” Ambiguity sometimes justifies resort to legislative history, but it is used to 

decipher the ambiguous language, not to replace it. The text 

is what it is and must be applied whether or not the result 

seems equitable. See, e.g., Freeman v. Quicken Loans, Inc., 132 

S. Ct. 2034, 2044 (2012); Dodd v. United States, 545 U.S. 353, 

359–60 (2005); In re Draiman, 714 F.3d 462, 465–66 (7th Cir. 

2013). If the Trustee were right that §546(e) is irrelevant 

when the debtor in bankruptcy had any role in a fraud, why 

did Congress add the exception referring to §548(a)(1)(A)? 
Nos. 12-2463 et al. 12

The presence of an exception for actual fraud makes sense 

only if §546(e) applies as far as its language goes.

Statutes often are written more broadly than their genesis 

suggests. RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 

132 S. Ct. 2065, 2073 (2012), tells us that “[t]he Bankruptcy 

Code standardizes an expansive (and sometimes unruly) area of law, and it is our obligation to interpret the Code clearly and predictably using well established principles of statutory construction.” We apply the text—which both Houses 

of Congress approved and the President signed—not themes

from a history that was neither passed by a majority of either 

House nor signed into law.

The Trustee has not referred us to any legislative history 

about the meaning of “settlement payment” or “in connection with”, the phrases he thinks ambiguous. The second circuit held in Enron that “settlement payment” means what it 

ordinarily does in the securities business: the financial settling-up after a trade. 651 F.3d at 339. Brokers will sell customers’ shares of stock on the market without having them 

in hand. The customer later turns over the stock and receives 

the proceeds; that’s the settlement for the transaction. Here 

the investors told the Funds to redeem some of their shares; 

the swap of money for shares was a settlement payment. 

And, as Quebecor holds, “transfer” is a more comprehensive 

term and usually makes it unnecessary to decide whether a 

given transaction entailed a “settlement payment”. 719 F.3d 

at 98. A “transfer” from the Funds to each redeeming investor undoubtedly occurred. As for “in connection with”: decisions such as Merrill Lynch, Pierce, Fenner & Smith Inc. v. 

Dabit, 547 U.S. 71 (2006), and United States v. O’Hagan, 521 

U.S. 642 (1997), show that it is more than comprehensive 
13 Nos. 12-2463 et al.

enough to cover the Funds’ redemption of the investors’ 

shares.

The Trustee’s only textual argument is that fraudulent 

schemes do not have “securities” for the purpose of §546(e). 

That contention is hard to fathom, given that a principal goal 

of securities laws is to control fraud. If the existence of fraud 

meant that an instrument were not a “security”, then the 

main federal means to deal with financial fraud would vanish. Section 741(7) of the Bankruptcy Code provides that a 

“securities contract” is a contract for the purchase or sale of a 

security, and §101(49)(A)(ii) says that security includes stock. 

The definition in §101(49) comes almost verbatim from the 

Securities Act of 1933 and the Securities Exchange Act of 

1934. No one doubts that shares of stock issued by crooked 

mutual funds or hedge funds are “securities” for the purpose of the 1933 and 1934 Acts. They are “securities” for the 

purpose of §546(e) as well.

Other arguments need not be discussed in light of our 

conclusion that §546(e) defeats the Trustee’s actions. The 

judgments of the bankruptcy court are affirmed.