### In the 

# United States Court of Appeals For the Seventh Circuit

____________________ Nos. 12

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- 2464, 12

- 2493, 12

- 2494 & 12

- 2495
R ONALD R. P ETERSON , as Trustee for the estates of Lancel ot Investors Fund, L.P., and related entities, Plaintiff

- Appellant ,

v.

S OMERS D UBLIN L TD ., et al ., Defendant s

- Appellees

.

____________________ Appeal s from the United States District Court for the Northern District of Illinois, Eastern Division. No. 08 B 28225

— Jacqueline P . Cox , Bankruptcy Judge

.

____________________
A RGUED A PRIL 8, 2013

— D ECIDED S EPTEMBER 6 , 2013

____________________

Before E ASTERBROOK , Chief Judge , and B AUER and S YKES , Circuit Judges

. E ASTERBROOK , 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 consideredNos. 12

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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 prefe rential transfers or fraudulent conveyances. Another appeal, also decided today, addresses a suit against one of the Funds’ law firms.

T he Funds invested in notes i ssued 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 out set that Tho usand Lakes was a commercial factor

— that is, a lender finan cing other businesses’ inventory

— Petters did not have cu stomers and was running a Ponzi scheme, paying old in ve stors with newly raised money . Ponzi schemes must grow to survive, and eve ntually 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).
I n fall 2007 Thousand Lakes stopped remit ting 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 b een 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 d ay to repay ou tstanding notes. These round

- trip transactions meant that the Funds were not receiving any net cash from Thousand Lakes3 Nos. 12

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. and thus needed to pay their own investors , when they sought to redeem shares, with newly raised money . But by fall 2008 t hat was no longer possible. Both the Funds and Petters’s empire collapsed; about 60% of the roughly $2.5 bi llion nominally held by the Funds had been stolen or disa ppeared. Bell pleaded guilty to fraud and was sentenced to 37 months’ imprisonment . Petters denied liability but was co nvicted 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 inv estors who redeemed shares before the bankruptcy received pre ferential 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 part s of the Bankruptcy Code allow
t rustees to recoup payouts for the benefit of all creditors. The bankruptcy judge granted summary judgment to the inve stors, 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, stoc kbroker, financial institution, financial participant, or secur ities clearing agency, or that is a transfer made by or to (or for the benefit of) a commod ity broker, forward contract merchant, stockbroker, financial institution, financial pa rticipant, or securities clearing agency, in connection with a securities contract, as defined in section 741(7), commodityNos. 12

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contract, as defined in section 761(4), or fo rward 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 se ttlement payment or transf er made to a financial participant in connection with a securities contract , except under sec tion 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 d irect 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 u nder Fed. R. App. P. 5 was filed o n July 16. This court autho rized 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 interlocutor y appeal from a bankruptcy judge’s dec ision to the court of appeals requires three steps: first a cert ification by the bankruptcy judge, district judge, or the pa rties acting jointly; second a petition to the court of appeals under Rule 5; and finally a di scretionary 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) c overs certif ication 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 initi ative or by agreement of the litigants. In re American Mortgage5 Nos. 12

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. 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 subpar agraph (B) for certification shall be made not later than 60 days after the entry of the judgment, order, or decree. ” Su bparagraph (B) deals with judicial certification, while subpa ragraph (A) is what authorizes certification by the parties.
We have conside red the possibility that Rule 5(a)(2) su pplies a time limit. It reads: “ The petition must be filed within the time specified by the statute or rule authorizing the a ppeal or, if no such time is specified, within the time provided by Rule 4(a) for filing a notice of appeal. ” Because Bankrup tcy 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 leav e to appeal

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

— rather than with certifications by judges or litigants. The parties ’ petition u nder Rule 5(a) came within 30 days of the joint certification, so Rule 5(a) has been satisfied.
This leaves the conclusi on 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 foll ow 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 fromNos. 12

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§158(d)(2)(E), we still would hear these a ppeals, which pr esent 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, t hough non

jurisdictional, 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 jud ges, 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 te n-7 Nos. 12

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.
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 bankrup tcy 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 Internationa l Network was forfeiture rather than waiver. None of the parties objected to the ban kruptcy judge’s handling of the case until it reached the di strict court, when the loser in the bankruptcy court first relied

on Stern

. A case pending in the Supreme Court

— In re Be llingham 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 unan imous consen t.
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 n ot. The panel also r eserved 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 Intern ational Network , slip op. 39

. So we think the effect of an e xpress and mutual wa iver open in this circuit. G iven the grant of certiorari in Executive Benefits Insurance Agency , the fact that the parties have not filed briefs discussing the distin ction between waiver and forfeiture, a nd the fact that theNos. 12

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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 authorit y, notwithstanding Stern , because all of the defen dants submitted proofs of claim as the Funds’ creditors and thus subjected themselves to preference

- recovery and frau dulent

- conveyance claims by the Trus tee. S ee 11 U.S.C. §502(d). T he 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 (19 89). Stern sta ted that its outcome is consistent with those decisions. 131 S. Ct. at 2616

– 18. Wellness International Network likewise o bserves (slip op. 44

– 45) that there is no constitutional problem when a bankruptcy judge adjudicates a t rustee’s avoidanc e actions against creditors who have submitted claims. The bankruptcy judge thus acted within her authority, and 28 U.S.C. §158(d) al lows a direct appeal

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

“ the trustee may not avoid a settlement pa yment or transfer made to a financial participant in connection with a secur ities contract , except under sec tion 548(a)(1)(A) of this title.” The Trustee does not deny that entities that invested in the Funds were “finan cial participants”

— a term that 11 U. S.C. § 101( 22A ) defines as an investor whose stake exceeds $1 mi llion, which was the Funds’ minimum

- purchase requir ement

— or that , when the Funds redeemed some or all of an investor’s holdings, a “transfer [was] made” to that investor.9 Nos. 12

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.

It seems to follow tha t the transfer cannot be recov ered “ e xcept under sec tion 548(a)(1)(A) of this title.” That subpar agraph covers a payment “ made

... with actual intent to hi nder, delay, or defraud any entity to which the debtor was or became ... in debted”.
The Trustee did not rely on §548(a)(1)(A) in the ban kruptcy court or his appellate briefs. At oral argument the Trustee confi rmed that he made a conscious choic e not to invoke the exception. We are puzzled by that decision, b ecause “actual intent to ... defraud ” seems an apt de scription of a Ponzi scheme ’s payouts . The round

- trip transactions that began i n February 2008 extended the life of the Pet ters 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 Febr uary 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 bett er than none. The Trustee said at oral argument that he understands the exce ption to be limited to an investor’s profits, as opposed to the return of principal, in light of §548(c). Given the Trustee’s deci sion not to rely on the exception , we need not dec ide 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 secur i-Nos. 12

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ties or commodities contract. “Settlement pay ment” is a d efined 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 se ttlement payment on account, a final settlement payment, or any other similar payment common ly used in the securities trade”. Section 101(51A) has similar languag e about the commodities trade. “In connection with” does not have a definition in the Bankruptcy Code

— o r for that matter the statutes covering the commodities and securities businesses. Given statutory ambiguity, the Trustee turns to the legi slative history. It is easy to sum up what the Trustee finds there: Congress enacted §546(e) to ensure that honest in ve stors 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 hi story see Peter S. Kim , Navigating the Safe Harbors: Two Bright Line Rul es to Assist Courts in Applying the Stockbroker Defense and the Good Faith Defense , 200 8 Colum. Bus. L. Rev. 657

. O ften the goal of a transaction is to replace equity with debt in order to change managers’ incentives. If the business fails, a trustee may a ttempt to argue that the very nature of the transaction made the debtor insolvent and subjected the i nvestors to liability. Section 546(e) prevents that. The T rustee concludes that §546(e) is designed “to protect this country’s legitimate market transactio ns that promote the stability of and confidence in the financial markets.” But the Funds
were not operating “legitimately” at the end and were co nduits for the Petters scam all along. The Trustee concludes from this that §546(e) is irrelevant.11 Nos. 12

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It is fair to say that some courts have been restive at the idea that people who receive d money from a crooked ente rprise can keep it , to the detriment of other investors who did not get out while the going was good, and have interpreted §546(e) nar rowly

. See the dis cussion in Samuel P. Rot hsc hild , 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 particu lar Ponzi schemes were not “stockbroker s ” for the pur pose of the statute, which therefore did not block r ecoupment. But the second circuit has held §546(e) fully a pplicable to businesses that engaged in fraud. See In re Qu ebec or World (USA) Inc ., 719 F.3d 94 (2d Cir. 2013) ( “ transfer ” has its normal meaning); Enron Creditors Recovery Corp. v. A lfa, 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 s ides 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 “t his statute is ambiguous, so we will implement the legislative history unencumbered by enacted text.” Ambiguity som etimes justifi es 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 equita ble. 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 bankru ptcy had any role in a fraud, why did Congress add the exception referring to §548(a)(1)(A)?Nos. 12

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The presence of an exception for actual fraud makes sense only if §546(e) appl ies 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) a rea of law, and it is our obligation to interpret the Code clea rly and predictably using well established princip les of stat utory construct ion.” 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 th e meaning of “settlement payment” or “in conne ction with”, the phrases he thinks ambiguous. The second ci rcuit held in Enron that “settlement payment” means what it ordinarily does in the securities b usiness: the financial se ttling

- up after a trade. 651 F. 3d at 339. Brokers will sell cu stomers’ 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 inve stor undoubtedly occurred. As for “in connection with”: dec isions 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 comprehensive13 Nos. 12

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. 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 s ecurities law s is to control fraud. If the existence of fraud meant that an instrume nt were not a “security”, then the main federal m eans to deal with financial fraud would va nish. 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 se curity 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 do ubts that shares of stock issued by crooked mutual funds or hedge funds are “securities” for the pu rpo se 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.