Sections 547(b) and 550 of the U.S. Bankruptcy Code allow a debtor to claw back certain payments made to non-insiders in the 90 days prior to the bankruptcy filing and to insiders in the year prior. The Small Business Reorganization Act of 2019 raised the bar on the due diligence needed to pursue such litigation, requiring the debtor assess “known or reasonably knowable affirmative defenses” before moving forward. The following analysis considers how the due diligence language added to §547(b) might be applied to potential preference claims in a cryptocurrency bankruptcy case.

Preference Claim Pleading Standard, Generally

There is lingering disagreement as to the general pleading requirements applied to a complaint alleging a §547(b) preference cause of action. The court in In re Valley Media, 288 B.R. 189, 192 (Bankr. D. Del. 2003), applied a “heightened standard” requiring: “(a) an identification of the nature and amount of each antecedent debt and (b) an identification of each alleged preference transfer by (i) date, (ii) name of debtor/transferor, (iii) name of transferee and (iv) the amount of the transfer. Other courts have declined to follow Valley Media.” See, e.g., In re The IT Grp., 313 B.R. 370, 373 (Bankr. D. Del. 2004) (finding the specific information required by Valley Media in the initial pleading “inappropriate and unnecessarily harsh”).