Reference no: EM132265477

The Securities and Exchange Commission (SEC) filed a suit in a federal district court against First Jersey Securities, Inc., and others, alleging fraud in First Jersey’s sale of securities (stock). The court ordered the defendants to turn over to the SEC $75 million in illegal profits. This order made the SEC the largest unsecured creditor of First Jersey. First Jersey filed a voluntary petition in a federal bankruptcy court to declare bankruptcy under Chapter 11. On the same day, the debtor transferred 200,001 shares of stock to its law firm, Allen, Barnes and Connors (ABC), in payment for services in the SEC suit and the bankruptcy petition. The stock represented essentially all the debtor’s assets. ABC did not find a buyer for the stock for more than two months. The SEC objected to the transfer, contending that it was a voidable preference, and asked that ABC be disqualified from representing the debtor. ABC responded that the transfer was made in the ordinary course of business. Also, asserted ABC, the transfer was not in payment of an “antecedent debt,” because the firm had not presented First Jersey with a bill for its services and therefore the debt was not yet past due. Was the stock transfer avoidable preference? Should the court disqualify ABC? Why or why not?