Where the bankruptcy court assumed, arguendo, that a transferee/attorney who received a debtor's settlement funds into his trust account was the mastermind of a scheme to disburse such funds to the debtor and preferred creditors, the attorney could not be a "mere conduit" for such funds and could be an "initial transferee" of the funds.

The first recipient of a debtor's fraudulently-transferred funds is an "initial transferee." There is an equitable exception to the literal statutory language of "initial transferee," known as the mere conduit or control test, for initial recipients who are "mere conduits" with no control over the fraudulently-transferred funds. The mere conduit or control test is a judicial creation that is not based in statutory language, but is an exception based on the bankruptcy courts' equitable powers. Courts should employ a flexible, pragmatic, equitable approach of looking beyond the particular transfer in question to the circumstances of the transaction in its entirety. The conduit or control test is based on, and defined by, equity and requires good faith to escape "initial transferee" liability. As part of the mere conduit or control test, courts shuold consider whether the intermediary "acts without bad faith, and is simply an innocent participant" to the fraudulent transfer. Good faith is a requirement under the mere conduit or control test.