In an Opinion dated November 30, 2010, Judge Jed Rakoff of the U.S. District Court for the Southern District of New York explained his rationale for denying a petition by Goldman Sachs Execution & Clearing, L.P. (GSEC) to vacate a Financial Industry Regulatory Authority (FINRA) arbitration award ordering GSEC to pay $20.58 million to the Official Unsecured Creditors’ Committee of Bayou Group, LLC (Committee). See “In Petition to Vacate FINRA Arbitration Award, Goldman Seeks to Define the Scope of a Prime Broker’s Duty (If Any) to Investors in a Hedge Fund that is a Customer of the Prime Broker,” Hedge Fund Law Report, Vol. 3, No. 30 (Jul. 30, 2010). Judge Rakoff had denied GSEC’s petition to vacate the FINRA award, and had granted the Committee’s cross-petition to confirm the award, in a one-page Order issued on November 8, 2010. See “District Court Suggests That Prime Brokers May Have Expanded Due Diligence Obligations,” Hedge Fund Law Report, Vol. 3, No. 44 (Nov. 12, 2010). That one-page Order promised a fuller explanation, and this November 30 opinion is that explanation, delivered with Judge Rakoff’s typical sarcasm, intelligence and outspokenness. (The objects of that sarcasm include not only GSEC, but also the Roberts Court, which Rakoff takes to task for its vapid and inconclusive prose; such are the free speech benefits of holding a federal judicial office during “good behavior,” broadly understood.) The Opinion is important to the hedge fund community for various reasons. Most notably, it suggests that a prime broker can be liable, jointly and severally with a hedge fund customer and its manager, for a fraud perpetrated by the manager, to the extent of funds deposited into the hedge fund’s margin account with the prime broker. Accordingly, the Opinion suggests that prime brokers have an obligation to perform reasonable due diligence with respect to the sources of funds in hedge fund customer accounts, and to act on “red flags” suggesting that deposited funds come from illegal activities. Moreover, the Opinion suggests that this due diligence obligation on the part of prime brokers cannot be waived or abridged by contract. See, by way of background, “Bayou Creditors Sue Goldman Prime Brokerage Unit to Avoid Allegedly Fraudulent Transfers” Hedge Fund Law Report, Vol. 1, No. 13 (May 30, 2008). Procedurally, the Opinion illustrates the “exceedingly heavy burden” that must be satisfied by a party seeking to vacate an arbitration award. As detailed below, the grounds for vacating an arbitration award are so narrow that arbitration decisions are, in Rakoff’s phrase, “essentially unappealable.” Hedge fund managers and prime brokers should keep this in mind before demanding or agreeing to mandatory arbitration provisions in prime brokerage agreements or other agreements. This article discusses: the three factors a district court in the Second Circuit must consider in determining whether it can vacate an arbitration award based on a “manifest disregard of the law” by the arbitration panel; the factual background of GSEC’s relationship with the Bayou Group, LLC and hedge funds it managed; the inferred holdings of the arbitration panel with respect to fraudulent conveyance and fraudulent transfer (the panel’s holdings are inferred because the arbitration decision, as is customarily the case, did not include an explanation of the reasons for the decision); and GSEC’s argument for equitable credit for returned funds.