Katy owes money to several creditors and is close to bankruptcy. She does not have enough assets to satisfy her debts. Katy's most recent creditor, Bill, asks for payment. Katy knows that she should pay Diane first under the law. Katy pays Bill anyways. Under federal law, has Katy done anything wrong?

1 Yes. Katy has made a fraudulent preference in violation of federal law.

2 No. Katy has violated no law. She repaid a legitimate debt.

3 No. The Act does not prohibit fraudulent preferences so her actions were legal.

4 Yes. Katy has made a fraudulent transfer in violation of federal law.

5 Yes. Katy has made a settlement in violation of federal law.