Articles Tagged with Securities Investor Protection Act

The SIPC Modernization Task Force, which was created by the Securities Investor Protection Corporation, has made 15 recommendations to update SIPC and Securities Investor Protection Act provisions. Among the 15 recommendations:

• Raising coverage protection for customers of failed brokerage firms from $500K to $1.3M.
• Getting rid of the distinction between protection levels for securities and cash.
• Providing pension fund protections for participants on a pass-through basis.
• Amending the current minimum assessment to whichever is greater-a) the amount established by SIPC Bylaw to not go over 0.2% of the member’s gross revenues from the securities business or b)$1,000.
• When total amount of claims aggregates is $5 million, allowing for direct payment procedures.
• Mandating that SIPC members’ auditors submit audit report copies with SIPC.
• Affirming banks and other custodians’ duty to protect Rule 15c3-3 accounts; reaffirming that the accounts will have to contend with trustee control should the broker-dealer enter liquidation proceedings.
• Granting the same avoidance powers to the SIPA trustee and a trustee dealing with a case under the bankruptcy code.
• Continuing to allow reverse purchase agreement and repurchase related claims to be treated as general creditor claims.

SIPC’s board is now evaluating the recommendations, some of which will require congressional action (ie. rule making).

Meantime, investors of Bernie Madoff have submitted two petitions requesting that the US Supreme Court review the U.S. Court of Appeals for the Second Circuit’s ruling, which upheld Irving Picard’s method of calculating “net equity” under SIPA in which customers are allowed to get back their “net equity.” However, how that amount is calculated is not specified.

Picard is the Madoff trustee and is overseeing the liquidation of the Ponzi mastermind’s brokerage firm, Bernard L. Madoff Investment Securities LLC. Contending that BLMIS created false profits, Picard Is suing “net winners” that allegedly took more money than they deposited into their accounts. The money retrieved would pay back “net losers.”

In a certiorari petition submitted on February 3, lawyers for hundreds of investors contended that the appeals court made a mistake in giving SIPA trustees “unlimited discretion” to determine “net equity” according to whatever circumstances are involved. The investors argued that SIPA defines “net equity” in a manner that mandates that SIPC insurance coverage be issued according to the amount the broker owes to customers. This figure the reflected on the last statement.

A few days later, Massachusetts School of Law Dean Lawrence Vevel, who is also an investor, filed his certiorari petition accusing the Second Circuit of disregarding congressional intent when it upheld in favor of Picard’s approach to “net equity.” He argued that Congress obviously meant to replace client securities even if the securities had never been bought.

The Madoff trustee has refused to pay back claimants according to their final BLMIS accounts. Instead, he has said that customer claims have to be based on the withdrawals and deposits that are noted in BLMIS’ books and records.

Diverse Group of Securities Experts Make Recommendations For Future of Organization, SIPC, February 21, 2012
Madoff Investors Ask High Court to Review Affirmance of Trustee’s ‘Net Equity’ Method, Bloomberg BNA, February 22, 2012

More Blog Posts:
Appeals Court affirm SEC Finding that Broker Acted “Willfully” When Keeping IRS Lien Information from FINRA, Stockbroker Fraud Blog, February 24, 2012
FINRA Says Charles Schwab Corp. is Making Customers Waive Right to Pursue Class Action Lawsuits, Stockbroker Fraud Blog, February 8, 2012
Merrill Lynch, Pierce, Fenner & Smith Ordered to Pay $1M FINRA Fine for Not Arbitrating Employee Disputes Over Retention Bonuses, Institutional Investor Securities Blog, January 6, 2012 Continue Reading ›