SIPC STATEMENT ON LAWSUIT FILED BY BLMIS INVESTORS
WASHINGTON, D.C. – February 24, 2010 - Stephen Harbeck, president of the Securities Investor Protection Corporation (SIPC), which maintains a special reserve fund authorized by Congress to help investors at failed brokerage firms, issued the following statement today:
“From the outset of the Bernard L. Madoff Investment Securities LLC (Madoff) liquidation proceeding, the Securities Investor Protection Corporation has made it clear that our No. 1 goal is to make sure that every eligible Madoff investor receives every penny that he is or she is entitled to receive per the recovery process.
We have a great deal of empathy for the Madoff victims. That is why we have worked around the clock for more than a year to expedite this matter despite the unprecedented complexities arising from the Web of deceit spun by Mr. Madoff. Our concern for the victims was also the reason why we worked with Irving H. Picard, the court-appointed trustee for the Madoff liquidation, to establish a special hardship procedure for particularly hard-hit victims requiring special attention.
That is why we are disappointed to see that certain attorneys are exploiting the plight of these victims to incorrectly direct their anger and frustration at SIPC. Sadly, this frivolous litigation will have the effect of making it harder for SIPC to focus all of its time and attention on aiding the Madoff victims.
That being said, SIPC is not now and never was a FDIC-like ‘insurance’ entity.
Regarding the question of 'net equity', which the United States Bankruptcy Court for the Southern District of New York is now weighing, we firmly believe that the calculation being used by Irving H. Picard, the court-appointed trustee for the liquidation of Bernard L. Madoff Investment Securities LLC of New York, NY, is correct.
This determination is completely consistent with past precedent on the matter.
SIPC has filed two extensive briefs with the Court, which explain our position in detail. At this time, we are awaiting the court's ruling on the matter. We look forward to the decision resolving this matter."
SIPC's primary brief in the United States Bankruptcy Court for the Southern District of New York proceeding can be found at http://www.sipc.org/pdf/519_Memorandum_of_Law-1.pdf.
1 comment:
There are many complicated issues here, but there are some simple ones too. When a brokerage house fails (and Madoff was a member of SIPC), SIPC, regardless of whether or not shares were ever purchased, is supposed to come in and return to the investor, either by finding the shares, or going out to the open market and buying the missing shares, the stocks of those companies in the investor's portfolio, up to the maximum ($500K). There is no "cash in/cash out." That was "invented" by SIPC to avoid its mandated obligations.
In a more "normal" situation, if an honest broker went bankrupt and the securities could not be found, SIPC would replace those securities by purchasing them. It would not matter what it cost the investor since in replacing the securities only involves buying them, regardless if the investor paid $50 or $100 per share, and regardless of what the current market price is. For example, if the investor bought 100 shares of FORD at $50 per share, and it went down to $2.00 per share when the broker failed, SIPC would buy 100 shares at the price the stock traded at as soon after the bankruptcy as it could. There is no determintion of the investor's original cost, thus an investor may get back in shares either more or less than they paid for it.
SIPC has purposely failed in its obligation to the Madoff investors and if allowed to continue, will do the same to any investor faced with a similar situation. They allowed themselves, by ignoring Congress' many warnings, to get underfunded, and be unable to meet its obligations.
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