see there's a court reporter here however no one asked my permission or and for i make an advance i have no problem with it but that is the protocol in our court i'm turning to the first case nancy's rake and karen rich i'll simply refer to them as in my argument as the appellant's even though they are only open at certain of the appellant's in this case your honor the appellant's were the owners of a made up brokerage account with an approximate value of nine hundred fifty four thousand dollars as of the date the made off bankruptcy was commit six hundred fifty four million two hundred fifty four thousand excuse me nine hundred fifty four thousand these are individuals money deposited or money that mr madoff transfer of those funds to the appellants account which also was established at the made up brokerage and that is essentially the question before the court is the propriety of the methodology that the simpler trustee has used to evaluate enter account transfers by that we mean a transfer from one made a customer's made off brokerage account to another made offs made off brokerage customers made up brokerage account by virtue of a book entry transfer on the books and records of the what would you have him do your honor we submit that because congress expressly incorporated the bankruptcy code avoidance provisions into seppa that that is the appropriate methodology that appropriate filter the congressionally mandated one to evaluate bonafide transfers whether it's in enter a count transfer from one account to another or to a third party they have to be put through that filter and then either there o in which case they can be disregarded or they have to be honored in accordance with state law that is the dilemma it was it in official avoidances and it was not at all your honor in fact the trustee contends that it does not have to not for example the sort of transactions that were at issue before this court in its prior net equity decision in that case they were purely fictitious securities transactions one that they were fictitious is that what you're asking for those profits not at all your honor what we're asking for is for the bona fide transfer to be evaluated like any other to be put through the congressionally mandated filter of avoidance actions the ordinary provisions of bankruptcy code i don't think it's credible to argue that the congress incorporated the bankruptcy code avoidance provisions but then would allow the trustee by virtue of the exercise of its discretion to obtain substantially the same result without going through that process without according the recipients of a transfer the defenses and the process that the avoidance actions process provides you basically this is a situation as we found in the net equity decision in which the books and records of the l m i has totally unreliable and have no reflection on reality but your honor these are very different your honor and that's that's exactly my point is that the transfers that issue here were bona fide transfers they did actually occur in the appellant's case transfers of the rights that comprise the account that were the rights to stuff made up and for which there is no bona fide we don't know that honor these work with our we've already we've already pretty much said there fictitious prophets out there there certainly are out there they haven't been adjudicated on a case by case basis we're simply evaluating the methodology for treating enter a count transfers and what the trustee is asking for is a very special rule to treat enter account transfers differently from transfers to third parties and there's no reasonable basis for doing so under the bankruptcy code enter a count book in tree transfers are treated every bit as much like a bona fide support for what is actually in what i will call made off accounts every single person who got screwed by that guy has a claim for a lot of money that he said was in there and it turns out to be unfortunately for them only what they contributed at best and your own which usually ended up in somebody else's account one if those other people were smart enough or fortunate enough to take it out or your honor that's exactly the arbitrariness of the trustees rule is head the appellant's in my case simply withdrawn the funds as they were entitled to do the trustees so recourse would have been to seek to avoid those transactions solely because of the happenstance that they chose to deposit those accounts back in a separately created made off account the trustee seeks to disregard the congressionally mandated framework for treating bona fide transfers either avoiding them or honoring them but you want us to see that there bonafide even though there are maybe nothing that got transferred the i'm simply suggesting your honor that because they were bonafide transfers they were not fictitious transactions the mother did pass away she did have a will she did bequeath these accounts of the cash in her account to her children there were big book entry transfers made there was a new account established your contention and judge carney here is it your contention in fact that the fact that there was a bona fide transfer that is that thing mother died and there was a well transmitting material from one account to another and that in essence and viewed it with the reality that other accounts didn't have it it certainly did your honor it doesn't mean that there are unavoidable it doesn't mean that why would that why would that be well your honor because the securities transactions that the trustee is able to disregard under the net equity decision were purely fictitious they were imaginations that the notations were concocted numbers because he said he bought certain things exactly here these transactions actually have a concrete reality they did in fact occur now that doesn't mean that their value in paper that avoidance and action analysis because it's a bona fide transfer that's our contention our fundamental contention is that if it's a transfer then you have to put it through the avoidance action analysis is if we agreed with you yes we would still be  or and that includes all sorts of defenses and time limitations your honor and that is the essence of the debate here today is that many of the inner account transfers at issue that this trustee seeks to disregard would be time barred under  analysis or there would be other defenses the trustee seeks to have this court as is there any time bar that applied to the net equity determination that the trustee is called on to make under said you are not that i'm aware of decision applied exclusively to securities transactions those transactions are fundamentally different than the ones that issue here one could go to the securities market and of obtain objective corroboration that those transactions did not occur here it makes no semantic sense to contend that a book entry transfer of cash didn't occur what you can use your honor was no it was a transfer that occurred by virtue of the notation in the books or records it makes no semantics and i don't support your view that these think is from profits cash that was transferred it does support that there was a transfer it's almost like if they do exit when one does a book entry transfer of cash that is all that is necessary all and everything that's necessary the necessary and sufficient conditions the books kuku aren't reliable it makes no semantic sense your honor to say that with respect to a book in tree transfer which occurs by virtue of the notation on the books and records one c argue that it should be reversed one can argue that should be avoided but one can't deny that it didn't occur based on the fact that these were transfers your honor bonafide transfers we submit that they should be submitted to an avoidance action analysis with all the process and limitations and defenses that that entails so we ask that the court reversed the district court's approval of the separate trustees analysis of enter account transfers and put them through the congressionally mandated filter of wouldn't and if they survive that minute looks like you're only having a minute and then two on rebuttal if i'm paying your honor thank you so much if i may in the neck witty decision what what the court was dealing with was the last statement because the trustee was determining each customer's net equity claim based on the last statement which is what super requires the nov thirtieth two thousand and eight last statement showed ownership of securit made after records proved that he didn't own the securities listed on the statements as of november thirtieth two thousand and eight and based on that fact this court held that the trustee could use his net investment we know from his counsel that at the time he argued the net equity decision he intended to seek to apply it to into account transfers but that was not disclosed either to the customers or to the court and this is the very cash this is not controlled by the net equity decision another way the only cash was the cash that was put in but on the box what was called cash was cash plus all of this garbage which made offset was in there which we have said what isn't there for your companion to her you know very well put it that you can go back and see that there was no way there were no stocks but that came over as a cash transfer but there was no substance to large parts of it what was cash that came over was cash that was recognized or is recognized at least as i read what the bankruptcy court did and the district courts think if i may or on i think this is the problem with that argument cash is fungible i'm not arguing more so please yes right cash is fungible so there's no way to tell whether the day before or any of the transfers issue was made it was a transfer of cash there's no way to tell whether the day before that transfer cash was issued may have didn't get the two billion dollar investment from new hedge fund so it was in cash move that now i'm sorry to know that trustee has claimed that the fraud started in one nine hundred eighty mr madoff and his chief lieutenant mr frank deeper scully have both testified that the fraud began after one thousand nine hundred two with a particular strategy the split strik conversion strategy so if there were transfers before nine hundred ninety two when the evidence shows that there was no fraud what is the basis for disallowing cash transfers that were made to third parties these were not the transfer orders accounts they were transferred into a different account so you're visiting the sins of the father in a sense on the son these were transfers they could have been equitable distribution property settlements which the court of appeals has held cannot be upset they could have been transfers for consideration they could have been guests on which is state taxes were paid it could have been any one of a number of things if that money had been transferred it wasn't that those stocks were liquidated in order to raise the cash this was cash in the transfer or as account if that money had been transferred to an account at j p morgan chase there would have been no basis please the court elliot sager i'm representing myself the court told me that spotting was to raise the platform i'm i hope it's a reset button because i'm requesting any garbage and it was not in my notes that i was screwed but i like judge wants a commentary high in my family were screwed i waited for retirement i didn't take out a penny and my case differs materially from the other appeals to the court cash investment i made in my law firm account yet sipek refuses to reimburse my principal based upon what i've asked to look the court in the bankruptcy judge i don't don't you need to address whether you're a customer because i think sipek has a mandate to equitably deal with the claims of customers and as i understand it you yourself though you were participating in a group that was a customer you were yourself were not a customer and the other people in your group with true money so maybe you could address that please let me address that immediately the customer have to be a customer of the transfer or transfer or account that is a red herring in this case that is not supported by the cruise decision cruise only says that if i am a feeder fund trustee and cipla made to judge engle meyer that i had to be a customer is bogus because under morgan kennedy in this which this court has ruled upon if there were a customer of a of a net winner account and loser customer you don't get any special treatment it just seems a fallacy to suggest that somehow i have to be a customer of the transfer account which trumps all that forgive me is that is that under the the under dall that donald versus cow case and judge ray coffs antecedent that decision the transfer re from a transfer or even even always gets back his or her principle that's my principle argument you always get back you your principle that's all i'm asking for here i put in one hundred seventy five thousand dollars and sipek for this forty years that it's been in existence has always honored the claim of it under the limits know you have the court all all of the people involved have and deserve great great sympathy you know nonetheless we have a trustee who's trying to deal equitably and in accordance with the law with many competing claims and he has technical obligations as you know of course that he needs to meet and so on and i'm trying to understand exactly what is wrong with the notion that one had to be a  customer of the transfer or account in order to would you consider not in order to recover here and i am just not entirely sure what the answer is you've said that you yourself put in an amount of money that of the net equity decision is that it favors net losers i am in that loser it says how do you approximate medic woody in my case it's easy in two thousand and eight when you look at the situation when all the dust settles what if this customer put in and what did they take out you saw that from the trustees determination letter what did you put in and what did you take out is a matter of fact you did not need to be a customer which judge bernstein was told of the transfer account if the transfer account were inept loser even if you were in that loser sipek in its grace and they were right would treat a transfer re of a net loser account who was not a customer of that account they would give him the net equity that was in the account all i'm asking for and all the church rake off says is always  cow which is in the circuit which is in every circuit the law of ponzi schemes which says validly nobody can transfer anything in a ponzi scheme but you always get back you always get back your  help me remember the facts of your or make sure i've got that right is because you invest through an account that was part of your law firms and asked mint and money got taken out of you account and that is why the trust right sang there was nothing that got transferred over because the cash got that's a new definition of ponzi profits it always used to be that ponzi profits were in addition to what you put in now they're saying my principle is even a ponzi profit i received a cash confirmation for made off in february said to myself gee i'm now if f d i c i'm sorry i'm never she least i have five hundred thousand dollars of of insurance and that is going for that amount of the asking for the amount of my cash and that's what i did on before the net equity decision i only asked for my cash and i'm absolutely entitled to it this is a firm and so if you affirm the decision there is going to be a new class of lose to hear someone who is a net loser that nobody disagrees with in the amount of one hundred seventy five thousand dollars which would be should be funded by the sipek fund it doesn't take away from anyone my cash this is good as anyone else's cash sipek gave me back what i took out from a merrill lynch account stupidly what i know and put it in and put it in made a fake gave it back to be of course they try to say sign a waiver before i give it back but that's another story in any event i am absolutely entitled as an mit loser to my cash and judge ang and bernstein decided something on a fallacy it was suggested judge corning in all due respect that i had to be a customer of the transfer account and somehow that would help me they knew that i could never be the transfer of the of the transfer account and even if i were they are saying that somehow the sipek could be aggregate and treat my cash in somehow now and give me credit for it well if they have the ability to de aggregate which is suggested in our papers reading it reading it very carefully they should give me back opportunity in this situation let me just ask if i'm a cask of quick follow up please sure so sipek takes  position that you deposited one hundred seventy five thousand dollars into the pension plan the money became the property of the pension plan and the pension plan deposited into the account and it says that the pension plan has already recovered it principal and withdrawn fictitious profits at the time of the intercounty transfer so you think that's irrelevant that we ought to just look at the equities you put in hundred seventy five thousand dollars of cash that ended up here and sipping to insure that amount is that right yes your honor under the net equity decision every single case deserves that's what the court said the or individual situations the net equity to solution prophesied that with fraud it's there and there are many different common computations and permutations in my case there was one and five hundred ninety three people who is a net loser and net losers even if this principle works in every other case i should be able to get my my my principal back that has been what supect has done since one thousand nine hundred seventy there is never in the history of super there is never a situation where a net loser under the limits of what is supposed to pay has never been that it's always been inviolate you get back your princip net investment method approved by this court in its own equity decision we know from that decision that we are to look to the manipulated portion of the books and records and be on my ass to determine that equity in this case the trustee has looked at the books and records with respect to the transfer or account to determine how much cash or principal existed in that account at the time of the transfer the problem with mr say here the pension fund was the customer the pension fund withdrew over thirty million dollars more than invested so at the time mr sager tried to transfer from one account to the other there was simply no principal left in the account should find it was a that question sort of relates to the avoidance action brilliancy of women's action provisions of the code are entirely separate from the net i pretty calculations understand there's there's no there's no overlap between the two we saw that in the net equity decision we saw that in the five forty six eat decision mr sayers recourse is against the pension fund or the other beneficiaries unfortunately his recourse is not against the fund of customer property because the fact that he later had an account in his name cannot create that equity where there is not the money wasn't there it's an unfortunate result in the trustee a sympathetic but the septic and the statute are not designed to recover all losses but they do is create a priority customer fund a state and the purpose is to return the principal to those who have lost it just to be sure i understand this is judge carney so you're saying even if a clawback action against the pension fund is so in order to share in those funds you need to have a valid metacritic claim against the customer property estate and mr sager does and has been paid on a valid claim for money he put into his own account that wasn't withdrawn he did receive fiction when all of these records are internal beyond my us records there's no reason to to pile fiction upon fiction and try to manufacture and that equity where it simply doesn't exist and there is no reason why there should be a time limitation on that when what we're trying to determine here is an actual claim to the customer property the opponent's approach is particularly untenable for a couple of reasons not only are they it's tempting to manufacture a net equity where there is none but they're also discriminating amongst customers those customers who but they also point out this is a stretch hardly they also point out the apparent inequity of allowing those who made extra transfers who withdrew and placed another bank and then brought it back in is a separate the issue here and i think you judge and ira crackly i'd recognise this is that the trustees bound by the books and records of my ass that's what the books and records provisions has that you look and in this case we looked at the cash the cash  cash as they appear and be on my ass books and records and because the money never left my ass we can identify what portion of that is real and what portion of the transfer is not once the money leaves be on my ass for better or worse it's mon and it's turned into actual physical money it goes out to another bank account trustee is limited to what appears in my ass his books and records not the intrinsic records of customers although of course we're looking just at some of the numbers that appear in the books and records were discounting most of that's true we're looking at the cash amounts in cash deposited by customers and the cash withdrawals by customers which amounts are accurate which makes sense in a ponzi scheme if you want to keep your ponzi scheme  people know where they invest and they know where they take him so of course it makes sense that those numbers would have to be accurate to keep it going i think your adversary argues that any trick out transfer is a different type of  transferred inherited money to from one account to another and that the transaction with a sense of reality that the others didn't have do you disagree with that  again it's a simple transfer of fictitious profits the money never left my us the books and records reflect that a chance for a card and when we look at the portion of the books and records that we know are reliable we can figure out what that amount is to did you rely on your out of the issue raised by misstatement regarding the start of the fraud is not before this court it's a question of fact that will be litigated in due course before the bankruptcy court  trustees position at the time when we were here on that it would be and today is that all relevant periods beyond my ass was a fraud and those securities were actually traded but again that's a factual issue that will be that will be l period for inter county transfers begins in one nine hundred eighty one that's the period at which we began applying the intercounty transfer method and what the books and records of my ass indicate that is that as of that time trading was fictitious but again the factual issue regarding the start of the fraud is an issue that has come up in bankruptcy court and will be litigated that factual issue will be litigated there and you may see it in a couple of years i  by our court in twenty eleven and i'm concerned that it wasn't presented at the same time as part of the overall method that was adopted that the trustee prose to adopt because we were trying to  measure the relative merits of the two different methods that had been proposed and i don't know whether the decision would have been different at all but it certainly this was an implication that wasn't considered by equity panel and i wonder if you can explain why this wasn't presented as part of the method that the trustee was adopting yes your honor i believe that the reason is just that the trustee was sort of working from the biggest claims issues that affected everyone every customer was affected by the calculation of their net equity and sort of moving down from that there is a subset of claimants who objected to enter account chancers and we moved on to to address that issue if we had been wrong on the larger net equity issue if the last statement method was the way to go the interrupt him transfer question would not have come up at all it would not have needed to be address so i think it was just trying to find an order in which to address the issue so you didn't you don't see it is so intimately tied to the first decision that it couldn't be resolved differently or just that it was kind of unnecessary ornament to the first discussion i think the latter i think it's  such a straightforward application of the decision that we weren't even sure at the time that it was going to be an issue it just seems like the logical color into that decision that you follow the real money through my ass until it leaves that box and do you have any sense of how many claimants are affected by the enter account transfer issue we're presented with today as opposed to the number of claimants in the overall bankruptcy i can tell you that there are approximately four hundred objections filed in these proceedings that relate to in our account transfers and that effects i believe six hundred and sixty claims those are the people who are participating overall there are sixteen thousand customer claims that were filed out i say thank you thank you sipek prioritizes the protection of customers individuals or entities that have contributed their own money and have a special relation to customer relationship with the debtor and mr segars case that probably should then be distributed on a pro rata basis to the partners or to the individual stakeholders of the plan unfortunately because the retirement plan was a net win or that distribution of customer property w time and do you agree with the counsel for the trustee that if a club back action of some kind were successful against the pension plan that would not and you are to the benefit of mr sake or in his attempts to individuals with relationships with customers very very close to the customer you understand to say yes right and i am not aware of any of those situations we have  and the trustee continues to distribute advances as well as distribute any funds that is recovered thank you thank you turn to the rebuttal before i do that honor congress incorporated the bankruptcy codes of wins provisions and disappear for a reason and they did so with very special provisions to imbue the super trustee with the ability to avoid transfers of customer property it wasn't brokerage property it's customer property so they had a special provision to give a super trustee special standing to avoid transfers that would be it would have been customer property but for the fact that they were transferred these are very special provisions any bankruptcy or insolvency practitioner this is special stuff it was incorporated for a reason it should not be ignored simply because the trustee would ask for a custom rule to be created to enable it to disregard enter account the what the trustee is asking for here goes a lot further than what the court ruled in the net equity decision because we're not dealing with the transfer  claim we're dealing with the transferees claim it's a totally separate person or entity and in fact under sipper there's a mandate that the customer property  of a separate customer be deemed separate in the end this is in the definition of net equity two different customers have different claims their claims cannot be confused or put together and that's basically what the trustee has done here the trustee has taking a an equity deficiency that he found in the transfer account and he's punishing the transferee for that and that is expressly prohibited by the statute so this goes way beyond what the net equity decision does and i just want to point out that in this court's decision in the five forty sixty case where the court affirmed the limitation on forging transfer actions to two years from the date of the filing the court recognized the sanctity of settlement payments and this is a settlement payment it's recognized under state law it's recognized under federal securities law it's recognized under separate this is a transfer from one stranger one a separate account holder to another separate account holder that is a settlement payment which was recognized for years some of these transfers go back to the hundred eighty s and i think the court is taking the net equity decision way beyond anything that it that's typical is ever asked for sipek has never taken this position before in any case  q to consider the let me just make sure that i got your point transfers that million to a spouse or a child and puts it into another made off account even though we know that there was no million dollars at best it was a hundred thousand  for a million dollars it has they has to be credited with that million dollars yes because what you're doing is you're looking back in two thousand and eight and a transfer that may have taken place in  that had no substance to it although the hundred thousand dollar contribution at least in my hypothetical in your hypothetical but it is hypothetical because as mr vander rose pointed out we are litigating the issue of when the fraud actually started so what if if the court adopts the trustees position here what's going to happen under a statute which clearly was intended to promptly satisfy customer claims promptly within months here we are it's two thousand and seventeen may have confessed in two thousand and eight we're going to have to litigate in every one of these cases when the money went into the transfer account because it could have been cash that was deposited in the transfer account the day before it went to the transferee account and the only basis on which the trustee can say well the transfer or counted and have that million dollars in equity is by saying well i'm going to look at the transfer account and i see that over the last twenty five years they've taken out more than they put in therefore this new contribution of a million dollars is simply going to cure a deficiency in the past i don't believe that anyone in congress intended for there to have to be a factual hearing with respect to every interest can transfer and it's easy enough to cut it off at the net equity level with the customer but step is a huge step which i think the statute  her let me begin by saying it turns out that the trustee and sepak think you were in a customer and if there's any cause of action it's from your pension plan which took out a great deal of money what's wrong with that it's time in two thousand and eight when made a loss becomes a bankrupt and goes into sipek bankruptcy  sager account i've gotten lost in the shuffle in this case because of the main proponent so i have a little you yes i had my own separate account forgive me your honor and how much did you deposit in that account  deposited i deposited one hundred eighty four thousand i got that back but my account started you got them back yes yes but i also deposited i a true cash transfer i thought i'm not asking for the amount of my cash transfer all i've been asking for is which i am entitle to as a transfer really in a bankruptcy the amount of my net equity you know if i took out in the two years prior to the made off bankruptcy one hundred seventy five thousand then i put in they can claw it back because under five forty eight  the bankruptcy code judge rake off his rule i have a good faith defense and the trustee and judge requests for fourteen to doubt that what you're entitle to claim is the flipside of what they could not c back so congress is indicated that someone who is put money in to the extent has a claim under septic there's no basis for me to sue and i won't see law partner widows for crying out loud who did nothing who were innocent transferees long before a statute of limitations that's not realistic and there is just revisionist history today to say that i didn't put in one hundred seventy five  pension plan put in what difference does it make i have to pay once from a reputable law firm that you saw in the record that show i put in one hundred seventy five thousand differences is that you are not a customer it doesn't in two thousand and eight i guess i ate something from my broker made off elliot sacre sipek insured it says you hear the advertisements you see it on television insured up to five hundred thousand dollars doesn't that mean something at least to the extend of my cash in the second circuit opinion looks to me special at two forty of the record but no party has contested availability of advances under separate to cushion the impact of made off fraud why have they said that two people in the last statement method surely someone who is not asking for the last statement the million plus that i thought was in my accounting for my family for retirement and i asked for that i thought it is appropriate only to ask for my cash in i have not sought other people's money so i want absolutely clear what they're trying to claw back because that money what else of course you're honor this is i know you're not supposed to call it insurance but back in packer wilber days you're allowed to quote insurance and when president nixon set it up it's supposed to be like the c the world thinks it's insurance and i'm not saying that they have to protect all loss of the market went down so be it ike i accept that but at least own it insult to injury the cruelest could avoid all in this case is that i've not only been screwed by made off but to use your on his words i'm getting screwed by the i beg to say f d i c i'm getting screwed by sipek they should acknowledge and have the grace to acknowledge that i put in one hundred seventy