To amend the Securities Investor Protection Act of 1970 to determine a customer's net equity based on the customer's last statement, to prohibit certain recoveries, to change how trustees are appointed, and for other purposes.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Equitable Treatment of Investors 
Act''.

SEC. 2. SECURITIES INVESTOR PROTECTION ACT OF 1970 AMENDMENTS.

    (a) Net Equity Based on Last Statement.--Section 16(11) of the 
Securities Investor Protection Act of 1970 (15 U.S.C. 78lll(11)) is 
amended to read as follows:
            ``(11) Net equity.--
                    ``(A) In general.--The term `net equity' means the 
                dollar amount of the account or accounts of a customer, 
                to be determined by--
                            ``(i) calculating the sum which would have 
                        been owed by the debtor to such customer if the 
                        debtor had liquidated, by sale or purchase on 
                        the filing date--
                                    ``(I) all securities positions of 
                                such customer (other than customer name 
                                securities reclaimed by such customer); 
                                and
                                    ``(II) all positions in futures 
                                contracts and options on futures 
                                contracts held in a portfolio margining 
                                account carried as a securities account 
                                pursuant to a portfolio margining 
                                program approved by the Commission, 
                                including all property collateralizing 
                                such positions, to the extent that such 
                                property is not otherwise included 
                                herein; minus
                            ``(ii) any indebtedness of such customer to 
                        the debtor on the filing date; plus
                            ``(iii) any payment by such customer of 
                        such indebtedness to the debtor which is made 
                        with the approval of the trustee and within 
                        such period as the trustee may determine (but 
                        in no event more than sixty days after the 
                        publication of notice under section 8(a)).
                    ``(B) Treatment of certain commodity futures 
                contracts.--A claim for a commodity futures contract 
                received, acquired, or held in a portfolio margining 
                account pursuant to a portfolio margining program 
                approved by the Commission or a claim for a security 
                futures contract, shall be deemed to be a claim with 
                respect to such contract as of the filing date, and 
                such claim shall be treated as a claim for cash.
                    ``(C) Treatment of accounts held by a customer in 
                separate capacities.--In determining net equity under 
                this paragraph, accounts held by a customer in separate 
                capacities shall be deemed to be accounts of separate 
                customers.
                    ``(D) Reliance on final customer statement.--
                            ``(i) In general.--In determining net 
                        equity under this paragraph, the positions, 
                        options, and contracts of a customer held by 
                        the debtor, and any indebtedness of the 
                        customer to the debtor, shall be determined 
                        based on--
                                    ``(I) the information contained in 
                                the last statement received by the 
                                customer from the debtor before the 
                                filing date; and
                                    ``(II) any additional specific 
                                confirmations of the customer's 
                                positions, options, contracts, or 
                                indebtedness received after such last 
                                statement but before the filing date.
                            ``(ii) Fraud exception.--The provisions of 
                        this subparagraph shall not apply to any 
                        customer that--
                                    ``(I) knew the debtor was involved 
                                in fraudulent activity with respect to 
                                any customer of the debtor; or
                                    ``(II) was a person that--
                                            ``(aa) was, or was required 
                                        to be, registered with the 
                                        Securities and Exchange 
                                        Commission under the securities 
                                        laws (as such term is defined 
                                        under section 3(a) of the 
                                        Securities Exchange Act of 1934 
                                        (15 U.S.C. 78c(a)));
                                            ``(bb) knew, or should have 
                                        known, that the debtor was 
                                        involved in fraudulent activity 
                                        with respect to any customer of 
                                        the debtor; and
                                            ``(cc) did not notify SIPC, 
                                        the Commission, or law 
                                        enforcement personnel that the 
                                        debtor was involved in such 
                                        fraudulent activity.''.
    (b) Prohibition on Certain Recoveries.--Section 8 of the Securities 
Investor Protection Act of 1970 (15 U.S.C. 78fff-2) is amended by 
adding at the end the following new subsection:
    ``(g) Prohibition on Certain Recoveries.--Notwithstanding any other 
provision of this Act, a trustee may not recover any property 
transferred by the debtor to a customer before the filing date unless, 
at the time of such transfer, such customer--
            ``(1) knew the debtor was involved in fraudulent activity 
        with respect to any customer of the debtor; or
            ``(2) was a person that--
                    ``(A) was, or was required to be, registered with 
                the Securities and Exchange Commission under the 
                securities laws (as such term is defined under section 
                3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 
                78c(a)));
                    ``(B) knew, or should have known, that the debtor 
                was involved in fraudulent activity with respect to any 
                customer of the debtor; and
                    ``(C) did not notify SIPC, the Commission, or law 
                enforcement personnel that the debtor was involved in 
                such fraudulent activity.''.
    (c) Appointment of Trustees.--
            (1) In general.--Section 5(b)(3) of the Securities Investor 
        Protection Act of 1970 (15 U.S.C. 78eee(b)(3)) is amended to 
        read as follows:
            ``(3) Appointment of trustee and attorney.--
                    ``(A) In general.--If the court issues a protective 
                decree under paragraph (1), such court shall forthwith 
                appoint, as trustee for the liquidation of the business 
                of the debtor and as attorney for the trustee, such 
                persons as the court determines best fit to serve as 
                trustee and as attorney from among the persons selected 
                by the Commission pursuant to subparagraph (B). The 
                persons appointed as trustee and as attorney for the 
                trustee may be associated with the same firm.
                    ``(B) Commission candidates.--With respect to a 
                debtor and upon the court issuing a protective decree 
                under paragraph (1), the Commission shall forthwith 
                provide the court with a list of candidates for the 
                position of trustee and attorney for the trustee for 
                such debtor.
                    ``(C) Disinterest requirement.--No person may be 
                appointed to serve as trustee or attorney for the 
                trustee if such person is not disinterested within the 
                meaning of paragraph (6), except that for any specified 
                purpose other than to represent a trustee in conducting 
                a liquidation proceeding, the trustee may, with the 
                approval of SIPC and the court, employ an attorney who 
                is not disinterested.
                    ``(D) Qualification.--A trustee appointed under 
                this paragraph shall qualify by filing a bond in the 
                manner prescribed by section 322 of title 11, United 
                States Code.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect with respect to trustees and attorneys 
        appointed after the date of the enactment of this Act.

SEC. 3. EFFECTIVE DATE.

    Except as provided under section 2(c)(2), the amendments made by 
section 2 shall take effect with respect to a liquidation proceeding 
under the Securities Investor Protection Act of 1970 that--
            (1) was in progress on the date of the enactment of this 
        Act; or
            (2) is initiated after the date of the enactment of this 
        Act.

Summary: Equitable Treatment of Investors Act - Amends the Securities Investor Protection Act of 1970 to revise the definition of net equity. Declares also that, in determining net equity, the positions, options, and contracts of a customer held by the debtor, and any indebtedness of the customer to the debtor, shall be determined based on: (1) the information contained in the last statement received by the customer from the debtor before the filing date. And (2) any additional specific confirmations of the customer's positions, options, contracts, or indebtedness received after such last statement but before the filing date. Prohibits reliance on the final statement of the debtor to customer, however, if the customer: (1) knew the debtor was involved in fraudulent activity with respect to any of its customers. Or (2) as a registrant under the securities laws, or a person required to be so registered, knew, or should have known, that the debtor was involved in such a fraudulent activity and did not notify the Securities Investor Protection Corporation (SIPC), the Securities Exchange Commission (SEC), or law enforcement personnel that the debtor was so involved. Prohibits a trustee in a liquidation proceeding from recovering any property transferred by the debtor to a customer before the filing date unless, at the time of such transfer, the customer meets the same critieria. Transfers from SIPC to the SEC authority to nominate to a court persons for appointment as trustee for the liquidation of a debtor's business and as attorney for the trustee.