II 

113TH CONGRESS 

1ST SESSION S. 1725 

To amend the Securities Investor Protection Act of 1970 to confirm that 

a customer’s net equity claim is based on the customer’s last statement 

and that certain recoveries are prohibited, to change how trustees are 

appointed, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

NOVEMBER 19, 2013 

Mr. VITTER (for himself, Mr. SCHUMER, and Ms. LANDRIEU) introduced the 

following bill; which was read twice and referred to the Committee on 

Banking, Housing, and Urban Affairs 

A BILL 

To amend the Securities Investor Protection Act of 1970 

to confirm that a customer’s net equity claim is based 

on the customer’s last statement and that certain recoveries are prohibited, to change how trustees are appointed, and for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Restoring Main Street 

5 Investor Protection and Confidence Act’’. 


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1 SEC. 2. SECURITIES INVESTOR PROTECTION ACT OF 1970 

2 AMENDMENTS. 

3 (a) NET EQUITY BASED ON LAST STATEMENT.— 

4 Section 16(11) of the Securities Investor Protection Act 

5 of 1970 (15 U.S.C. 78lll(11)) is amended to read as fol6 lows: 

7 ‘‘(11) NET EQUITY.— 

8 ‘‘(A) IN GENERAL.—The term ‘net equity’ 

9 means the dollar amount of the account or ac10 counts of a customer, to be determined by— 

11 ‘‘(i) calculating the sum which would 

12 have been owed by the debtor to such cus13 tomer if the debtor had liquidated, by sale 

14 or purchase on the filing date— 

15 ‘‘(I) all securities positions of 

16 such customer (other than customer 

17 name securities reclaimed by such 

18 customer); and 

19 ‘‘(II) all positions in futures con20 tracts and options on futures con21 tracts held in a portfolio margining 

22 account carried as a securities account 

23 pursuant to a portfolio margining pro24 gram approved by the Commission, in25 cluding all property collateralizing 

26 such positions, to the extent that such 


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1 property is not otherwise included 

2 herein; minus 

3 ‘‘(ii) any indebtedness of such cus4 tomer to the debtor on the filing date; plus 

5 ‘‘(iii) any payment by such customer 

6 of such indebtedness to the debtor which is 

7 made with the approval of the trustee and 

8 within such period as the trustee may de9 termine (but in no event more than sixty 

10 days after the publication of notice under 

11 section 8(a)). 

12 ‘‘(B) TREATMENT OF CERTAIN COM13 MODITY FUTURES CONTRACTS.—A claim for a 

14 commodity futures contract received, acquired, 

15 or held in a portfolio margining account pursu16 ant to a portfolio margining program approved 

17 by the Commission or a claim for a security fu18 tures contract, shall be deemed to be a claim 

19 with respect to such contract as of the filing 

20 date, and such claim shall be treated as a claim 

21 for cash. 

22 ‘‘(C) TREATMENT OF ACCOUNTS HELD BY

23 A CUSTOMER IN SEPARATE CAPACITIES.—In de24 termining net equity under this paragraph, ac25 counts held by a customer in separate capacVerDate Mar 15 2010 23:11 Nov 20, 2013 Jkt 039200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S1725.IS S1725

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1 ities shall be deemed to be accounts of separate 

2 customers. 

3 ‘‘(D) RELIANCE ON FINAL CUSTOMER

4 STATEMENT.— 

5 ‘‘(i) IN GENERAL.—In determining 

6 net equity under this paragraph, the posi7 tions, options, and contracts of a customer 

8 reported to the customer as held by the 

9 debtor, and any indebtedness of the cus10 tomer to the debtor, shall be determined 

11 based on— 

12 ‘‘(I) the information contained in 

13 the last statement issued by the debt14 or to the customer before the filing 

15 date; and 

16 ‘‘(II) any additional written con17 firmations of the customer’s positions, 

18 options, contracts, or indebtedness re19 ceived after such last statement but 

20 before the filing date. 

21 ‘‘(ii) EXCEPTION WHEN DEBTOR’S

22 RECORDS INDICATE HIGHER VALUE.—Not23 withstanding clause (i), if the books and 

24 records of the debtor indicate that the net 

25 value of a customer’s positions, options, 


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1 and contracts reported to the customer as 

2 held by the debtor, and any indebtedness 

3 of the customer to the debtor, is greater 

4 than the net value of the customer as cal5 culated under clause (i) using the cus6 tomer’s last statement, then the determina7 tion of the net equity of the customer 

8 under this paragraph shall be done using 

9 the books and records of the debtor instead 

10 of the customer’s last statement. 

11 ‘‘(iii) FRAUD EXCEPTION.—The provi12 sions of this subparagraph shall not apply 

13 to any customer that— 

14 ‘‘(I) knew the debtor was in15 volved in fraudulent activity with re16 spect to any customer of the debtor 

17 which reasonably indicated a fraud 

18 adversely affecting a substantial num19 ber of customers; or 

20 ‘‘(II) was a person that— 

21 ‘‘(aa) was, or was required 

22 to be, registered— 

23 ‘‘(AA) as a broker or 

24 dealer under the Securities 

25 Exchange Act of 1934; or 


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1 ‘‘(BB) as an investment 

2 adviser under the Invest3 ment Advisers Act of 1940, 

4 or that would have been re5 quired to register as an in6 vestment adviser under the 

7 Investment Advisers Act of 

8 1940 but for section 203(m) 

9 of such Act; 

10 ‘‘(bb) knew, or, due to the 

11 activities of such person causing 

12 such person to be described 

13 under item (aa), should have 

14 known, that the debtor was in15 volved in fraudulent activity with 

16 respect to any customer of the 

17 debtor; and 

18 ‘‘(cc) did not notify SIPC, 

19 the Commission, or law enforce20 ment personnel that the debtor 

21 was involved in such fraudulent 

22 activity.’’. 

23 (b) ALLOCATION OF CUSTOMER PROPERTY TO CUS24 TOMERS.—Section 8(c) of the Securities Investor Protec25 tion Act of 1970 (15 U.S.C. 78fff–2(c)) is amended— 


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1 (1) in paragraph (1), by amending subpara2 graph (B) to read as follows: 

3 ‘‘(B) second, to customers of such debtor, 

4 as described under paragraph (4);’’; and 

5 (2) by adding at the end the following: 

6 ‘‘(4) ALLOCATION OF CUSTOMER PROPERTY TO

7 CUSTOMERS.— 

8 ‘‘(A) IN GENERAL.—Allocations of cus9 tomer property to customers under paragraph 

10 (1)(B) shall be made such that customers share 

11 in customer property based on a methodology— 

12 ‘‘(i) based on the net equity of a cus13 tomer, as determined using the last state14 ment issued by the debtor to the customer 

15 before the filing date; 

16 ‘‘(ii) determined by the trustee, in 

17 consultation with the Commission; and 

18 ‘‘(iii) approved by the court. 

19 ‘‘(B) ALTERNATE METHODOLOGY.—If the 

20 trustee determines that allocating customer 

21 property in accordance with subparagraph (A) 

22 would be unfair and inequitable to a substantial 

23 segment of customers and would not fully serve 

24 the remedial purposes of this Act, allocations of 

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1 graph (1)(B) shall be made such that customers 

2 share in customer property based on a fair and 

3 reasonable methodology, with special consider4 ation for the typical, non-professional investor, 

5 that— 

6 ‘‘(i) if the trustee determines that it is 

7 necessary in order to reach a fair and rea8 sonable result, is determined without re9 gard to section 16(11)(D); 

10 ‘‘(ii) is determined by the trustee, in 

11 consultation with the Commission; and 

12 ‘‘(iii) is approved by the court. 

13 ‘‘(C) PUBLIC NOTICE AND COMMENT.—Be14 fore approving a proposed methodology under 

15 subparagraph (A)(ii) or subparagraph (B)(ii), 

16 the court shall— 

17 ‘‘(i) notify customers and other inter18 ested parties that the court is considering 

19 the proposed methodology; and 

20 ‘‘(ii) provide the customers and inter21 ested parties an opportunity to provide 

22 comments on the proposed methodology.’’. 

23 (c) PROHIBITION ON CERTAIN RECOVERIES.— 

24 (1) IN GENERAL.—Section 8 of the Securities 

25 Investor Protection Act of 1970 (15 U.S.C. 78fff–2) 


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1 is amended by adding at the end the following new 

2 subsection: 

3 ‘‘(g) PROHIBITION ON CERTAIN RECOVERIES.—Not4 withstanding any other provision of this Act, a trustee 

5 may not recover any property transferred by the debtor 

6 to a customer before the filing date unless, at the time 

7 of such transfer, such customer— 

8 ‘‘(1) knew the debtor was involved in fraudulent 

9 activity with respect to any customer of the debtor 

10 which reasonably indicated a fraud adversely affect11 ing a substantial number of customers; or 

12 ‘‘(2) was a person that— 

13 ‘‘(A) was, or was required to be, reg14 istered— 

15 ‘‘(i) as a broker or dealer under the 

16 Securities Exchange Act of 1934; or 

17 ‘‘(ii) as an investment adviser under 

18 the Investment Advisers Act of 1940, or 

19 that would have been required to register 

20 as an investment adviser under the Invest21 ment Advisers Act of 1940 but for section 

22 203(m) of such Act; 

23 ‘‘(B) knew, or, due to the activities of such 

24 person causing such person to be described 

25 under subparagraph (A), should have known, 


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1 that the debtor was involved in fraudulent ac2 tivity with respect to any customer of the debt3 or; and 

4 ‘‘(C) did not notify SIPC, the Commission, 

5 or law enforcement personnel that the debtor 

6 was involved in such fraudulent activity.’’. 

7 (2) CONSTRUCTION.—Nothing in this Act, or 

8 the amendments made by this Act, shall be con9 strued as prohibiting a trustee appointed under the 

10 Securities Investor Protection Act of 1970 from re11 covering property transferred by a debtor to a per12 son who is not a customer of the debtor. 

13 (d) APPOINTMENT OF TRUSTEES.— 

14 (1) IN GENERAL.—Section 5(b)(3) of the Secu15 rities Investor Protection Act of 1970 (15 U.S.C. 

16 78eee(b)(3)) is amended to read as follows: 

17 ‘‘(3) APPOINTMENT OF TRUSTEE AND ATTOR18 NEY.— 

19 ‘‘(A) IN GENERAL.—If the court issues a 

20 protective decree under paragraph (1), such 

21 court shall forthwith appoint, as trustee for the 

22 liquidation of the business of the debtor and as 

23 attorney for the trustee, such persons as the 

24 court determines best fit to serve as trustee and 

25 as attorney from among the persons selected by 


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1 the Commission pursuant to subparagraph (B). 

2 The persons appointed as trustee and as attor3 ney for the trustee may be associated with the 

4 same firm. 

5 ‘‘(B) COMMISSION CANDIDATES.—The 

6 Commission shall maintain a list of candidates 

7 for the position of trustee and attorney for the 

8 trustee for a debtor in a liquidation pro9 ceedings, and shall periodically update the list, 

10 as appropriate. With respect to a debtor and 

11 upon the court issuing a protective decree under 

12 paragraph (1), the Commission shall forthwith 

13 provide the court with such list. 

14 ‘‘(C) DISINTEREST REQUIREMENT.—No 

15 person may be appointed to serve as trustee or 

16 attorney for the trustee if such person is not 

17 disinterested within the meaning of paragraph 

18 (6), except that for any specified purpose other 

19 than to represent a trustee in conducting a liq20 uidation proceeding, the trustee may, with the 

21 approval of SIPC and the court, employ an at22 torney who is not disinterested. 

23 ‘‘(D) QUALIFICATION.—A trustee ap24 pointed under this paragraph shall qualify by 

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1 tion 322 of title 11, United States Code, except 

2 that neither SIPC nor any employee of SIPC 

3 shall be required to file a bond when appointed 

4 as trustee. 

5 ‘‘(E) PROHIBITION ON TRUSTEE SERVING

6 IN MULTIPLE LIQUIDATIONS.—A trustee may 

7 not be appointed under this paragraph if the 

8 trustee is currently serving as trustee for the 

9 liquidation of the business of another debtor 

10 under this Act.’’. 

11 (2) COMPENSATION FOR TRUSTEE AND ATTOR12 NEY.—Section 5(b)(5) of the Securities Investor 

13 Protection Act of 1970 (15 U.S.C. 78eee(b)(5)) is 

14 amended— 

15 (A) in subparagraph (A), by adding at the 

16 end the following: ‘‘The court shall publicly dis17 close all such allowances that are granted.’’; 

18 (B) by amending subparagraph (C) to read 

19 as follows: 

20 ‘‘(C) AWARDING OF ALLOWANCES.—When21 ever an application for allowances is filed pur22 suant to subparagraph (B), the court shall de23 termine the amount of allowances, giving due 

24 consideration to the nature, extent, and value of 

25 the services rendered.’’; and 


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1 (C) by adding at the end the following: 

2 ‘‘(F) SIPC DISCLOSURES.—SIPC shall 

3 issue quarterly public reports on— 

4 ‘‘(i) all payments made by SIPC to 

5 the trustee; 

6 ‘‘(ii) all other costs in connection with 

7 the liquidation proceeding, including legal 

8 and accounting costs; and 

9 ‘‘(iii) all additional expenses incurred 

10 by SIPC, and the nature of such ex11 penses.’’. 

12 (3) EFFECTIVE DATE.—The amendment made 

13 this subsection shall take effect with respect to 

14 trustees and attorneys appointed after the date of 

15 the enactment of this Act. 

16 (e) DEFINITION OF CUSTOMER STATUS.—Section 

17 16(2)(B) of the Securities Investor Protection Act of 1970 

18 (15 U.S.C. 78lll(2)(B)) is amended— 

19 (1) in clause (ii), by striking ‘‘; and’’ and in20 serting a semicolon; 

21 (2) in clause (iii), by striking the period at the 

22 end and inserting a semicolon; and 

23 (3) by adding at the end the following new 

24 clauses: 


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1 ‘‘(iv) any person that had cash or se2 curities that were converted or otherwise 

3 misappropriated by the debtor (or any per4 son who controls, is controlled by, or is 

5 under common control with the debtor, if 

6 such person was operating through the 

7 debtor), irrespective of whether the debtor 

8 held or otherwise had custody, possession, 

9 or control of such cash or securities; and 

10 ‘‘(v) any other person that the Com11 mission, in its discretion and without any 

12 need for court approval, deems a customer 

13 of the debtor.’’. 

14 (f) DETERMINATION OF NEED OF PROTECTION.— 

15 Section 5 of the Securities Investor Protection Act of 1970 

16 (15 U.S.C. 78eee) is amended— 

17 (1) in subsection (a)(3)— 

18 (A) by amending the heading for such 

19 paragraph by inserting ‘‘THE COMMISSION OR’’ 

20 before ‘‘SIPC’’; 

21 (B) in the first subparagraph (A)— 

22 (i) by inserting ‘‘The Commission or’’ 

23 before ‘‘SIPC may’’; and 

24 (ii) by inserting ‘‘the Commission or’’ 

25 before ‘‘SIPC determines’’; and 


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1 (C) by redesignating the second subpara2 graph (A) and the first subparagraph (B) as 

3 clauses (i) and (ii), respectively, and moving 

4 such clauses 2 ems to the right; and 

5 (2) in subsection (b)(1), by striking ‘‘applica6 tion by SIPC’’ and inserting ‘‘application by the 

7 Commission or SIPC’’. 

8 (g) TIMING OF SIPC ADVANCES; RESULT OF

9 DELAY.—Section 9 of the Securities Investor Protection 

10 Act of 1970 (15 U.S.C. 78fff–3) is amended by adding 

11 at the end the following: 

12 ‘‘(f) TIMING OF SIPC ADVANCES; RESULT OF

13 DELAY.— 

14 ‘‘(1) IN GENERAL.—SIPC advances made to 

15 satisfy customer claims pursuant to subsection (a) 

16 shall be made before the end of the 3-month period 

17 beginning on the date that is the end of the 6-month 

18 period described under section 8(a)(3), plus the 

19 amount of any extension granted under such para20 graph. 

21 ‘‘(2) RESULT OF DELAY.—If SIPC fails to 

22 make advances to the trustee in the period specified 

23 in paragraph (1), then for purposes of calculating a 

24 customer’s net equity under this Act, interest shall 


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1 accrue beginning on the date that is the end of the 

2 3-month period specified in paragraph (1). 

3 ‘‘(3) COURT DETERMINATION.—If the trustee 

4 determines that enough information has been pro5 vided to SIPC to make an advance pursuant to sub6 section (a), the trustee may petition the court to 

7 have the court direct SIPC to make such advance.’’. 

8 (h) TIMING OF PAYMENTS TO CUSTOMERS.—Section 

9 8(b) of the Securities Investor Protection Act of 1970 (15 

10 U.S.C. 78fff–2(b)) is amended— 

11 (1) in paragraph (1), by striking ‘‘and’’ at the 

12 end; 

13 (2) in paragraph (2), by striking the period at 

14 the end and inserting a semicolon; and 

15 (3) by inserting after paragraph (2) the fol16 lowing: 

17 ‘‘(3) upon petition by a customer, order the 

18 trustee to carry out the obligations of the trustee 

19 under this subsection with respect to such customer; 

20 and 

21 ‘‘(4) if the court determines that the trustee 

22 has improperly delayed carrying out the obligations 

23 of the trustee under this subsection, impose financial 

24 sanctions on the trustee.’’. 


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1 (i) COMMISSION AUTHORITY TO REQUIRE SIPC AC2 TION.—Section 11(b) of the Securities Investor Protection 

3 Act of 1970 (15 U.S.C. 78ggg(b)) is amended to read as 

4 follows: 

5 ‘‘(b) COMMISSION AUTHORITY TO REQUIRE SIPC 

6 ACTION.—In the event of the refusal of SIPC to commit 

7 its funds or otherwise to act for the protection of cus8 tomers of any member of SIPC, the Commission may re9 quire SIPC to discharge its obligations under this Act 

10 without court approval.’’. 

11 (j) LIMITATION ON SEC LOANS TO SIPC.—Section 

12 4(g) of the Securities Investor Protection Act of 1970 (15 

13 U.S.C. 78ddd(g)) is amended by inserting after ‘‘this Act’’ 

14 the following: ‘‘and the Commission, in consultation with 

15 the Secretary of the Treasury, determines that SIPC is 

16 unable to borrow in the public debt markets at reasonable 

17 terms (both as to yield and maturity)’’. 

18 (k) INSPECTION OF SIPC MEMBERS BY SEC AND

19 SELF-REGULATORY ORGANIZATIONS.— 

20 (1) IN GENERAL.—The Securities Investor Pro21 tection Act of 1970 (15 U.S.C. 78aaa et seq.) is 

22 amended— 

23 (A) in section 11, by adding at the end the 

24 following: 


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1 ‘‘(e) INSPECTION OF SIPC MEMBERS BY SEC.—The 

2 Commission shall carry out periodic inspections of SIPC 

3 members to ensure that the information such members 

4 provide to customers, including information contained in 

5 account statements and transaction confirmations, is ac6 curate.’’; and 

7 (B) in section 13(c)— 

8 (i) by redesignating paragraphs (1) 

9 and (2) as subparagraphs (A) and (B), re10 spectively, and moving such subparagraphs 

11 2 ems to the right; 

12 (ii) by striking ‘‘The self-regulatory 

13 organization’’ and inserting the following: 

14 ‘‘(1) IN GENERAL.—The self-regulatory organi15 zation’’; and 

16 (iii) by adding at the end the fol17 lowing: 

18 ‘‘(2) INSPECTION OF INFORMATION PROVIDED

19 TO CUSTOMERS.—Under such regulations as the 

20 Commission may prescribe, the self-regulatory orga21 nization of which a member of SIPC is a member 

22 or in which it is a participant shall inspect or exam23 ine such member to— 

24 ‘‘(A) assess the financial stability of such 

25 member; and 


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1 ‘‘(B) ensure that the information such 

2 member provides to customers, including infor3 mation contained in account statements and 

4 transaction confirmations, is accurate.’’. 

5 (2) REPORT.—Not later than the end of the 1- 

6 year period beginning on the date of the enactment 

7 of this Act, the Securities and Exchange Commis8 sion shall issue a report to the Committee on Finan9 cial Services of the House of Representatives and 

10 the Committee on Banking, Housing, and Urban Af11 fairs of the Senate on the implementation of the 

12 amendments made by this subsection. 

13 SEC. 3. EFFECTIVE DATE. 

14 Except as provided under section 2(d)(3), the amend15 ments made by section 2 shall take effect with respect to 

16 a liquidation proceeding under the Securities Investor Pro17 tection Act of 1970 that— 

18 (1) was in progress on the date of the enact19 ment of this Act; or 

20 (2) is initiated after the date of the enactment 

21 of this Act. 

Æ 


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