‘‘(cc) did not notify SIPC, 
the Commission, or law enforce-
ment personnel that the debtor 
was involved in such fraudulent 
activity.’’. 
(b) PROHIBITION ON CERTAIN RECOVERIES.— 
(1) IN GENERAL.—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.—Not-
withstanding 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, reg-
istered— 
‘‘(i) as a broker or dealer under the 
Securities Exchange Act of 1934; or 
‘‘(ii) as an investment adviser under 
the Investment Advisers Act of 1940, or 
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that would have been required to register 
as an investment adviser under the Invest-
ment Advisers Act of 1940 but for section 
203(m) of such Act; 
‘‘(B) knew, or, due to the activities of such 
person causing such person to be described 
under subparagraph (A), should have known, 
that the debtor was involved in fraudulent ac-
tivity with respect to any customer of the debt-
or; and 
‘‘(C) did not notify SIPC, the Commission, 
or law enforcement personnel that the debtor 
was involved in such fraudulent activity.’’. 
(2) CONSTRUCTION.—Nothing in this Act, or 
the amendments made by this Act, shall be con-
strued as prohibiting a trustee appointed under the 
Securities Investor Protection Act of 1970 from re-
covering property transferred by a debtor to a per-
son who is not a customer of the debtor. 
(c) APPOINTMENT OF TRUSTEES.— 
(1) IN GENERAL.—Section 5(b)(3) of the Secu-
rities Investor Protection Act of 1970 (15 U.S.C. 
78eee(b)(3)) is amended to read as follows: 
‘‘(3) APPOINTMENT OF TRUSTEE AND ATTOR-
NEY.— 
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‘‘(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 attor-
ney for the trustee may be associated with the 
same firm. 
‘‘(B) COMMISSION CANDIDATES.—With re-
spect 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 liq-
uidation proceeding, the trustee may, with the 
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approval of SIPC and the court, employ an at-
torney who is not disinterested. 
‘‘(D) 
QUALIFICATION.—A 
trustee 
ap-
pointed under this paragraph shall qualify by 
filing a bond in the manner prescribed by sec-
tion 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 amend-
ments made by section 2 shall take effect with respect to 
a liquidation proceeding under the Securities Investor Pro-
tection Act of 1970 that— 
(1) was in progress on the date of the enact-
ment of this Act; or 
(2) is initiated after the date of the enactment 
of this Act. 
Æ 
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