I 
114TH CONGRESS 
2D SESSION 
H. R. 5852 
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 provide the Securities 
and Exchange Commission with oversight of the Securities Investor Pro-
tection Corporation, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
JULY 14, 2016 
Mr. LUETKEMEYER (for himself, Mr. SESSIONS, and Mrs. CAROLYN B. MALO-
NEY of New York) introduced the following bill; which was referred to 
the Committee on Financial Services 
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 recov-
eries are prohibited, to provide the Securities and Ex-
change Commission with oversight of the Securities In-
vestor Protection Corporation, and for other purposes. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
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SECTION 1. 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 fol-
lows: 
‘‘(11) NET EQUITY.— 
‘‘(A) IN GENERAL.—The term ‘net equity’ 
means the dollar amount of the account or ac-
counts of a customer, to be determined by— 
‘‘(i) calculating the sum which would 
have been owed by the debtor to such cus-
tomer 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 con-
tracts and options on futures con-
tracts held in a portfolio margining 
account carried as a securities account 
pursuant to a portfolio margining pro-
gram approved by the Commission, in-
cluding all property collateralizing 
such positions, to the extent that such 
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property is not otherwise included 
herein; minus 
‘‘(ii) any indebtedness of such cus-
tomer 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 de-
termine (but in no event more than sixty 
days after the publication of notice under 
section 8(a)). 
‘‘(B) TREATMENT
OF
CERTAIN
COM-
MODITY FUTURES CONTRACTS.—A claim for a 
commodity futures contract received, acquired, 
or held in a portfolio margining account pursu-
ant to a portfolio margining program approved 
by the Commission or a claim for a security fu-
tures 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 de-
termining net equity under this paragraph, ac-
counts held by a customer in separate capac-
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and contracts reported to the customer as 
held by the debtor, and any indebtedness 
of the customer to the debtor, is greater 
than the net value of the customer as cal-
culated under clause (i) using the cus-
tomer’s last statement, then the determina-
tion of the net equity of the customer 
under this paragraph shall be done using 
the books and records of the debtor instead 
of the customer’s last statement. 
‘‘(iii) FRAUD EXCEPTION.—The provi-
sions of this subparagraph shall not apply 
to any customer that— 
‘‘(I) knew the debtor was in-
volved in fraudulent activity with re-
spect to any customer of the debtor 
which reasonably indicated a fraud 
adversely affecting a substantial num-
ber of customers; or 
‘‘(II) was a person that— 
‘‘(aa) was, or was required 
to be, registered— 
‘‘(AA) as a broker or 
dealer under the Securities 
Exchange Act of 1934; or 
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‘‘(BB) as an investment 
adviser under the Invest-
ment Advisers Act of 1940, 
or that would have been re-
quired to register as an in-
vestment adviser under the 
Investment Advisers Act of 
1940 but for section 203(m) 
of such Act; 
‘‘(bb) knew, or, due to the 
activities of such person causing 
such person to be described 
under item (aa), should have 
known, that the debtor was in-
volved in fraudulent activity with 
respect to any customer of the 
debtor; and 
‘‘(cc) did not notify SIPC, 
the Commission, or law enforce-
ment personnel that the debtor 
was involved in such fraudulent 
activity.’’. 
(b) ALLOCATION OF CUSTOMER PROPERTY TO CUS-
TOMERS.—Section 8(c) of the Securities Investor Protec-
tion Act of 1970 (15 U.S.C. 78fff–2(c)) is amended— 
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(1) in paragraph (1), by amending subpara-
graph (B) to read as follows: 
‘‘(B) second, to customers of such debtor, 
as described under paragraph (4);’’; and 
(2) by adding at the end the following: 
‘‘(4) ALLOCATION OF CUSTOMER PROPERTY TO 
CUSTOMERS.— 
‘‘(A) IN
GENERAL.—Allocations of cus-
tomer property to customers under paragraph 
(1)(B) shall be made such that customers share 
in customer property based on a methodology— 
‘‘(i) based on the net equity of a cus-
tomer, as determined using the last state-
ment issued by the debtor to the customer 
before the filing date; 
‘‘(ii) determined by the trustee, in 
consultation with the Commission; and 
‘‘(iii) approved by the court. 
‘‘(B) ALTERNATE METHODOLOGY.—If the 
trustee determines that allocating customer 
property in accordance with subparagraph (A) 
would be unfair and inequitable to a substantial 
segment of customers and would not fully serve 
the remedial purposes of this Act, allocations of 
customer property to customers under para-
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graph (1)(B) shall be made such that customers 
share in customer property based on a fair and 
reasonable methodology, with special consider-
ation for the typical, non-professional investor, 
that— 
‘‘(i) if the trustee determines that it is 
necessary in order to reach a fair and rea-
sonable result, is determined without re-
gard to section 16(11)(D); 
‘‘(ii) is determined by the trustee, in 
consultation with the Commission; and 
‘‘(iii) is approved by the court. 
‘‘(C) PUBLIC NOTICE AND COMMENT.—Be-
fore approving a proposed methodology under 
subparagraph (A)(ii) or subparagraph (B)(ii), 
the court shall— 
‘‘(i) notify customers and other inter-
ested parties that the court is considering 
the proposed methodology; and 
‘‘(ii) provide the customers and inter-
ested parties an opportunity to provide 
comments on the proposed methodology.’’. 
(c) PROHIBITION ON CERTAIN RECOVERIES.— 
(1) IN GENERAL.—Section 8 of the Securities 
Investor Protection Act of 1970 (15 U.S.C. 78fff–2) 
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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 
which reasonably indicated a fraud adversely affect-
ing a substantial number of customers; 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 
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, 
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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. 
(d) DEFINITION
OF CUSTOMER STATUS.—Section 
16(2)(B) of the Securities Investor Protection Act of 1970 
(15 U.S.C. 78lll(2)(B)) is amended— 
(1) in clause (ii), by striking ‘‘; and’’ and in-
serting a semicolon; 
(2) in clause (iii), by striking the period at the 
end and inserting a semicolon; and 
(3) by adding at the end the following new 
clauses: 
‘‘(iv) any person that had cash or se-
curities that were converted or otherwise 
misappropriated by the debtor (or any per-
son who controls, is controlled by, or is 
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under common control with the debtor, if 
such person was operating through the 
debtor), irrespective of whether the debtor 
held or otherwise had custody, possession, 
or control of such cash or securities; and 
‘‘(v) any other person that the Com-
mission, in its discretion and without any 
need for court approval, deems a customer 
of the debtor.’’. 
(e) COMMISSION OVERSIGHT OF SIPC.—Section 3 of 
the Securities Investor Protection Act of 1970 (15 U.S.C. 
78ccc) is amended by adding at the end the following: 
‘‘(f) COMMISSION OVERSIGHT OF SIPC.—The Com-
mission may— 
‘‘(1) direct SIPC to take any action pursuant to 
this Act that the Commission determines is nec-
essary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance 
of the purposes of this Act.; and 
‘‘(2) issue or revise any regulation under this 
Act.’’. 
(f) FUND REPLENISHMENT.—Section 4 of the Secu-
rities Investor Protection Act of 1970 (15 U.S.C. 78ddd) 
is amended by adding at the end the following: 
‘‘(j) FUND REPLENISHMENT.— 
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‘‘(1) REPLENISHMENT PLAN.—If the balance of 
the Fund decreases by 50 percent or more during a 
fiscal year, SIPC, in consultation with the Commis-
sion, shall establish and carry out a fund replenish-
ment plan, under which SIPC shall borrow in the 
public debt markets on terms and conditions which 
permit debt repayments and the reasonable buildup 
of fund reserves to be covered from existing annual 
assessments. 
‘‘(2) TRANSFER OF AMOUNTS WITH RESPECT 
TO FRAUDULENT DEBTORS.—If the Commission de-
termines that payments from the SIPC Fund will be 
required because the management of a debtor (or 
any person who controls, is controlled by, or is under 
common control with the debtor, if such person was 
operating through the debtor) committed fraud, the 
Commission may transfer amounts from a fund es-
tablished under section 308 of the Sarbanes-Oxley 
Act of 2002 (15 U.S.C. 7246) to the SIPC Fund, 
if the Commission determines that such transfer 
will— 
‘‘(A) enable prompt assistance to cus-
tomers of the debtor (or person); and 
‘‘(B) allow for the maintenance of ade-
quate resources in the SIPC Fund.’’. 
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(g) COMMISSION REPORT
ON LIQUIDATION PRO-
CEEDINGS.—Section 11(c) of the Securities Investor Pro-
tection Act of 1970 (15 U.S.C. 78ggg(c)) is amended by 
adding at the end the following: 
‘‘(3) 
REPORT
ON
LIQUIDATION
PRO-
CEEDINGS.—The Commission shall, after the end of 
the 90-day period beginning on the date that a liq-
uidation proceeding is commenced under this Act, 
promptly issue a report to the Committee on Finan-
cial Services of the House of Representatives and 
the Committee on Banking, Housing, and Urban Af-
fairs of the Senate providing the status of customer 
claims in such proceeding, including amounts paid 
under this Act to settle such claims and the amount 
of outstanding claims.’’. 
SEC. 2. EFFECTIVE DATE; RULE OF APPLICATION. 
(a) IN GENERAL.—The amendments made by section 
1 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 enact-
ment of this Act; or 
(2) is initiated after the date of the enactment 
of this Act. 
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(b) ONGOING PROCEEDINGS.—Notwithstanding sub-
section (a), with respect to a liquidation proceeding under 
the Securities Investor Protection Act of 1970 that was 
in progress on the date of the enactment of this Act— 
(1) section 8(c)(4) of the Securities Investor 
Protection Act of 1970, as added by this Act, shall 
not apply to such liquidation proceeding; and 
(2) the amendments made by section 1 shall not 
apply with respect to a customer involved in such 
proceeding if the trustee in such proceeding deter-
mines that the customer’s claims under the Securi-
ties Investor Protection Act of 1970, as in effect on 
the day before the date of enactment of this Act, 
have been fully satisfied. 
(c) PAYMENT REQUIREMENTS FOR CERTAIN PRO-
CEEDINGS.— 
(1) IN GENERAL.—The trustee with respect to 
a liquidation proceeding of a debtor under the Secu-
rities Investor Protection Act of 1970 shall make 
such delivery of securities or payment of amounts to 
the customers of the debtor as are necessary to sat-
isfy the net equity claims of such customers before 
the end of the 60-day period beginning on the date 
of the enactment of this Act— 
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(A) in the case of any proceeding that was 
in progress on the date of the enactment of this 
Act; and 
(B) in the case of any proceeding— 
(i) initiated after the date of the en-
actment of this Act; and 
(ii) with respect to which the Securi-
ties Investor Protection Corporation had 
been asked to initiate a proceeding against 
such debtor before the date of the enact-
ment of this Act and had refused. 
(2) 
REPORT
ON
FAILURE
TO
SATISFY 
CLAIMS.—If, with respect to a proceeding described 
under paragraph (1), the net equity claims of the 
customers of the debtor in such proceeding are not 
satisfied within the 60-day period required under 
such paragraph, the Securities and Exchange Com-
mission shall issue a report to the Committee on Fi-
nancial Services of the House of Representatives and 
the Committee on Banking, Housing, and Urban Af-
fairs of the Senate explaining why such claims were 
not satisfied before the end of such period. 
(d) DEFINITIONS.—For purposes of this section, the 
terms ‘‘customer’’, ‘‘debtor’’, ‘‘net equity’’, and ‘‘security’’ 
have the meaning given those terms, respectively, under 
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section 16 of the Securities Investor Protection Act of 
1970. 
Æ 
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