Source: http://www.jacksonvillelawyerhelp.com/bankruptcy/securities-investor-protection-act/
Timestamp: 2018-05-27 03:01:27
Document Index: 253847409

Matched Legal Cases: ['§ 741', '§ 78', '§ 78', '§78', '§ 78', '§ 78', '§ 78', '§ 78', '§ 78', '§ 78', '§ 78', '§ 78', '§ 78', '§ 78', '§ 78', '§ 78', '§ 507', '§ 78', '§ 78', '§ 78', '§ 78', '§ 78', '§ 78', '§ 78']

Securities Investor Protection Act | SIPA | Bankruptcy Lawyers
Securities Investor Protection Act | SIPA | Florida Bankruptcy
Securities Investor Protection Act SIPA
Overview of SIPA:
Typically, when a brokerage firm fails, the Securities Investor Protection Corporation (“SIPC”) arranges the transfer of the failed brokerage’s accounts to a different securities brokerage firm. If the SIPC is unable to arrange the accounts’ transfer, the failed firm is liquidated. In that case, the SIPC sends investors either certificates for the stock that was lost or a check for the market value of the shares.
Although the Bankruptcy Code provides for a stockbroker liquidation proceeding, 11 U.S.C. § 741 et seq., it is far more likely that a failing brokerage will find itself involved in a proceeding under the Securities Investor Protection Act of 1970 (“SIPA”) (15 U.S.C. §§ 78aaa et seq.), rather than a Bankruptcy Code liquidation case. Brokerage firms may be liquidated under the Bankruptcy Code, however, if the SIPC does not file an application for a protective decree with the district court or if the district court finds that customers of the brokerage firm are not in need of protection under the SIPA. 15 U.S.C. §§ 78eee.
History of the Securities Investor Protection Act SIPA:
Congress enacted the SIPA in reaction to this growing concern. The goal was to prevent the failure of more brokerage houses, restore investor confidence in the capital markets, and upgrade the financial responsibility requirements for registered brokers and dealers. Securities Investor Protection Corp. v. Barbour, 421 U.S. 412, 414 (1975). Congress designed the SIPA to apportion responsibility for carrying out the various goals of the legislation to several groups. Among them are the Securities and Exchange Commission (hereinafter referred to as SEC), various securities industry self- regulatory organizations, and the SIPC. The SIPA was designed to create a new form of liquidation proceeding. It is applicable only to member firms and was designed to accomplish the completion of open transactions and the speedy return of most customer property. Id.
Bankruptcy Liquidation Vs SIPA Liquidation in Bankruptcy Court
There is a fundamental difference in orientation between the two proceedings. There is a
statutory grant of authority to a SIPC trustee to purchase securities to satisfy customer net equity claims to specified securities. 15 U.S.C. §78fff-2(d). The trustee is required to return customer name securities to customers of the debtor (15 U.S.C. § 78fff- 2(c)(2)), distribute the fund of “customer property” ratably to customers (15 U.S.C. § 78fff-2(b)), and pay, with money from the SIPC fund, remaining customer net equity claims, to the extent provided by the Act (15 U.S.C. §§ 78fff-2(b) and 3(a)). A trustee operating under the Bankruptcy Code lacks similar resources. The Code seeks to protect the filing date value of a customer’s securities account by liquidating all non- customer name securities. SIPA seeks to preserve an investor’s portfolio as it stood on the filing date. Under SIPA, the customer will receive securities whenever possible.
15 U.S.C. § 78eee(a)(3)(A) provides that the SIPC may file an application for a protective decree with the U.S. district court if the SIPC determines that any member has failed or is in danger of failing to meet obligations to customers and meets one of the four conditions specified in 15 U.S.C. § 78eee(b)(1). This application is filed as a civil case in which the SIPC or the SEC or both are named as plaintiff, and the member securities firm is named as the debtor- defendant. In the event that the SIPC refuses to act under the SIPA, the SEC may apply to the U.S. District Court for the District of Columbia to require the SIPC to discharge its obligations under the SIPA. 15 U.S.C. § 78ggg(b). By contrast, customers of failing broker-dealers do not have an implied right of action under the SIPA to compel the SIPC to exercise its statutory authority for their benefit. Barbour ,421 U.S. at 425. Upon the filing of an application, the district court has exclusive jurisdiction of the debtor-defendant and its property.
[i.] shall stay any pending bankruptcy, mortgage foreclosure, equity receivership, or other proceeding to reorganize, conserve, or liquidate the debtor or its property and any other suit against any receiver, conservator, or trustee of the debtor or its property, and shall continue such stay upon appointment of a trustee …
[ii.] may stay any proceeding to enforce a lien against property of the debtor or any other suit against the debtor, including a suit by stockholders of the debtor which interferes with prosecution by the trustee of claims against former directors, officers, or employees of the debtor, and may continue such stay upon appointment of a trustee …
[iii.] may stay enforcement of, and upon appointment of a trustee … [if a protective decree is issued] … may continue the stay for such period of time as may be appropriate, but shall not abrogate any right of setoff, except to the extent such right may be affected under section 553 of Title 11, … and shall not abrogate the right to enforce a valid, nonpreferential lien or pledge against the property of the debtor; and
15 U.S.C. § 78eee(b)(2)(B)(I – iv) (emphasis added).
The case is removed to the bankruptcy court as an adversary proceeding for liquidation. No filing or removal fee is charged. The reason for using an adversary proceeding number is historical. Although the SIPA proceedings are not bankruptcy cases, by law certain procedures prescribed in chapters 1, 3, and 5, and subchapters I and II of chapter 7 of Title 11 of the U.S. Code are applicable in SIPA proceedings. In addition,
there is no related bankruptcy case number. Statistical reports to the Administrative Office should repeat the adversary number so that the Statistics Division will know it is a SIPA matter. Forms B111A (Adversary Proceeding Opening Report) and B111B (Adversary Proceeding Closing Report) should be used since this is an adversary proceeding. For adversary proceedings within the adversary SIPA proceeding, the clerk’s office should use the original adversary proceeding number for the related case number.
The SIPA provides for noticing of both customers and creditors. The noticing requirements provided for in 15 U.S.C. § 78fff- 2(a)(1) are performed by the trustee, not the clerk of the bankruptcy court. While the SIPA does not require a formal proof of claim for customers (other than certain insiders and their relatives), it does require a written statement of claim. The trustee will normally provide customers with claim forms and instructions. The claim form must be filed with the trustee rather than the clerk of the bankruptcy court. 15 U.S.C. § 78fff-2(a)(2). With limited, specified exceptions, no claim of a customer or other creditor can be allowed unless it is received by the trustee within six months after the initial publication of notice. 15 U.S.C. § 78fff-2(a)(3).
The purposes of a SIPA liquidation are: (1) to deliver customer name securities to or on behalf of customers; (2) to distribute customer property and otherwise satisfy net equity claims of customers; (3) to sell or transfer offices and other productive units of the debtor’s business; (4) to enforce the rights of subrogation; and (5) to liquidate the business as promptly as possible. 15 U.S.C. § 78fff(a). To the extent possible, consistent with SIPA, the liquidation is conducted in accordance with chapters 1, 3, 5 and subchapters I and II of chapter 7 of Title 11. 15 U.S.C. § 78fff(b). A section 341 meeting of creditors is conducted by the trustee. Noncustomer claims are handled as in an asset case. Costs and expenses, and priorities of distribution from the estate, are allowed as provided in section 726 of Title 11. Funds advanced by SIPC to the trustee for costs and expenses are recouped from the estate, to the extent there is any estate. 11 U.S.C. § 507.
The powers of the trustee in a SIPC case are essentially the same as those vested in a chapter 7 trustee appointed under Title 11. “In addition, a trustee may, with the approval of SIPC but without any need for court approval:
(3) margin and maintain customer accounts of the debtor . . .”
A SIPC trustee may reduce to money customer securities constituting customer property or in the general estate of the debtor. 15 U.S.C. § 78fff-1(b). The trustee must, however, deliver securities to customers to the maximum extent practicable. 15 U.S.C. § 78fff-1(b)(1). Subject to prior approval of SIPC, but again without any need for court approval, the trustee may also pay or guarantee any part of the debtor’s indebtedness to a bank, person, or other lender when certain conditions exist. 15 U.S.C. § 78fff- 1(b)(2).
1. To SIPC in repayment of advances made to the extent they were used to recover securities apportioned to customer property;
2. To customers of the debtor on the basis of their net equities;
3. To SIPC as subrogee for the claims of customers; and
4. To SIPC in repayment of advances made by SIPC to transfer or sell customer accounts to another SIPC member firm.
The trustee must deliver customer name securities to the customer if the customer is not indebted to the debtor. If indebted, the customer may, with the approval of the trustee, reclaim securities in his or her name upon payment to the trustee of all such indebtedness.
15 U.S.C. § 78fff-2(c)(2).
The law requires that SIPC make advances to the trustee in order to satisfy claims and otherwise liquidate the business. These advances are made to satisfy customer claims in cash, to purchase securities to satisfy net equity claims in lieu of cash, and to pay all necessary costs and expenses of administration and liquidation of the estate to the extent the estate of the debtor is insufficient to pay said costs and expenses. Any amount advanced in satisfaction of customer claims may not exceed $500,000 per customer. 15 U.S.C. § 78fff- 3(a). If part of the claim is for cash, the total amount advanced for cash payment must not exceed $100,000. 15 U.S.C. § 78fff-3(a)(1). The difference between cash payments and the maximum amount allowed can be satisfied by the delivery of securities, or cash in lieu of securities.
In certain situations, the SIPC may elect to utilize a direct payment procedure to the customers of a debtor, thereby avoiding a trustee and the courts. Certain preconditions must exist. The claims of all customers must aggregate less than $250,000, the debtor must be financially distressed as defined in the law, and the cost to the SIPC for direct payment process must be less than for liquidation through the courts. 15 U.S.C.
§ 78fff-4(a).
Saturday , // 70%
Sunday , // 90%
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