Opinion ID: 786487
Heading Depth: 2
Heading Rank: 1

Heading: the conflicting interpretations of sipa

Text: 20 We review de novo the District Court's conclusions of law, including its interpretation of SIPA and the Series 500 Rules. See Gurary v. Nu-Tech Bio-Med, Inc., 303 F.3d 212, 219 (2d Cir.2002), cert. denied, 538 U.S. 923, 123 S.Ct. 1583, 155 L.Ed.2d 314 (2003); Levy v. Southbrook Int'l Inv., Ltd., 263 F.3d 10, 14 (2d Cir.2001), cert. denied, 535 U.S. 1054, 122 S.Ct. 1911, 152 L.Ed.2d 821 (2002). 21 In this case, the SEC has outlined an interpretation of section 9(a)(1) of SIPA that plainly conflicts with the interpretation being pressed by SIPC and the Trustee. 9 All three agree, however, that (i) the Claimants were customers pursuant to SIPA because they deposited cash with the debtor for the purpose of purchasing securities, 15 U.S.C. § 78 lll (2); (ii) the securities in question did not exist and, thus, could not be liquidated or replaced by the Trustee; (iii) the Series 500 Rules do not govern this case; and (iv) the Trustee properly measured the Claimants'net equity by reference to the amount of money they paid to Goren and the Debtors to purchase the bogus funds. 10 22 At this point, the interpretations diverge. The Trustee and SIPC work backward from the determination of the Claimants' net equity, which is the sum they would have been owed by the Debtors if the Debtors had liquidated, on the filing date, all of the Claimants' securities positions. See 15 U.S.C. § 78 lll (11). Because here there were no securities to liquidate, the Trustee had to value the claims according to the amount of cash that the Claimants initially paid to the Debtors for their investments in the New Age Funds. For that reason, SIPC and the Trustee conclude the claims are properly viewed as cash claims under section 9(a)(1) and, thus, limited to $100,000 in SIPC advances. See id. § 78fff-3(a)(1). 23 The SEC rejects this outcome-oriented test, instead focusing on Congress's intent in creating the distinction between the two types of claims and, derivatively, on satisfaction of the customer's legitimate expectations. According to the SEC, the Claimants should be treated as having claims for securities — regardless of the fact that the securities were fictitious — because they received purchase confirmations and account statements from Goren and the Debtors. Br. for Amicus Curiae SEC at 2, 8. 24 Before we consider whether and to what degree we ought to defer to either interpretation, we must examine the relationship between the SEC and SIPC. 25