Opinion ID: 786487
Heading Depth: 2
Heading Rank: 3

Heading: The Trustee's Determination: Claims for Cash vs. Claims for Securities

Text: 12 Over 900 claims have been filed in the liquidation proceeding. The fourteen Claimants whose reimbursement is the subject of this appeal are among 174 claimants who, fraudulently induced by Goren, invested in his bogus money market funds (the Funds or the New Age Funds). 7 It is worth noting that there is no suggestion that any of the Claimants, many of whom were elderly retirees, had any suspicion of Goren's criminality or of the non-existence of the New Age Funds in which he claimed to have invested their money. To the contrary, all of the Claimants have indicated that they believed they were investing in low-risk, conservative money market mutual funds. 13 To be clear — and this is the crucial fact in this case — the New Age Funds in which the Claimants invested never existed. They were not organized as mutual funds, they were never registered with the SEC and they did not issue any of the requisite prospectuses for investors. Although the Claimants received confirmations and monthly account statements indicating that their initial payments to the Debtors (and fictitious dividends) were invested in the New Age Funds, in reality, Goren had embezzled their money. 14 Because the claims were for non-existent securities, the Trustee concluded during the liquidation proceedings that the Claimants had claims for cash (eligible for only $100,000 in cash advances) and he valued those claims according to the amount paid to the Debtors for the purchase of the bogus shares, less any withdrawals or redemptions by the Claimants. Amounts shown on the Claimants' account statements as dividends or interest earned on the bogus funds were not included in the calculus. SEC v. Goren, 206 F.Supp.2d 344, 347 (E.D.N.Y.2002). The Trustee made it clear to the Claimants that any amounts they were owed in excess of $100,000 would be treated by the Debtors' estate as general unsecured claims, but the Trustee warned the Claimants that the consolidated New Age and New Times estate would likely lack funds to satisfy any general unsecured claims. Id. 15 Meanwhile, investors who were misled by Goren to believe that they were investing in mutual funds that in reality existed were treated much more favorably. Although they were not actually invested in those real funds — because Goren never executed the transactions — the information that these claimants received on their account statements mirrored what would have happened had the given transaction been executed. Br. for Appellants James W. Giddens and SIPC at 7 n. 6. As a result, the Trustee deemed those customers' claims to be securities claims eligible to receive up to $500,000 in SIPC advances. Id. The Trustee indicates that this disparate treatment was justified because he could purchase real, existing securities to satisfy such securities claims. Id. Furthermore, the Trustee notes that, if they were checking on their mutual funds, the securities claimants, in contrast to the cash claimants bringing this appeal, could have confirmed the existence of those funds and tracked the funds' performance against Goren's account statements. Id.