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

Heading: The SIPA Liquidation

Text: 6 On May 18, 2000, the District Court ordered that New Times, a registered member of SIPC, 3 be liquidated pursuant to SIPA. Upon the recommendation of SIPC, the court appointed James W. Giddens to serve as the Trustee for the New Times liquidation. The proceeding was referred to the United States Bankruptcy Court for the Eastern District of New York (Stan Bernstein, Bankruptcy Judge ). (New Age remained in receivership under the jurisdiction of the District Court.) 7 During a standard SIPA liquidation, the trustee must satisfy net equity claims of customers of the failed broker-dealer. 15 U.S.C. § 78fff(a)(1)(A)-(B). Each customer's net equity is the dollar amount of the account or accounts of a customer, to be determined by calculating the sum which would have been owed by the debtor to such customer if the debtor had liquidated, by sale or purchase on the filing date, all securities positions of such customer corrected for any indebtedness of such customer to the debtor on the filing date. 4 Id. § 78 lll (11). These net equity claims are paid first by a pro rata distribution of customer property, which is defined as cash and securities held by the debtor (excluding any non-negotiable securities held in a particular customer's name). Id. § 78 lll (4). 8 SIPC maintains a substantial reserve fund that is supported by assessments on SIPC members' revenues and by interest generated from its investments in U.S. Treasury notes. 5 See id. § 78ddd(a), (c); see also Sec. Investor Prot. Corp. v. BDO Seidman, LLP, 222 F.3d 63, 66 (2d Cir.2000); U.S. GENERAL ACCOUNTING OFFICE, PUB. NO. GAO-03-811, SEC. INVESTOR PROT.: UPDATE ON MATTERS RELATED TO THE SIPC 8 (2003), available at http:// www.gao.gov (2003 GAO REPORT). To the extent that a customer's net equity exceeds his ratable share of customer property, the trustee may use SIPC advances from this fund to pay customers in cash or to purchase replacement securities for a customer. 6 15 U.S.C. §§ 78fff-2(d), 78fff-3(a). 9 These SIPC advances are subject to one of two limits under SIPA, which is why the determination of whether a customer has a claim for cash or a claim for securities must be made. SIPA provides that the SIPC shall advance to the trustee such moneys, not to exceed $500,000 for each customer, as may be required to pay or otherwise satisfy claims for the amount by which the net equity of each customer exceeds his ratable share of customer property. Id. § 78fff-3(a). If, however, any portion of that claim is a claim for cash, as distinct from a claim for securities, the amount advanced to satisfy such claim for cash shall not exceed $100,000 for each such customer. Id. § 78fff-3(a)(1). 10 Early in the New Times liquidation, the Trustee's review of the operations of New Times and New Age revealed extensive intermingling of the two entities in communications with the public. Br. for Appellants James W. Giddens and SIPC at 5. As a result, with the approval of SIPC, the Trustee moved for an order substantively consolidating the estates of New Times and New Age ... so as to maximize recovery to victims of Goren's fraudulent activities, irrespective of whether they had dealt with New Times, the broker-dealer entity or New Age, the non broker-dealer entity. Id. The SEC filed a brief in support of such a consolidation, and on November 27, 2000, the Bankruptcy Court granted the Trustee's motion. As a result, the assets and liabilities of the two entities were pooled and the combined estate has since been administered by the Trustee under the jurisdiction of the Bankruptcy Court. Customer claims have been determined according to SIPA and the debtor, for SIPA purposes, includes both New Times and New Age for claims arising after April 19, 1995, which is the date that New Times became an SEC-registered broker-dealer and a member of SIPC. 11