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Irving Picard's Three Percent Commission In The Madoff Case.

By       Message Lawrence Velvel     Permalink
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            There seems to me to be a good deal wrong with this as a systemic matter.  SIPC is a quasi governmental entity in my opinion (it is set up under a complex statute, for example), although some, maybe many, would claim -- only the worse for Picard’s position here -- that it is a private company.  So, as trustee for SIPC, Picard must be acting as a private, or, at best, quasi governmental officer, not a government official.  The bankruptcy court, on the other hand, is a governmental body, and therefore the trustee in bankruptcy must be acting in a governmental capacity. So what you have here is a self-interested private or at best quasi governmental body and trustee (SIPC and Picard as SIPC’s trustee) making a crucial decision (the definition of net equity) that will play a major role in establishing the compensation of a governmental officer (Picard as bankruptcy trustee).  That does not seem proper to me.  Is there any other example of where it is done?


Even worse, conceivably, it is systemically the case that Picard is unavoidably, even if unintentionally, involved in self dealing.  For as SIPC trustee he is involved in establishing and enforcing a rule that will affect his compensation as bankruptcy trustee.  Maybe this could be thought bearable if all that was happening was that he was enforcing a standard definition of net equity, a definition that is commonly used.  But this is not what is happening.  What is happening, rather, is that Picard -- whether at SIPC’s direction or not -- has created and enforced a novel rule, a rule that is, to boot, greatly injuring the very people that Congress established SIPC to help:  investors who have lost huge sums of money and in many cases have lost everything.  How self dealing can possibly be allowed in such cases -- even if it results from a systemic problem rather than a perhaps unlikely Picardian venality regarding the three percent commission -- simply escapes me.


            There is even a line of cases in this country which bears on the problem.  They are the cases usually referred to as the Tumey v. Ohio line of cases.  They began in the Supreme Court with Tumey in 1927, and the latest opinion in the Supreme Court was delivered just a few days ago, on June 8th, in what I will refer to, with total lack of reverence for the supposed niceties, as the West Virginia three million dollar judicial bribery case.  (Caperton v. A.T. Massey Coal Co. Inc., No. 08-22 O.T. 2008, decided June 8, 2009.)  The underlying idea is that, where a judge or administrator has a pecuniary interest in the outcome of a case, whether that interest be personal or on behalf of an institution he heads (e.g., a village of which he is mayor), he must not sit on the case as a judge.  In the June 8th case, a three million dollar campaign contribution from a party meant that a West Virginia Supreme Court Justice should not have sat on the party’s case.


            To be sure, Picard, as Trustee, is not a judge.  And there will later be judges who rule on the matter, although it is equally true that there are (often already ruined) people who are so frightened of possible clawbacks arising from Picard’s novel and niggardly definition of net equity that they have not yet and may never file a claim, but instead will waive a SIPC claim and thus would not benefit from a later ruling against Picard by judges (assuming judges would have the courage to rule against SIPC, Picard, and their rationalizations).  Also, one could argue on Picard’s behalf that something analogous to his situation has been permitted to exist, despite extensive criticism, in so-called forfeiture cases, where police forces can decide whether to seize property and then are permitted to keep (and sell) what they seize in order to help fund themselves this way.  Yet one still thinks the Tumey rule should apply here.  For the idea that an official can make a decision which can benefit him personally to the tune of tens or scores of millions of dollars, while injuring victims in the face of a statute whose passage was an expression of congressional solicitude for the victims and of a congressional desire to help them, is just too much.  The West Virginia judge was forbidden to do this because of a campaign contribution of “only” three million dollars.  Picard, even if only because of the system rather than personal venality, has done it in a matter that could mean tens or scores of millions of dollars in income for him personally.  I really don’t think this should be allowed, whether systemically caused or caused by other reasons.* 

* This posting represents the personal views of Lawrence R. Velvel.  If you wish to comment on the post, on the general topic of the post, or on the comments of others, you can, if you wish, post your comment on my website,  All comments, of course, represent the views of their writers, not the views of Lawrence R. Velvel or of the Massachusetts School of Law.  If you wish your comment to remain private, you can email me at   

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In addition, one hour long television book shows, shown on Comcast, on which Dean Velvel, interviews an author, one hour long television panel shows, also shown on Comcast, on which other MSL personnel interview experts about important subjects, conferences on historical and other important subjects held at MSL, and an MSL journal of important issues called The Long Term View, can all be accessed on the internet, including by video and audio.  For TV shows go to:; for conferences go to:; for The Long Term View go to:­_LTV.htm.

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Lawrence R. Velvel is a cofounder and the Dean of the Massachusetts School of Law, and is the founder of the American College of History and Legal Studies.

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