Let me acknowledge that there is a point of view which holds that, under the numbers released by the Trustee as to the number of Madoff accounts of one kind and another, SIPC, by use of its fund, and by drawing on its lines of credit, could nearly satisfy its obligations to Madoff victims under SIPA (obligations which, in this scenario are posited as being something over $2.5 billion, I believe). The burden of this view, if I understand it correctly, is that SIPC and the Trustee did not adopt cash-in/cash-out because of an inability to pay Madoff's victims. Rather they adopted it because they considered the Madoff circumstances to be propitious for changing the whole nature of SIPC's obligations regarding net equity.
I have to respectfully disagree with this viewpoint. I believe that, at the inception, and for many months afterwards, SIPC and the Trustee did not know the extent of SIPC's monetary obligations in the Madoff case under the final statements method -- or, perhaps more appropriately, the "final confirmations" method -- but they feared the worst since they knew Madoff had a huge number even of direct investors and they knew that paper losses were said to be in the 50-65 billion dollars range. If even 10,000 people each had a right under the final confirmation method to SIPC advances of only $400,000 on average (not $500,000), which is likely quite a lowball estimate of monetary rights under the final confirmation method of calculating net equity, SIPC would have been on the hook for four billion dollars. Change some of the assumptions and it might have been on the hook for five or six billion dollars or more. Early on it couldn't know the extent of its liability. But it certainly could, and I believe did, fear the worst. And even if it was on the hook for "only" $2.5 billion or somewhat more, which would wipe out its reserves and one or more lines of credit, etc., it certainly didn't want this to happen, with the concomitant huge hassles that would arise with Wall Street and with Congress -- which would demand to know how such a result could have come to pass. So SIPC had to find a way to drastically limit its liability to victims -- as it has done for decades, to the vast detriment of injured investors -- and it therefore settled on use of cash-in/cash-out.
Am I right about all this? Well, one cannot at this point know for sure because there has as yet been no discovery, and no Congressional investigation, into the matter. But I personally am likely to remain convinced I am right unless and until discovery in law cases or a Congressional investigation shows me wrong. I believe judicial discovery or a Congressional investigation would likely prove me right, not wrong, and that this is the real reason why SIPC and the Trustee raised holy hell when this lawyer sought relevant discovery on why cash-in/cash-out was used, discovery which was denied by the judge in a farcical "opinion" even though the Trustee has such an army of lawyers that there was no possibility that putting one or a few lawyers to work gathering the documents requested in discovery could materially delay the accomplishment of other work.
* * * * *
Let me now turn, as previously said, to some points that I consider very important but that, as near as I can tell, have not necessarily been picked up on yet by the lawyers who will argue for the victims on February 2nd. Now, the lawyers for the victims have written a sensational set of briefs; as one who has spent significant parts of my career writing briefs in the U.S. Supreme Court, where briefing is generally much better than in lower courts, I would nonetheless have to say that the set of briefs submitted by lawyers for Madoff victims is the equal of, or better than, any set I have seen elsewhere in nearly 47 years at the bar. But this is a very complex case, all of us are constantly picking up new ideas and facts, and it is not possible, I should think, for the lawyers to be totally abreast of everything all the time. So I shall set down some new ideas that have surfaced relatively recently and that I think are important, and shall hope lawyers for the victims are made aware of them and use them. If the lawyers are already aware of the ideas, then I apologize to them for my ignorance of their knowledge.
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