I don't pretend to necessarily understand the Commission's logic here. But it does seem to me that, if withdrawals were adjusted for inflation, they would have to be reduced below their ostensible dollar amount because, for example, $100,000 withdrawn in, say, 2000 was worth less in constant dollars than the same amount taken out in 1990. This would mean, I believe (and I would like to be corrected if I am wrong), that while the principal invested is being adjusted upward to reflect constant dollars, withdrawals would be adjusted downwards to reflect constant dollars. This would increase the amount a person is credited with in determining his net equity, would even result in some (lots of?) people having a positive net equity who otherwise have a negative net equity, would increase, perhaps greatly, the amount SIPC would have to pay out, and therefore could not be allowed. It is conceivable, isn't it, that this is the meaning of the otherwise at-least-to-me incomprehensible sentences in the SEC's brief that are quoted above?
In order to justify its minimal salve, the SEC, like SIPC and the Trustee, simply makes stuff up (and presents its inventions notwithstanding its contrary statement that it will save for a later brief the reasons why its salve is consistent with SIPA and cases). Some of what it makes up is identical to inventions by the Trustee and SIPC. But, before discussing its fictions, let me congratulate the SEC for recognizing and implicitly if not explicitly making a point that, as far as I remember, was mentioned in only two or three of the many prior briefs of victims themselves: the SEC recognizes the crucial fact that, unlike what is said by SIPC and the Trustee in their effort to pull the wool over people's eyes, this is not a mere bankruptcy case, in which bankruptcy rules are necessarily applied, but is instead a case for which SIPC was enacted in order to override bankruptcy rules. Generally speaking, the victims' side has failed to emphasize this enough or with sufficient explicitness. Yet it is the keystone in the arch of the victims' position, and one hopes it will be heavily emphasized in future.
Here is what the SEC itself said on the matter: It stated that, although it agrees with the Trustee that cash-in/cash-out should be used, nonetheless "the Commission disagrees with the Trustee's view that principles applicable in Ponzi scheme cases limit the claims of BLMIS customers to the actual net cash they invested. The customers' claims must be determined in accordance with the principles of SIPA, not by principles courts apply in resolving claims of Ponzi scheme victims." (SEC Brief, p. 9, emphasis added.) "Brokerage firm customers caught in Ponzi schemes that result in SIPA liquidation are treated differently than investors in Ponzi schemes that do not involve SIPC-member brokerage firms. SIPA is a product of Congressional concerns that customers of failed brokerage firms received the assets that should be in their accounts when the firm is placed in liquidation." (SEC Brief, p. 10, emphasis added.)
These statements, you know, are actually quite a smash at the position of SIPC and the Trustee, whose briefs are predicated on this being a bankruptcy case in which bankruptcy rules applicable to Ponzi schemes should be applied, and who spent perhaps ten or fifteen pages giving purported history lessons in each of their initial briefs in order to try to foist this fiction on the Court and the public. One hopes that the victims' lawyers will make use of the SEC's bombshell to say to Lifland in open court, and to say to other judges in future, "Your honor, the SEC itself, which has supervisory authority over SIPA, says SIPA and its handpicked Trustee are wrong in claiming this is merely a bankruptcy case in which they can apply the rules of bankruptcy to the net equity question." Personally, I think it is very important that this be said by the lawyers who argue for victims on February 2nd.
Yet, having recognized this truth, in arguing for its constant dollar theory in order to save SIPC's derriere, the SEC adopts certain arguments made by SIPC and the Trustee, and either elaborates on or invents others (I can't decide which it is).
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