The situation would be even closer if the FDIC, in the example, were acting to save itself because it will run out of money, as may be -- and I think is -- what accounts for SIPC's action here, as has been discussed in a prior post.
Let me make yet one other point regarding net equity. So far people -- including me -- seem to have been operating under the assumption that if you have a negative net equity for purposes of SIPC, which so many do under Picard's cash-in/cash-out theory, then not only do you fail to get any money from SIPC, but you also have no right to any share of the estate, to any share of what I gather is called customer property by Picard and Harbeck. Put differently, what is net equity for SIPC purposes also controls for bankruptcy purposes: No net equity for SIPC purposes means no share in the bankruptcy estate. But reading some cases cited by Picard for his cash-in/cash-out theory makes me wonder whether this is necessarily true; makes me wonder whether what is net equity for SIPC purposes does control what one's share of the bankruptcy estate is. The cases cited by Picard were not SIPC cases; they were bankruptcy cases. For bankruptcy law, cash-in/cash-out might make some sense, because legitimate expectations, which are a linchpin of net equity under SIPC pursuant to both Congressional intent and case law, conceivably seem not pertinent in bankruptcy. So I would think it at least conceivable that under the law someone might have a positive net equity under SIPC because her November 30th statement is the legitimate expectation and the measure of net equity, yet have little or no interest in the bankruptcy estate because she took out more from Madoff than she put in. It may be that all of us, Picard included, have wrongly been conflating two ideas that are not necessarily the same.
Perhaps it is also possible that Picard is conflating the two ideas deliberately because he knows, as one expert told me (I think I understand him correctly), that clawbacks in bankruptcy are limited to 90 days. By using cash-in/cash-out to arrive at a negative net equity, and by using that negative net equity as the measure of a person's relationship to the estate, it is suggested (if I understand things rightly) that Picard is putting someone who received a nonfraudulent preference in the position of owing money to the estate. The money may not be collectible because of timing rules, I gather, but at least the investor won't have to be paid money by the estate (if I understand right, which may be questionable).
Let me close with a brief point which is on a different subject than net equity, but which relates to the Trustee. For months I have wondered -- and have written of the wonderment -- why Madoff had given what apparently is more than seven billion dollars to a guy who put in only about $1.5 billion, Jeffry Picower. The only thing I could think of was that maybe Picower was fronting for the Mafia or for one or more secret services. But someone has now told me a different possible reason which has an immediate ring of truth, though one cannot yet know if it is true and can only hope that Picard, the FBI and the U.S. Attorney are all tracking it down.
Picower used to specialize in promoting tax shelters. Did his tax shelters, as many do, involve foreign countries or foreign institutions in some way? Did he, like so many involved with shelters, meet all kinds of persons who are in the business of sheltering funds here and abroad for wealthy taxpayers. For maybe, you see, Madoff was sending all this money to Picower to hide it overseas for him. That would make sense. If it happened, it may be hard to trace the money to its final destination. Or maybe not, since there are records of bank transfers. One can only hope that Picard, the FBI and the U.S. Attorney are all looking into this because the idea that Madoff was sending money to a former tax shelter expert to hide it for him overseas may be far and away the best conjecture on why Madoff would send over seven billion dollars to someone who put in only about $1.5 billion.*
* 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, you can, if you wish, email me at Velvel@VelvelOnNationalAffairs.com.
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