When Sheehan was in the midst of what appears to be his argument that Congress did not want the final statement to be used because it gave fictitious results, the judge interjected that "That is not uncommon in Ponzi scheme cases where no stock is ever purchased." (P.21.) Was Judge Lifland just making a statement of fact? Did he have in mind that Congress did not say "don't use the final statement in Ponzi cases, where securities are missing by definition"? Did he have something else in mind? One cannot know.
When Sheehan was beginning his argument that the Second Circuit's discussion in New Times regarding the treatment of fictitious securities should control here (because there was fictitious trading here), Judge Lifland interjected, "In that instance, aren't they talking about the class of claimants who received information on securities that never existed?" (P.35.) So the judge is well aware of the two different kinds of securities in New Times - - ones that existed in the real world and ones that did not. But it remains to be seen whether the Judge will nonetheless accept the argument of SIPC and the trustee that this case should be treated as the fictitious securities were in New Times because here the trading was fictitious although the securities were real. (Which, as I've said in previous posts, amounts to an argument that a fraudster's claim of buying and holding real securities, as in New Times, should be treated vastly different from a fraudster's claim of buying and selling real securities, as in Madoff.)
When Wang said a "customer" for SIPC purposes is one who gave a broker cash for the purpose of buying securities, the judge said, "Isn't that the position of most of claimants here that they deposited cash for that purpose?" (P. 45.) The purpose of the Judge's question, and what if anything it tells about Judge Lifland's thinking, is perfectly opaque to me. Was it merely to establish a fact? Does it implicitly indicate a sort of sotto voce skepticism about where the other side may be going with its arguments? Does it indicate something else? It beats me.
When the SEC's lawyer was arguing that not the final statement, but all of Madoff's books and records must be looked at to find out what was owed to victims, or that Madoff's obligation must be "otherwise established to the satisfaction of the Trustee" (P. 51), the judge interjected, "You mean the Trustee has a subjective position to interpret." The SEC's lawyer then denied - - very weakly - - that there was subjectivity, and Lifland responded "It's the satisfaction of the Trustee though it is a very subjective term." (P. 51.) Then when the SEC lawyer again responded - - weakly - - and further said "if the trustee were way off base on it, then perhaps you could say" - - the judge cut her off by saying, "Well the argument on the other side is that it is a deeper issue." (P. 52.)
Now, I find it impossible to know with any assurance what Lifland's comments mean. My best guess is that he is not enamored of an argument that gives vast subjective power to the Trustee - - judges often don't like such subjectivity because it opens the door to arbitrariness. Plus, he seems to be aware that the victims' side is making some important arguments that would defeat the SIPC/Trustee argument based on subjectivity. But in the end I don't pretend to know the import if any of his comments.
One last comment by Judge Lifland. When rebuttal began, the SEC's lawyer led off by saying that victims' lawyers had spoken of customer confidence having been shaken, by the belief that if they leave securities with brokers and if "there is a problem, that SIPC protection wouldn't be there." (P. 128.) But the SEC, she said, "has taken important steps to ensure it never happens again. I assure you we have taken this extremely seriously. It is devastating to us as well, although not in the same way." (P. 128.) At that point Judge Lifland interjected, "And Toyota is now saying the same thing." (P. 128.)
What is the import of this comment by the Judge? Was it just a wisecrack engendered by the similarity in the situations? - - by the ignoring in both cases of a problem known to the party (by the SEC and Toyota respectively) but ignored by it until the roof fell in? Does it mean more than that - - could it mean that the judge does not think the other side should be allowed to have ignored the problem and then, when the roof falls in, to change rules (at least in this case) in a way that injures the victims (and may thereby encourage additional reprehensible acts by malefactors in the future)? One really doesn't know, although it is obvious that the Judge's comment is unlikely to augur for the position of SIPC and the SEC.
Let me now leave personalia behind, in favor of matters more purely substantive, both doctrinally as well as substantively in the realm of professional competence. It is, I think, a professional judgment, not one born of favoritism, that causes me to say, in company with others, that the lawyers for the other side were not very good, while the lawyers for the victims were generally excellent. (At least I hope my judgment is professional rather than mere favoritism - - one might note in this connection that the Judge's sarcastic or questioning comments were directed mainly or wholly to lawyers for the other side.) But given the nature of the format of the argument - - which had to be split up among seven lawyers for our side, with a minimum of, or no, overlap or repetition - - it was inevitable that certain points did not receive as great an emphasis as might conceivably be desired. One thinks in particular of four arguments.
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