Of course, though the SEC claims it agreed with SIPC because it favors the use of CICO, it is also true that the SEC, apparently because of Becker, favors including the time value of money in some way when calculating net equity. Depending on how it's calculated, the time value of money could amount to a considerable sum (e.g., if New York's 9 percent interest rate is used). To this extent it could be said that Becker did act in his own interest (and other victims' interest). In my mind this does not change the situation regarding the conflict, however. Lawyers and victims meeting with Becker were not seeking, and as far as I know had never at the time considered, using CICO augmented by the time value of money. They were seeking use of the FSM. Not to mention that, if Becker persuaded the SEC to use the time value of money, he was acting to feather his own nest, and he was engaging in an actual conflict, which cannot be good for the victims. And this is not even to mention that it might have been easier to persuade SEC staffers to include the time value of money in CICO than to persuade them to overturn an apparently already made decision in favor of CICO and substitute the FSM. For the time value of money is nothing but interest by a fancy name, and everybody understands the common garden variety appropriateness of paying interest. (Indeed, Picard is demanding interest from victims.)
So, to repeat, the real conflict from the standpoint of the victims is that Becker could not require the use of the FSM even if he had thoroughly agreed on the merits that it should be used, because he would have been accused of feathering his own nest by possibly evading clawbacks.
* * * * *
I have struggled unsuccessfully with how to present most of the details of the oral argument. The problem is that, prior to rebuttal, the argument seems to often consist of complex statutory and case exegeses, and mathematical examples that sometimes were difficult, all following each other in quick succession or strings, with the logical succession of ideas not always being apparent to a crystalline degree, and with all being designed to test or explain attorneys' positions on the pertinent question of the case; whether an innocent victim's net equity must be measured by his final account statement (under the section of the statute which defines net equity as being (in my own plain language) the obligation owed to the customer by the bankrupt broker, or whether the Trustee has discretion, because of the so-called books and records provision of SIPA, to look at the bankruptcy broker's books and records to determine that the account statements are all wrong, and accordingly has discretion to determine that the statements therefore should not be the measure of net equity because they are fake (though the customer had no way to know this). Both the net equity provision and the books and records provision, it will be useful to add, speak in relevant part of securities. In plain language, net equity is defined in relevant part as what the broker would have owed the customer if, on the date of bankruptcy, the broker would have liquidated the "securities positions" of the customer (minus certain other amounts of money), while the books and records provision says the Trustee "shall promptly discharge" "all obligations" of the broker to "a customer relating to, or net equity claims based upon, securities or cash . . . insofar as such obligations are ascertainable from the books and records of the [broker] or are otherwise established to the satisfaction of the Trustee."
Having sought unsuccessfully to think of a feasible better way to present the oral arguments on the ever present question, to present the to-ings and fro-ings on it, I shall, defeatedly, present the arguments "chronologically," so to speak, and therefore shall present, in a dull and pedestrian manner, what I think are the more important aspects of the oral hearing. There are a lot of them.
Near the very beginning, our first advocate said that the way you calculate net equity is a matter of "simple statutory application." (Tr. 3.) You "calculate[e] what would have been owed by the broker had the customers' securities positions been liquidated on the "[bankruptcy] date." To this Judge Jacobs immediately made a comment about which I have been unsuccessfully warning colleagues for a long time, and about which I wrote the NYC lawyers just prior to the argument. Jacobs commented that "Of course if the positions had actually been liquidated on the filing date, there would have been nothing there," which is a way of saying no victim would have been owed anything. Very creditably, our lawyer came up with an excellent answer, telling Jacobs that the absence of securities is irrelevant because, if they are not there, the Trustee "is obligated to go into the market to try to purchase" them in accordance with the ownership of them shown in the customer's statement. (Tr. 4.)
What our lawyer said was excellent, true, and shows that the absence of securities is irrelevant. But what was not said is that the legislative history specifically says, repeatedly, that securities which are missing or stolen -- which are not there -- must be bought and given to customers (something SIPC somehow gets away with never doing apparently, though its failure to do it is a serious, continuous violation of the statute).
The failure to insist that the legislative history says replacement securities must be obtained is symptomatic of a larger point. Early on most or all of the lawyers on our side in New York, and maybe even all the lawyers on our side except this ignorant writer, appear to have concluded that the language of the statute is dispositive in our favor. I have never understood this, precisely because of Jacobs' comment: if you merely follow the abstract language of the statute and look at the actual "securities" or "securities positions," there was, as Jacobs said, "nothing there." So you must in actuality look at the abstract words of the statute in the light of the legislative intent and the overall Congressional purpose, or in light of the general meaning of those words in law, or both. If you do, an important answer to Jacobs' comment, in addition to what our advocate said, was that you must use the final statement method to measure a customer's net equity position because the legislative history shows that Congress intended investors to be protected and said so many times; that the statements they receive from brokers are usually the only way customers know what they have after introduction of the street-name-holding system in conjunction with the passage of SIPA, which was requested by Wall Street; that Congress wanted SIPC to pay investors promptly, but this is impossible under CICO due to the necessity of years-long forensic analysis to determine what each investor put in and what he or she has taken out, so that CICO necessarily destroys a main pillar of Congressional intent; that Congress wanted to build investors' confidence in markets and protect investors' reasonable expectations and this is impossible, nor will investors be protected, if investors cannot rely on the only information they get as to the nature of their holdings -- cannot rely on it, no less, because a Trustee can ignore the information they received whenever he thinks it is fair to do so. And, in addition to Congressional intent, it is widely accepted law that a broker owes a customer what is shown to be owed in the statements he sends the customer, and neither the Trustee nor SIPC has shown even a scintilla of evidence that Congress desired to change this.
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