So, one thing very clear is that, if the final statements are not used as the measure of net equity, lots of people will never see a dime from SIPC for years, directly contrary to Congress' desire for promptness, a desire stated both in the legislative history and in the statute. And those who are older may, prior to receiving any distribution, and accordingly after years of penury, suffer the fate remarked by Casey Stengel when he said "Most people my age are dead at the present time." Such will be the fate visited on people by SIPC and the Trustee though they and their representatives continuously tell us - - including at the oral argument - - how sympathetic they are to the victims and how much they regret what happened to them. Well, as someone once said (I think), or as is close to what someone once said, "By your deeds are ye known."
Then there was the argument on behalf of Carl Shapiro. Shapiro, it is clear, was one of those who floated Madoff, to the tune of hundreds of million of dollars and literally from the very beginning in the early 1960s until the very end in 2008. Shapiro's lawyer, Stanley Fishbein, has no problem with the victims' argument that the final statement controls because there were real securities here, as in the relevant part of New Times. But if the judge should adopt the Trustee's argument that the final statement does not control because the trading was fictitious, well then, says his lawyer, Shapiro still should get credit for vast amounts he had in Madoff because his account was not a participant in the split strike conversion strategy, but instead had real securities bought and sold for it, made huge profits on Microsoft when the trading supposedly was real, and should continue to be credited with huge profits over the years because, as in the relevant part of New Times, Shapiro's account set forth profits from the appreciation of real securities, not from phony trades. (Though, of course, the alleged purchase of real securities for Shapiro's account was just as phony as was the split strike conversion activity.) So, what Fishbein is saying in essence is that, even if cash-in/cash-out governs and limits us ordinary mortals, who had to use split strike conversion, it does not govern and limit the fabulously wealthy man who floated Madoff for fifty years, because his account is predicated on appreciation of real securities, not on trading profits from split strike conversion. (Pp. 122-125.) Isn't that position a fine how-do-you-do? Shapiro, who floated Madoff, wins. The innocent victims lose.
I will conclude with two matters that are major: the interesting questions of (i) the relationship between net equity and customer property, and (ii) insurance. Sheehan's argument at the hearing on net equity and customer property, strike me as confusing, even deeply confusing. But I think I've got it right. The Trustee and SIPC are saying that all distributions to victims come out of so-called customer property, which the Trustee is looking for all over the world and is suing Madoff confederates to recover. (The question of estate property is irrelevant here). Therefore the $500,000 that a victim may get comes out of customer property; it is an advance on a victim's (ratable) share of customer property. It is therefore not insurance. Rather, it is, as said, an advance on one's share of customer property.
To determine one's share of customer property - - to determine what one should get from customer property - - you must determine one's net equity. So, if a person's net equity were one one thousandth of total net equity, one would get one one thousandth of the customer property.
Because your share of customer property is based on your net equity, it is unfair to use the amount shown in your final statement as your net equity, because this would result in a portion of the customer property being allocated to people who previously took out from Madoff more than they put in, while lessening the amount of customer property going to people who have never taken out a dime. (The amount going to the latter will necessarily be lessened because there will not be sufficient recovered customer property to pay off everyone in full on the basis of their final statements.)
Since it would be unfair for people who have taken out more than they put in to get a share of customer property, and to thereby lessen the share going to people who have never taken anything out, which would be the result if the final statements were used to calculate net equity, we must instead use cash-in, cash-out to calculate net equity, because that insures that the amount you receive in customer property will only be proportional to the amount of real money you had in Madoff - - and remember, the advance of money up to $500,000 that you get from SIPC comes from, and is a part of, customer property. And coming from customer property it is not insurance. Rather, it is an advance on, and from, customer property. True, Senators sometimes said in the legislative history (e.g., in the Senate Report) that it is insurance, but they are wrong.
The foregoing is how I, at least, understand the argument made by SIPC and the Trustee at the oral argument, and made by them before that for about a year. My understanding is given credence by such statements as Sheehan's at the oral argument that:
Your Honor, " let's not get confused over what we are dealing with here because we are in this case, because we are in Madoff, the world just doesn't go upside down. It stays right and steady. We stay with the fact that we are dealing with a fund, a fund of customer property, and it is out of that which distributions take place."
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