Some Important Ideas Regarding Madoff That May Not Have Been Picked Up On Yet, And Comments On The Mid January Briefs

There is one admission in the briefs of the SEC and SIPC that is surprising. Few lawyers on our side seem to have made the quite relevant, and I believe quite correct, argument that SIPC owes victims the securities shown in their November 30^th statements. Perhaps only Helen Chaitman and I have made the argument; it was a significant part of a brief I filed which showed that this was the remedy Congress wanted implemented whenever possible, in preference to providing victims with cash, so long as the securities could be purchased in a fair and orderly market. The argument also received discussion in Chaitman's papers.

The SEC admitted in its brief that "conceivably, it would be possible for the trustee to purchase real securities to cover the securities position shown on the account statements" (but said this shouldn't be done because the account statements were fictitious). (SEC Brief, p. 8.) SIPC did not go as far. It only admitted (though at some length) that providing customers with securities is Congress' preferred method, although it too, like the SEC, said this shouldn't be done where a securities position had been fictitious. Yet I know of nothing in the legislative history saying that securities should not be provided if the position was fictitious but was honestly believed by the investor. Instead, Congress specifically said in the legislative history that securities should be bought by the Trustee to replace securities that are "missing" -- as they are missing here -- if the purchase can be made in a fair and orderly market, i.e., a market not subject to manipulation, which can also be done here. All of this is extremely important because the securities that are missing here have gone up dramatically in value since December 11^th, and obtaining them, as Congress desired, would therefore be extraordinarily important, especially for people who have been impoverished. I don't know whether any of the victims' lawyers intend to make the argument for requiring SIPC to acquire and deliver securities, but someone should, the more so in light of the concessions by the TMT.

Finally, I note that SIPC's brief reiterates the truly offensive, ultra legalistic (if it even "rises" to that level) absurdity that victims are responsible for what Madoff did because he was their agent in committing fraud. Victims, SIPC says -- and I am going to quote its brief because it is hard to think people could believe it otherwise -- "are chargeable with the underlying fraud because they rely on BLMIS's fraudulent statements as the foundation for their "net equity' claims." (SIPC Brief, p. 23.) If victims wish to "disavow" Madoff's fraud and not be chargeable as principals of an agent, says SIPC, then the "first and most obvious step in disavowing the Debtor's fraud would be to reject, not rely on, the fraudulent statements generated and provided to Claimants by BLMIS." (Id., p. 25.) In short, the victims are culpably chargeable with Madoff's fraud because they rely on confirmations which the legislative history says are the usual measure of legitimate expectations, which they had no reason to disbelieve, by which they governed their lives for years, and which have been the measure of net equity previously in SIPC cases. This is, as said, a truly offensive argument, is as stupid as anything in the SEC's often stupid brief, and shows how desperate SIPC is. And this stupidity and offensiveness comes, I will not resist saying, in a brief that was filed by a quasi governmental body; in a brief filed by a quasi governmental body headed by a person who a few years ago was already making over $700,000 per year and in a quasi governmental brief whose lead signatory was already making somewhere around $400,000 a few years ago. With such monies going to the perpetrators of such offensiveness and stupidity, is it any wonder that the government is in continuous trouble and seems to be a general repository of incompetence?*

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