Comments On SIPC's Answers Of January 24th
To Questions Asked By Congressman Garrett.
February 11, 2011
A couple of people have asked for my reactions to SIPC's January 24th answers to questions posed to it by Congressman Garrett. Because SIPC's answers have now been made public, I am posting some slightly redacted comments I sent on January 28th to colleagues who are in or are working with NIAP.
1. Pages 2, 13-14: In discussing Picard's "compassion" and his hardship program, SIPC, as it often does, speaks in generalities (which courts, Congress, etc. too often accept without question). Here it is pretended that the hardship program is perfectly reasonable. Yet many victims, speaking of the information demanded of them, find the program deeply intrusive and violative of privacy. I think we should try to get an application to see for ourselves what is demanded and how intrusive the program is. Maybe some victims have and would give us "clean copies" of the applications that victims need to fill out.
2. The Trustee has reached settlements with some large institutions in which he has agreed to recognize their claims in return for payments to him of monies the institutions took out of Madoff. Yet these institutions would seem to be ones that at least "should have known" there was a fraud. Why did he agree to recognize claims of institutions which should have known something was wrong? Picard is implicitly saying that SIPA allows him to recognize the claims of the culpable, whose continuous shoveling of money to Madoff kept the fraud alive from 2000-2008 and thereby caused tremendous increased injury to a huge number of us. And why did Picard, conversely, refuse to recognize a claim on behalf of the Picowers? (I think it likely was because Picower himself was subject to criminal charges; also, his estate could have been sued under RICO.) And why did Picard not recognize a claim for Norman Levy, who, as the January 24th answers show, was a major Madoff player financially.
3. Page 2: Picard will need approval from Lifland to distribute funds to customers and an application is being prepared. We know, however, that the impoverished will get little or nothing from customer property (and indeed will be subjected to clawbacks), and that the customers who will get money are mainly the very wealthy and hedge funds -- while Picard and SIPC claim all the while that this is equity. We should try to find out who the funds and banks are who will be receiving money. Intimately related to the distribution of money is the question of when will enough money be in Picard's coffers so that possibly he could declare that a certain amount of it exceeds the "needs" of customer property and can be considered part of the general estate and used to pay fraud damages to victims.
Also intimately related to the forthcoming request to distribute money, I am sorry to say, is the question of the identity of the judge. We should have every expectation that as long as Lifland remains the judge, anything Picard wants to do will be approved -- and quickly. He is, I think, totally biased in Picard's favor -- Picard has, in fact, won everything in front of him as far as I know, except for some very minor aspects of major matters that Picard won, e.g., enlarging the number of potential mediators and removing Adele Fox's name from an injunction that applies to her anyway. If Picard says it is equitable and legally required to claw money from the now-poor to give to the still-rich, and that this is equity, Lifland will agree. (My experience with Lifland last Tuesday only reconfirms my views about his unshakeable bias in Picard's favor.) Similarly, Lifland will automatically rule in Picard's favor on such crucial issues as the (lowest possible) interest rate to be used in calculating fraud damages, the Trustee's demand for interest from the dates of withdrawals, which can double or triple the amount owed, defacto liens against monies refunded by the IRS, not crediting victims with earnings from short term investments, and other crucial issues. If Lifland continues to be the judge, it will almost certainly be deadly for our people.
In this regard, how did the case come to be assigned to Lifland? Was it a result of some completely random assignment process (of the kind used by District Courts)? Or, as Chief Judge of the Bankruptcy Court, did Lifland -- as we occasionally hear of in District Courts (with accompanying complaints) -- insist on taking the case himself? The answers to the question of how the case came to be assigned to him could be quite important.
4. In explaining why innocent investors are not usually the subject of avoidance in a SIPA case, SIPC -- as it has done since the beginning -- uses numerical examples carefully crafted to provide the answers it wants, while ignoring that the answers would be different if you use different numbers. This constitutes a form of lying with figures.
Moreover, SIPC's examples depend upon (i) there being enough customer property for everyone to be paid off without an avoidance action (a situation which Lifland told me at the oral argument is not germane to whether there should be a stay of proceedings against small innocent victims -- can you believe that?), and (ii) ignoring that its examples work only because it habitually turns down most claims -- about 90 percent of them, perhaps? If it didn't turn down most claims, there is no way, I believe, that it would have enough money to pay back all claims without avoidance actions. This is another example of SIPC failing to tell the real truth.
In this regard, SIPC should be asked to state what percentage of claims it has turned down over the years and what percentage it has granted.
5. SIPC's explanation of the logic behind its claim that investors have unsecured creditors' claims for fraud against the general estate is on pages 5-6.
6. On page 5 SIPC says if the Trustee is left "unfettered, he will be in the best position to help all of the victims." Of course, in the meanwhile, he will be desperately hurting the small now-impoverished so-called "net winners" -- which seems not to bother him at all. And he will be hurting them even though clawbacks from them are not necessary to pay off people.
7. Page 6: The SIPC fund is currently $1.23 billion. That is shockingly low. It shows SIPC has learned nothing and is still not listening to Congress. It also shows that the strategy is to pay victims (if at all) with money from other victims.