April 1, 2011
Discursive Comments On The Oral Argument In The Court of Appeals
In The Madoff Case On March 3, 2011.
The final opponent to argue was Michael Conley of the SEC.
At inception Judge Jacobs asked him to distinguish the SEC's position, to the extent it is distinguishable, from the position of SIPC or the Trustee. Conley replied that the SEC is in agreement with them with regard to whether you look solely at the account statement or to all the books and records, but believes you must value the net equity claim in "constant dollars." (Tr. 63.) The Bankruptcy Court, he said, decided to consider the constant dollar issue after the "initial determination" of net equity is made. (Tr. 63.) Thus, in the words of Justice Leval's question, "that issue of the constant dollars or the inflation adjusted dollars is not before us now." (Tr. 64.) It could be something to subsequently be decided below depending on how the Circuit rules, but it has not been briefed or decided and the Court is not called upon to decide it now.
Conley then reiterated the oft-made point that the Trustee must "discharge all obligations" of Madoff to a customer and said "that's exactly what the Trustee did" here after an extensive investigation. (Tr. 65.) In so saying, Conley was necessarily adopting the position, first advanced by Sheehan, that Madoff had no "obligation" to pay victims the fake profits that his own statements showed he owed them (and which Sheehan ultimately admitted would be recoverable in a fraud suit). It strikes me that it is nothing short of amazing for the SEC -- which was created to protect investors -- to take the position -- deeply injurious to investors -- that the crook does not owe investors what the statements he gave them showed they were owed (and what Madoff did give to people who closed out their accounts). For the agency created to protect investors to instead injure them in this way is further evidence of what has now been known for over two years: the SEC has abdicated its responsibilities, is incompetent, and is completely under the thumb of SIPC instead of supervising it as Congress intended. It is completely understandable that some people -- actually quite a few people, I believe -- think that Mary Schapiro, on whose watch this position was taken, should be dismissed.
None of this came up in the argument, however.