March 30, 2011
Discursive Comments On The Oral Argument In The Court of Appeals
In The Madoff Case On March 3, 2011.
As readers know, I had originally intended to do this essay in two parts. But it is proving so long and difficult to do that I shall divide it into more parts, and shall post them as I do them. This Part 2 will deal with the oral argument of the first opponent to argue, the General Counsel of SIPC, Josephine Wang.
Beginning by saying Madoff's statements are fictitious, Wang was immediately interrupted by Judge Raggi's comment that if victims had sued Madoff, he would have had to pay them what the statements showed they were owed. (Tr. 36.) Wang admitted this would have been true if Madoff had remained in business. The judge then asked why it should be different in regard to what SIPC has to pay. Wang said it is because SIPC is bound by a federal statute and that statute does not authorize a trustee to benefit certain customers at the expense of other customers; because the prices on the statements were back-dated; and because the profits or so-called profits, were fictitious. (Tr. 37.)
Judge Leval then asked "How is it at the expense of other customers when you're talking about . . . the funds coming from SIPC that measure for each customer independently how much that customer is entitled to?" (Id.) Wang's answer was that we're not talking just about the money coming from the SIPC fund, but about "customers who are all eligible to share pro rata in a fund of customer property." (Id.) Some withdrew their principal plus fake profits, which were other people's money, and others did not withdraw their principal, which was used to pay other investors.
Judge Raggi then wanted to know "where is this customer property coming from." (Tr. 38.) Wang said it's "all [the] property that was held . . . for customers," and includes what the Trustee initially found in the possession of Madoff and what he recovers by actions against third parties. (Tr. 38.) It is, said Wang, "shared pro rata among customers." (Id.) This means, she said in a confused way, that people who did not yet recover their principal will be sharing with people who already recovered their principal and will be receiving fake profits, which is unfair. (Tr. 38-39.)