13. They estimate on page 22 that another $1.1 billion will be spent on lawyers and consultants. Wow!! This, of course, is SIPC money that would otherwise be available to victims.
14. P. 24: They say they in part gave effect to the final statement method -- so that customers would be eligible for advances of up to $500,000 rather than advances being limited to $100,000 (where a customer has only cash at the brokerage) -- because customers had a "reasonable expectation that securities were being held for them." ($500,000, not $100,000, is the limit for securities.) But they didn't use the FSM "beyond that" -- i.e., to measure net equity -- because the profits were fake. Yet it is preposterous to say (as they have said explicitly in briefs) that customers had a reasonable expectation that they owned securities because they got statements saying this, but did not simultaneously have a reasonable expectation that the value of the securities was as shown on the same statements. Has anyone ever heard of a customer saying, for example, "I expect I own securities because my statement shows this, but I don't expect the value of the securities are as shown in the very same statement."
15. Pp. 24-26: they list cases in which, they say, the final statement method has not been used to determine net equity. Based on my recollection of what was said in briefs filed on the net equity question in the Bankruptcy Court and in the Second Circuit, I think that some of these cases are not SIPA cases. They are, if memory serves, "straight bankruptcy" (i.e., non SIPA) cases. This should be checked out with lawyers who have focused on some or all of the cases in their briefs. They would include attorneys like Karen Wagner of Davis Polk and Jon Landers of Milberg. To the extent that I am right -- to the extent that these cases are not SIPC cases -- the answers provided on pages 24-25 are deliberately misleading because the question asks for cases in which SIPC used the CICO method, and the answer does not tell you that it lists cases which are not SIPC cases (and indeed implies falsely that the listed cases all are SIPC cases).
16. Pp. 25-26: On these pages they list four cases out of more than 314 (or about 1.3 percent) in which, they say, SIPC trustees brought avoidance actions. The number is tiny yet, necessarily, implicitly hearkens back to their prior assertions, discussed above, as to why there are few avoidance actions under SIPA -- assertions which depend on the fact that the reason they have enough money to pay off all claims in a given case without avoidance actions is because they deny most claims, so that there is only a small percentage of claims that they need to pay off. As far as I know -- and in reality I don't claim to really know -- they are right in claiming that avoidance actions were used in 1.3 percent of SIPC's cases, but again the accuracy of their claim that the listed cases involved avoidance actions should be checked with the lawyers who discussed the listed cases in their briefs, especially Wagner and Landers. (Such lawyers distinguished the cases and said they are inapplicable here, though inapplicability here would not seem to change the fact, if it is a fact (which should be checked), that trustees used avoidance actions in the cases.)
Larry Velvel
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