Friday, June 19, 2009

June 19, 2009

Re: SIPC’s Objections To The Posting Called “Irving Picard’s Three Percent Commission In The Madoff Case.”

To put it mildly, it is clear that SIPC has been the object of extensive criticism in the Madoff victims community. The criticism is, I suppose, only the stronger among those victims who are middle aged or elderly, were retired, were wiped out and have little or no money to live on, who have had to wait many months and may still be waiting for a recovery from SIPC, and who fear they may never receive a recovery. Recently, a Wall Street lawyer who has worked with the victims’ community filed a formal complaint in federal court saying explicitly, or in plain effect, that SIPC is looking out for Wall Street, not for victims.

Among the reasons SIPC and its Trustee, Irving Picard, have taken so much heat are (1) the amount of time they are taking; (2) the novel definition of net equity they are using, a definition which will cause lots of people to get nothing from SIPC, may result in clawbacks that otherwise would not occur, and is apparently causing much time to be consumed while SIPC calculates its version of net equity in what must be thousands of cases; (3) the assertion, apparently resulting from a decades-old decision, that I believe SIPC sought in the mid 1970s in the Morgan, Kennedy case, that persons who invested through groups such as pension funds, feeder funds or trusts are not individually eligible for recoveries; (4) a long held view, going back to before 2000 but lengthily written about on September 25th of that year by Gretchen Morgenson of the New York Times, that SIPC and its trustees pull out all the stops in trying to avoid providing recoveries to victims; (5) a concern that it is in the Trustee’s personal economic interest to use the novel definition of net equity because this could result in more being clawed back and distributed, thereby increasing the Trustee’s compensation up to, it is rightly or wrongly thought, a potential commission as high as three percent of the amount he distributes; and (6) yet other criticisms.

On Thursday, June 11th this author posted an article canvassing and presenting many of the criticisms that are raised. I don’t want to bore you by repeating the canvas, but nonetheless shall recapitulate some of the criticisms in summary fashion because this is important to a full understanding regarding a demand SIPC made to me that the entire article of June 11th be taken down -- or at least that an asserted mistake in it be corrected -- a demand for entire obliteration or at least correction made by phone by a SIPC public relations representative within two hours or so after the article was posted and that was then repeated the next day via emails from the PR representative plus accompanying emails from SIPC’s President, Stephen Harbeck.

Here is a brief summary of a number of the points made in the June 11th article:

• The Bankruptcy Code permits a court to grant the Trustee “reasonable compensation” not to exceed three percent on amounts distributed to victims in excess of one million dollars.

• Trustees generally seek compensation of the full amount allowable, and sometimes recover up to three percent of the amount distributed but sometimes don’t.

• The amounts allowable to Picard at a top level of three percent of the amount he distributes, would be obscene. They could be as much as 30 or 60 or 360 million dollars, depending on how much he recovers and distributes.

• The novel and niggardly definition of net equity adopted by SIPC and Picard will result in SIPC having to pay out less and in more being clawed back and distributed by Picard, and thus in more that Picard is eligible to be paid at a top limit of three percent.

• Picard is the main go-to guy for SIPC among a small coterie of people whom SIPC uses as trustees and for whom this is lucrative. He has handled more SIPC cases than anyone else, has handled its largest cases, and in one case gave recoveries to only 22 of 302 claimants.

• SIPC stands accused by lawyers of doing virtually anything and everything it can to insure that claimants do not recover, including using esoteric and/or technical agreements, making claimants run a gantlet of difficulties, and making arguments under which almost nobody could recover.

• A logical way for SIPC to minimize recoveries by claimants in the Madoff case is for it to define net equity in the novel and niggardly way it has. In this way it will avoid having to tap lines of credit or further and drastically increasing annual charges to the securities industry. Courts might uphold the novel and niggardly definition of net equity even though its legality is at best questionable.

• No one could expect Picard to oppose the novel definition put forth by SIPC, because to do so would be to bite the hand that feeds him. It is possible, indeed, and perhaps even probable, that the novel and niggardly definition of net equity was developed within SIPC and Picard “merely” went along with it.

• For various reasons, when Picard is involved in developing and enforcing a novel and niggardly definition of net equity that can result in him receiving more compensation, he is in a systemic position that is, or may be, or should be, impermissible under the law.

When the SIPC public relations representative called me about the article to demand that it be entirely taken down immediately or at minimum that a claimed mistake be corrected immediately, the burden of her argument -- I made extensive notes immediately after the conversation -- appeared to be that it is incorrect to say that Trustee Picard is eligible for a three percent commission under Section 326 of the Bankruptcy Act. She seemed to feel -- as is again reflected in my notes -- that I got this idea from an article in TIME/CNN online, which, as she said, had been changed after SIPC complained. I declined to do her bidding immediately on her say so alone, and said SIPC should send me all necessary materials to demonstrate the correctness of its position on all points on which it thought me wrong, and I would then make any and all needed corrections and retractions at one time. She then sent me, the next day, two emails, each accompanied by an email from Harbeck and each, more or less imperiously in my view, demanding that my post be taken down or at least corrected. Set forth below, so that you can read SIPC’s view as set forth by Harbeck himself, are the two emails from the PR person with Harbeck’s accompanying emails. First the email that was sent to me at 3:33 p.m. on Friday, June 12th:

Dean Velvel:

Please see the below from SIPC President Stephen Harbeck. Since SIPC oversees the trustees, this could not be more definitive. When should I expect that you will take down or correct your blog and OEN posting?

Ailis Aaron Wolf
(703) 276-3265

-------- Original Message --------
Subject: Velvel blog and OEN posting
Date: Fri, 12 Jun 2009 15:03:42 -0400
From: Stephen P. Harbeck
To: Ailis Aaron Wolf

References: <>

Picard cannot file a petition for a percentage. No trustee has ever done so in the 39 year history of this organization, in any of the 322 cases SIPC has initiated. That is definitive.

If he did so, SIPC would oppose it.

Dean Velvel is simply wrong, since his entire premise has no basis in fact or law.

Now the emails which were sent to me one hour and two minutes later on Friday, June 12th, at 4:35 p.m.:

Dean Velvel:

More from SIPC President Steve Harbeck. We look forward to seeing the correction/withdrawn blog posting.

-------- Original Message --------
Date: Fri, 12 Jun 2009 16:15:42 -0400
From: Stephen P. Harbeck
To: Ailis Aaron Wolf

CC: Josephine Wang

Dean Velvel bases his conclusions only on provisions of the Bankruptcy Code, but has apparently not read the provisions of the Securities Investor Protection Act which are applicable here. Under 15 U.S.C. §78eee(b)(5)(A), “the Court shall grant reasonable compensation for services rendered and reimbursement for proper costs and expenses incurred … by a trustee, and by the attorney for such a trustee….” Under 15 U.S.C. §78eee(b)(5)(E), allowances granted by the Court are paid out of any general estate of the debtor and if the general estate is insufficient, the allowances are paid with monies advanced by SIPC. Any recoveries by the trustee which are allocable to “customer property” cannot be used to pay administrative expenses. [Emphasis in original.]

Under 15 U.S.C. §78fff(b), enumerated provisions of the Bankruptcy Code apply to a SIPA liquidation, but only to the extent those provisions are consistent with SIPA. The “ 3% of recoveries concept” for compensation is inconsistent with SIPA That limitation appears in section 326(a) of the Bankruptcy Code which by its terms, applies to “a case under chapter 7 or 11.” Chapters 7 and 11 are part of the Bankruptcy Code which is contained in Title 11 of the United States Code. A SIPA liquidation proceeding is not a chapter 7 or 11 proceeding. It arises under SIPA which is contained in Title 15 of the United States Code. Furthermore, the 3% limitation on compensation to a trustee is inconsistent with SIPA and therefore, inapplicable, as mentioned above, under 15 U.S.C. §78fff(b).

SIPA allows a trustee to do a thorough and complete job, even where there is no general estate, with no diminution whatsoever in customer property. This is very different that a brokerage bankruptcy that SIPC is not involved with under Chapter 7, subchapter III. [Emphasis in original.]

Stephen P. Harbeck
President and CEO
Securities Investor Protection Corporation
805 15th St NW
Suite 800
Washington DC 20005
202 371-8300

Now it seems to me that a noteworthy point about the emails sent to me by SIPC peremptorily demanding complete obliteration, or at minimum correction, of the Thursday, June 11th posting is this: despite all the points damaging to SIPC made in the Thursday, June 11th posting, as far as I can see the Friday, June 12th emails from SIPC deny only one thing that I specifically said or am claimed to have said: Seeming to me to posit that my view is that a Trustee’s application would be couched in terms of three percent -- would say, for example, “Give me three percent of two billion dollars,” or “Give me three percent of ten billion dollars” -- the emails seem to me to deny only that Picard will or can specifically apply for a three percent commission. (Thus Harbeck’s first email says “Picard cannot file a petition for a percentage.” (Emphasis added.)) Seeming to me to say only that Picard’s application cannot be couched in terms of a percentage -- that he can’t say “give me three percent” - - Harbeck says that this can’t be done in a SIPC proceeding, has never been done in a SIPC proceeding, and SIPC would oppose it if it were done. That it has never been done is a fact within Harbeck’s knowledge (he has worked for SIPC for 34 years), not mine, so if he says it, it presumably is so. Ditto that SIPC would oppose it if it were attempted -- this is within Harbeck’s knowledge, not mine, so if he says it, it presumably is the case.

But could a trustee seek a total commission that would amount to three percent of monies recovered and distributed, even if he sought it not by specifically saying “Give me a three percent commission,” but rather via calculations made largely on an hourly fee basis plus, in the words of SIPC’s statute (in Section 78eee(b)(5)(C)), the “nature, extent and value of the services rendered?” And has a trustee ever done this? I at least don’t think Harbeck has answered these questions, questions which seem to me to merely present a simple backdoor method of obtaining a three percent commission. In his first email Harbeck, as mentioned, says only that “Picard cannot file a petition for a percentage.” (Emphasis added.) That would not seem to mean Picard could not file a petition seeking a sum that amounts to three percent, with the petition being couched in hourly fees plus “due consideration to the nature, extent and value of the services rendered,” phraseology which seems to me to allow for a possibly very hefty bonus in a case like Madoff. The statute does says the court “shall place considerable reliance on the recommendation of SIPC.” But might SIPC support rather than oppose a hefty bonus (for its go-to guy) in the Madoff case? Has it ever done so in other cases? Again, Harbeck does not seem to me to answer those questions. One notes, however, that a Bloomberg piece dated January 21st, which is still up and apparently has not been retracted, says that in another case involving “a $20 million fraud” (the Park South case), Picard received $1.05 million himself in a five year proceeding (while his law firm received $2.8 million). $1.05 million is not merely three percent, but is more than five percent of 20 million, assuming $20 million is what Picard collected and distributed. (Note that Picard claims that the 3 percent of recovery limitation on compensation is irrelevant in a SIPC case.) If Picard collected and distributed less than $20 million, his fee was higher than five percent of the amount distributed. If Picard collected and distributed a lot more than $20 million in Park South -- could that be possible? -- his fee was less than five percent, even less than three percent if he distributed about 34 million dollars or so.

Harbeck also says, in dense arguments that only a lawyer can love, that the three percent provision of the Bankruptcy Act cannot bear on Picard’s compensation because, as previously quoted:

Dean Velvel bases his conclusions only on provisions of the Bankruptcy Code, but has apparently not read the provisions of the Securities Investor Protection Act [SIPA] which are applicable here. Under 15 U.S.C. §78eee(b)(5)(A), “the Court shall grant reasonable compensation for services rendered and reimbursement for proper costs and expenses incurred . . . by a trustee, and by the attorney for such a trustee . . . .”

* * * * *

Under 15 U.S.C. §78fff(b), enumerated provisions of the Bankruptcy Code apply to a SIPA liquidation, but only to the extent those provisions are consistent with SIPA. The “ 3% of recoveries concept” for compensation is inconsistent with SIPA That limitation appears in section 326(a) of the Bankruptcy Code which by its terms, applies to “a case under chapter 7 or 11.” Chapters 7 and 11 are part of the Bankruptcy Code which is contained in Title 11 of the United States Code. A SIPA liquidation proceeding is not a chapter 7 or 11 proceeding. It arises under SIPA which is contained in Title 15 of the United States Code. Furthermore, the 3% limitation on compensation to a trustee is inconsistent with SIPA and therefore, inapplicable, as mentioned above, under 15 U.S.C. §78fff(b).

What Harbeck seems to me to mean in plain English instead of legalese is this: The three percent commission provision is in the Bankruptcy Code, not the Securities Investor Protection Act (SIPA). SIPA says there shall be reasonable compensation. Although SIPA admittedly says that Bankruptcy Code provisions do apply to a SIPA liquidation, this is not true when Bankruptcy Act provisions are inconsistent with SIPA provisions. The three percent provision of the Bankruptcy Code is inconsistent with SIPA because (i) the provision appears in a provision of that Code applying to cases under the so-called Chapters 7 and 11 of the Bankruptcy Code, and a SIPA proceeding is not under Chapters 7 and 11 of that Code but under SIPA, and (ii) simply because it just is inconsistent (i.e., it is inconsistent because it is inconsistent, due to the fact that it is inconsistent, because it is inconsistent, etc., so to speak).

Now, seven months ago I had probably never heard of SIPA or SIPC, and certainly I knew nothing about them. Whereas, Harbeck has been working for SIPC, and dealing with SIPA, for thirty-four years. So Harbeck should know all of this stuff a lot better than I, and I suppose I should therefore be disposed to take his word for things. Yet, I confess that I have difficulty understanding why what he says is right.

Why, for example, is the Bankruptcy Code provision containing the three percent limitation on compensation inconsistent with SIPA? Harbeck says, correctly, that SIPA (in §78eee(b)(5)(A), entitled “Allowances in General”), says a “court shall grant reasonable compensation for services rendered” by a trustee. But the two relevant Bankruptcy Code provisions -- Sections 326 and 330 -- also say that a trustee shall receive “reasonable compensation.” There seems nothing inconsistent there.

Of course, Section 326 of the Bankruptcy Code adds that reasonable compensation is “not to exceed three percent” of monies disbursed by a trustee in excess of one million dollars. Section 78e3ee(b)(5)(A) of SIPA has no such three percent limitation on what is reasonable. Are the two provisions inconsistent for that reason? Is it possible that Harbeck meant this? If he did mean this (and remembering that Picard may have made more than three percent of what he distributed in the Park South case), then it would appear that Harbeck might be trying to put one over on us by claiming inconsistency not because a SIPC Trustee cannot make up to three percent, as Harbeck at least seems to mean, but because a SIPC Trustee can make more than three percent, which on the face of matters Harbeck gives the impression of not seeming to mean.

So . . . . thus far I am at a loss to understand why Harbeck claims SIPA and the Bankruptcy Code are inconsistent with regard to the three percent idea. But my failure of understanding grows. Section 78eee(b)(5)(B) of SIPA, entitled “Application for Allowances,” says “Any person seeking allowances shall file with the court an application which complies in form and content with the provisions of Title 11 [the Bankruptcy Code] governing application for allowances under such title. (Emphasis added.) Doesn’t that seem clearly to mean that an application for compensation by the SIPC Trustee must adhere, “in form and content” with the three percent limitation contained in Section 326 of the Bankruptcy Code? Doesn’t it seem to mean that there is no inconsistency between SIPA and the three percent provision, but rather that the three percent limitation of Section 326 of the Bankruptcy Code is applicable and must be followed in a SIPC proceeding? This is what it seems to me to mean, and one wonders whether it conceivably has ever not been followed in a SIPC proceeding. (Was it at least conceivably not followed in Park South?)

But my failure of understanding grows still more. Section 78fff of SIPA, cited by Harbeck, says in §78fff(b), entitled “Application of Title 11” (i.e., application of the Bankruptcy Code), that “To the extent consistent with provisions of this chapter, a liquidation proceeding shall be conducted in accordance with, and as though it were being conducted under chapters 1, 3 and 5 and subchapters I and II of chapter 7 of title 11 (which, again, is the Bankruptcy Code). (Emphasis added.) The three percent provision is in the relevant part of the so-called chapter 3 of title 11. Since §78fff(b) of SIPA says a SIPA proceeding “shall be conducted” -- shall be conducted you notice -- in accordance with chapter 3 of the Bankruptcy Code, why is the three percent provision, which limits the amount of payment a trustee can get, supposedly inconsistent with SIPA?

So . . . . here is what we seem to be left with at this juncture. Harbeck has claimed the three percent provision of the Bankruptcy Code is irrelevant to a SIPA proceeding. He has been at SIPC for 34 years and should know about this a lot better than I, who knew zero -- zip, nada, nothing -- about SIPA or SIPC before Madoff was busted last December 11th. Yet the reasons Harbeck gives for claiming the three percent provision of the Bankruptcy Code is inconsistent with SIPA do not seem to a newbie like me to hold water. Rather, to this newcomer, they seem wrong. Also, the first of Harbeck’s two emails even gives the impression that all he meant was that a SIPC Trustee cannot in terms request a certain percentage -- cannot couch his petition for compensation in language like “Please award me three percent” -- even if he conceivably may be able to request a sum which might amount to three percent or more due to hourly charges and “the nature, extent and value of [his] services.” But, as said, I’m new at this and Harbeck is an old hand. If he wishes to provide reasons why this newbie’s reasoning is wrong and Harbeck is right with regard to the three percent, he is free to do so and I am sure, based on his emails to date, will feel free to do so and will not hesitate to let me and others know I am wrong.

* * * * *

I wish to close by mentioning some points, or developments, which do not go precisely to the question of the three percent provision but which provide part of the broader weltanschauung in which the matter arises. As said above and in the posting of June 11th, as far back as the year 2000, and earlier, there has been widespread feeling that SIPC messes over victims by using every strategy it can to deny them recovery or to limit their recovery. It also is apparently true that, at least as of the time Morgenson wrote her article in 2000, lawyers for SIPC had received more from it in total than victims did in total. (Was this still true just before the Madoff case?)

The complaints about SIPC reached a boiling pitch in the Madoff case because of what victims perceived as unfair treatment, delay, an unjustifiable definition of net equity, the threat of clawbacks, and a harshly-expressed attitude. Most recently a Wall Street lawyer, Helen Chaitman, filed a complaint in federal court claiming (i) SIPC’s Trustee in the Madoff case, Irving Picard, has acted (through his counsel) towards victims named Peskin in a way which, if what Chaitman says is true, can only be described as unconscionable even if there are statutory provisions which assertedly support it; (ii) that Picard and SIPC have acted illegally; (iii) that in the Madoff case SIPC is taking a position contrary to the position it took in other proceedings; (iv) that unlawful actions by Picard are designed to save SIPC billions of dollars it would otherwise have to pay victims, and (v) that given actions by Picard are not for the benefit of defrauded investors, “but rather simply for the benefit of SIPC and the broker-dealers that SIPC represents.” “Congress did not enact SIPA to enrich Wall Street” (which I note has been enriched to a fare thee well by actions it took that nearly destroyed the economy), Chaitman added.

This is all part of the weltanschauung in which the issue of the three percent arises. Also part of it are extensive complaints by victims that the mass media has vastly misrepresented their plight, the economic position of victims -- who long were falsely portrayed in the MSM as all being billionaires and centamillionaires -- and the conduct and motivations of SIPC and Picard. Victims have extensively complained that Picard and SIC have a public relations machine that is highly active and ever active, and that puts wrong ideas into the heads of a willing mass media -- it is felt even a deeply complicit mass media -- that then disseminates these false ideas all over the country, with one of the major culprits being The New York Times. I have to admit that for a long time I felt that the complaints by victims with regard to the impact of what they thought to be the SIPC-Picard PR machine were wrong or overdrawn(even if understandable due to the terrible plight of victims). Now, after seeing what the SIPC PR machine vigorously and repeatedly attempted with regard to the June 11th posting, and that it even tried hard to get one nationally prominent site to remove the posting though I said publicly that I was writing and would soon post an article addressing the claims of SIPC’s flack and Harbeck, I’m not so sure that the claims of victims with regard to the impact of the SIPC-Picard PR machine are wrong or are overdrawn. It looks to me like the victims may well be right.

In any event, if Harbeck wishes to reply to my reasons for being dubious about the correctness of what he claimed in his emails regarding the three percent provision, I will be happy to read any reply he makes and to give the deepest consideration to what he says.*

*This posting represents the personal views of Lawrence R. Velvel. If you wish to comment on the post, on the general topic of the post, or on the comments of others, you can, if you wish, post your comment on my website, All comments, of course, represent the views of their writers, not the views of Lawrence R. Velvel or of the Massachusetts School of Law. If you wish your comment to remain private, you can email me at

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Tuesday, June 16, 2009

A Forthcoming Article Regarding A SIPC Objection To The Posting Entitled "Irving Picard's Three Percent Commission In The Madoff Case."

June 16, 2009

Re: A Forthcoming Article Regarding A SIPC Objection To The Posting Entitled “Irving Picard’s Three Percent Commission In The Madoff Case.”

SIPC has objected to a point contained in my posting entitled Irving Picard’s Three Percent Commission In The Madoff Case. I am writing an article thoroughly discussing SIPC’s objection. The article will be finished and posted later this week. I have been asked to provide notification of this and am hereby doing so.

Thursday, June 11, 2009

Irving Picard's Three Percent Commission In The Madoff Case.

June 11, 2009

Re: Irving Picard’s Three Percent Commission In The Madoff Case.

On May 30th Time Magazine posted an online article about Irving Picard, the SIPC Trustee in the Madoff case. Time said that “Picard is considered the superstar of SIP[C] trustees, having handled the largest cases SIPC has managed”. Time also said that SIPC “Trustees are paid well, receiving personally 3% of anything over $1 million they recover for victims. For example, if $2 billion is ultimately recovered in the Madoff case, Picard stands to make personally $60 million in fees, provided the New York federal judge overseeing the case, the Hon. Louis Stanton agrees to it.”

Later Time said that Picard has sued various large feeder funds for ten billion dollars. Time did not, in this regard, carry out the logic of its prior statement. Were Picard to recover ten billion dollars in these suits and distribute it to Madoff victims, his personal share, at three percent, would be 300 million dollars. Nice work if you can get it.

Time’s article fuels a fire that has existed -- sometimes raging, sometimes damped -- within the Madoff victim community for many months. Picard and SIPC have insisted that the so-called “net equity,” for which each victim can be compensated by SIPC up to $500,000, must be computed in a way that is different from the way net equity has almost always -- or even always? -- been computed previously. If net equity is computed their way, many victims will get either nothing at all from SIPC or much less from it than if net equity is computed in the ordinary way. Also, on a separate but intimately-related point, many victims would also become subject to clawbacks by Picard of monies they took out of Madoff in the last six years, often monies they needed to live and/or to pay taxes on phantom income from Madoff.

These two matters -- getting less or nothing from SIPC and becoming subject to clawbacks by Picard -- have been extensively discussed and explained previously -- by many writers. So I shall not explain here the mechanics of how this works. Suffice to say here that, if the definition of net equity adopted by Picard and SIPC is upheld against the judicial attacks which already have begun, then Picard personally will make more money if Time’s description of how he is compensated was correct. For Picard will be able to claw back and distribute far more than otherwise -- who knows, conceivably even a billion or two more than otherwise -- which would yield Picard personally 30 million or 60 million dollars more at a compensation rate of three percent.

It is this fact -- that Picard will personally make a lot more money if he uses his and SIPC’s novel -- one might even say niggardly and quite possibly illegal -- definition of net equity that has caused outrage in the victim community. The victims feel Picard is denying them money that many of them desperately need to live on (they are often in their late 60s, 70s or 80s and have nothing to live on because they were wiped out) so that he personally can profit to the tune of millions of dollars, even tens of millions of dollars.

On important question, consequently, is this: Is Time right in indicating, as so many believe, that Picard will receive three percent of everything over one million dollars that he recovers and distributes to victims, so that use of his and SIPC’s novel definition of net equity, by enabling him to claw back and then distribute more money, will increase his personal take. This question is not completely the straightforward one it may seem.

I myself am concededly pretty ignorant in the premises. I knew nothing at all on the subject when the Madoff situation began, and of late have been trying to learn at least a little as I go along. Thus, as far as I know, it seems that there are two statutory sections that are relevant. One is Section 330 of the Bankruptcy Code (11 U.S.C. §330). It says that a trustee in bankruptcy can be awarded “reasonable compensation for actual, necessary services rendered,” and that in determining what compensation is reasonable, a court must consider the time spent, (hourly?) rates charged, the necessity of the services, whether they were performed within a reasonable time commensurate with the problem, the trustee’s skill and experience, and whether the amount of compensation is reasonable in comparison with what is charged by comparably skilled people. Section 330 also says that, in determining reasonable compensation, the court should treat it “as a commission, based on section 326.”

Section 326 of the Bankruptcy Code (11 U.S.C. §326) is the other relevant provision here. After stating the amounts or percentages allowable on sums distributed by the trustee that are less than one million dollars, §326 says that the court can award the trustee “reasonable compensation not to exceed 3 percent of such moneys in excess of $1,000,000, upon all monies disbursed or turned over in the case to parties in interest, excluding the debtor [i.e., excluding Madoff].”

So, in sum, under §330 the Trustee is to receive reasonable compensation for actual, needed services and under §326 such reasonable compensation, called a commission, cannot exceed three percent of all monies collected and distributed to the victims in excess of one million dollars.

How does this generally work in practice, and how may it work in the Madoff case? My understanding, after talking to a colleague who serves as a bankruptcy trustee and whom I think I understand correctly, and from what seems implicit in stuff I’ve read, is that the way it generally works in practice is pretty much what one might expect. Trustees in bankruptcy seek awards of the full amount of the commission allowable under §326, and courts sometimes award the full allowable commission. But sometimes courts award less than the full allowable commission because, for example, the trustee was able to accomplish a job in very few hours or the task was simple, etc.

Now, nobody has yet said the Madoff job is a simple one or one that will require but few hours. Distinctly the contrary. And it is always possible that Picard will seek the full three percent commission allowable under §326 on monies he distributes to victims in excess of one million dollars. Would the full commission be reasonable compensation? It does not seem so. If Picard were to distribute only the two billion dollars posited in one part of the TIME piece, the statutorily permitted commission at three percent could be, TIME said, sixty million dollars. If he was to collect and distribute ten or twelve billion dollars or more, which encompasses the amounts he either already has in hand or is seeking, the permitted commission would be 360 million dollars. These kinds of figures are nuts for a trustee in bankruptcy. Neither can be considered “reasonable” for a trustee. And remember, Section 330 says a trustee shall be paid a sum that is reasonable, while Section 326 not only explicitly echoes this but distinctly does not provide that three percent of everything over one million dollars necessarily is reasonable, but only that three percent is the top limit on what could be considered reasonable in appropriate circumstances. I reiterate that three percent for a trustee on two billion or twelve billion dollars -- i.e., $60 million or $360 million dollars for a trustee -- is not reasonable. (For those interested in such things, if Picard himself were to work, for example, 10,000 hours on the Madoff case, which would be four to five years of extensive annual work, his hourly fee at thirty million dollars would be $6,000 dollars per hour and at 360 million dollars would be $36,000 per hour. Such fees are insane.)

So, while one cannot know at this point how much Picard is likely to seek from the bankruptcy court by way of commission, the idea that he will seek the full three percent commission seems to accuse him of both phenomenal greed and lack of sense, although one cannot definitively say at this point that he won’t seek the full three percent.

But does all this necessarily mean that use of the novel and niggardly definition of net equity -- a definition which would enable Picard to pay out less of SIPC’s money and claw back more money to distribute to other victims -- is therefore irrelevant to his personal financial calculations? One doesn’t think so, although I personally believe, unless and until proven wrong by testimony or written evidence if there should ever be any on the question, that other matters (to be discussed below) were the motivation underlying use of the novel and niggardly definition. Yet the reason the novel definition is not necessarily irrelevant to Picard’s personal situation is precisely that the novel definition will result in more being clawed back and then distributed to victims. If such an amount is as “little” as one billion dollars more -- and the grapevine makes me think it could be a multiple of that -- this amounts, at three percent, to an additional permissible commission to Picard of 30 million dollars. That ain’t chicken feed baby. And even if one assumes that the court will not consider 30 million dollars to be reasonable compensation and will cut it down, the fact that Picard clawed back and distributed another billion dollars will almost surely count for a great deal in a court’s decision on what is a reasonable commission in the circumstances; it will cause a court to pick a number that is higher, probably much higher, than otherwise. Maybe -- in particular circumstances -- it won’t count for all that much, because it would be the small change if Picard recovers another ten billion dollars from the malefactors whom he has sued, but it will count for a lot if he does not recover much in the lawsuits. Moreover, he adopted and announced his decision to use a niggardly definition of net equity before he was aware, as far as we know, that various feeder funds could be sued for mucho billions. When he developed and announced his decision, the net equity question likely loomed a lot larger than it may loom today in calculations of what he personally stands to make from the Madoff affair.

What, then, does this writer think is the real reason Picard adopted the novel and niggardly definition of net equity? I have discussed before the ostensible reasons for this decision that were given by Picard and by the President of SIPC, Steven Harbeck. Those ostensible reasons do not hold water and my prior discussion of them will not be repeated here. Here I will deal only with what I think to be the (often recognized) real reasons.

Irving Picard was appointed to be its Trustee (the “SIPC Trustee”) in the Madoff case by SIPC. He is, as I understand matters both from reading articles and a conversation with a lawyer who knows about these things, one of a small coterie of lawyers who regularly get SIPC appointments, which are said to be lucrative. Picard apparently is SIPC’s “go to” guy among the coterie of regular SIPC trustees, “having handled the largest cases SIPC has managed” and also ‘“handling more SIPC liquidations than any other attorney,’ Harbeck said.” In the so-called Park South securities case, “Picard paid [only] 22 of 302 investors who requested recoveries, finding many didn’t have valid claims, according to his report to the U.S. Bankruptcy Court in Manhattan in October,” according to a January 21, 2009 article in Bloomberg. (Emphasis added.) It is my personal recollection -- I believe I am right -- that an experienced lawyer whom I was dealing with in regard to SIPC claims in the Madoff case told me that, when he contacted Picard about the Madoff matter to discuss it with him, Picard told him that, if he wanted to know how Picard was going to run the Madoff matter, he should read the Park South papers.

As someone who for years has been, and is, repeatedly appointed by SIPC to be its Trustee, and who must surely make a fair piece of change as the SIPC Trustee, it is dubious in the extreme that Picard would want to contravene SIPC’s wishes. What, then, would SIPC’s wishes be? As with everything else related to Madoff, I have no prior experience or knowledge of any of this and only know what I read or am told. But what I read and am told about SIPC is not good, as was pretty fully brought out as long ago as September 25, 2000 in a lengthy article by Gretchen Morgenson of the New York Times.

Here are some of the things Morgenson wrote:

Mr. Heebner figured wrong. For more than four years, the corporation [SIPC] maintained he was entitled to nothing -- even though three federal courts ruled that S.I.P.C. should pay him $87,000. Only last week, days after a reporter interviewed the lawyer representing the corporation about Mr. Heebner, did the investor receive a check in the amount of $87,000.
''I never got the sense that S.I.P.C. was in any way trying to help my client,'' said William P. Thornton Jr., a lawyer at Stevens & Lee in Reading Pa., representing Mr. Heebner against the corporation. ''They are very aggressive in attempting to prove that investors' claims do not come within certain legal definitions within the S.I.P.C. statute. And the loser is the investor.''
* * * *
But convincing the corporation [SIPC] to pay can be extremely difficult. The organization, requires investors to run a gantlet of legal technicalities that would challenge even those knowledgeable about securities law.
Some securities lawyers say this is because trustees overseeing the cases are chosen by, and paid by, the corporation. This differs from the independent trustees who are appointed by the court to handle corporate bankruptcy cases, and who are working for the people owed money.
Indeed, the trustees working for the investor protection corporation -- many of them from a coterie of lawyers who have made a lucrative specialty of such cases -- have received far more from representing the corporation than the corporation itself has paid to investors. Their critics say that trustees wanting repeat business from the corporation have an incentive to minimize payouts to investors. One trustee is the former president of the corporation. (Emphasis added.)
* * * *
''Although these legal arguments [by SPIC] may follow the letter of the investor protection act, S.I.P.C.'s reliance on them is reminiscent of a private insurance company trying to use every conceivable esoteric legal stratagem to avoid customer claims,'' said Lewis D. Lowenfels, a lawyer at Tolins & Lowenfels in New York and a leading authority in securities law.
* * * *
The investor protection corporation and the F.D.I.C. are vastly different. While the F.D.I.C. is an agency of the federal government and its insurance fund is backed by the full faith and credit of the government, the corporation is financed by the securities industry and can borrow from the government, with special approval, only in emergencies. It also maintains a $1 billion line of credit with a consortium of banks.
* * * *
Not long ago, brokerage firms paid much more to be members of the corporation. Between 1991 and 1995, firms were levied an amount based on their net operating revenues. In 1995, for instance, members were required to pay 0.095 percent of such revenues and the organization received $43.9 million. But when the S.I.P.C. fund reached $1 billion, the corporation cut the levy to $150 a member [including giant members like Goldman Sachs, Merrill Lynch, etc.].
* * * *

The corporation itself has paid investors $233 million over almost 30 years. But that amount is far less than the money received by the lawyers that act as trustees and the firms that help them shepherd the cases through the bankruptcy courts, trying to recover additional assets from the failed brokerage firms and assessing customer claims for validity. Since 1971, trustees have received $320 million, 37 percent more than has been paid to wronged investors. (Emphases added.)
The money the trustee receives comes from two sources: the assets of the failed brokerage firm and the corporation itself. As is typical in most bankruptcy cases, the corporation's trustees are paid first, customers second.
* * * *

Nevertheless, of the 3,368 customers who submitted claims for S.I.P.C. coverage in the failure [of the Stratton Oakmont brokerage house], as of last May only 34 had been deemed entitled, to a total of $2.1 million, according to the trustee overseeing the case. The corporation's executives and Weil Gotshal & Manges, the law firm representing the trustee in the case, argue that only 1 percent of the Stratton customers seeking remuneration from the corporation are entitled to payments. (Emphasis added.)
* * * *

A key problem with S.I.P.C. liquidations, some securities lawyers say, is that trustees overseeing the cases have allegiance to the corporation that appointed them [SIPC], rather than to wronged investors. To be truly in the corner of investors, these people say, trustees in brokerage firm liquidations should be completely independent of the corporation, which naturally wants to protect its assets. Trustees are indeed independent in corporate or personal bankruptcy cases because they are appointed by the bankruptcy court. (Emphases added)
* * * *

A coterie of bankruptcy lawyers does get repeat business from the corporation. Irving H. Picard, a partner at Gibbons, Del Deo, Dolan, Griffinger & Vecchione in New York, has been appointed trustee in four brokerage firm failures the last nine years, and J. William Holland of Holland & Holland in Chicago has overseen three liquidations since 1990. Five other lawyers have overseen two or more liquidations for the corporation the last decade. (Emphasis added.) [Picard recently moved from the Gibbons firm to Baker Hostetler.]
* * * *

Some securities lawyers and regulators say that the arguments used by the corporation to justify the denial of Mr. Heebner's claim for more than four years are characteristic of the corporation's approach to investor protection. ''It's part of the gantlet to make it as difficult as possible for an investor to make a recovery,'' said Mark Maddox, a former Indiana securities commissioner who is now a lawyer representing victims in the Stratton Oakmont case. (Emphasis added.)
Indeed, one argument used to deny many investors' claims in the Stratton Oakmont case, if applied to all brokerage firm failures, would disqualify millions of investors from S.I.P.C. coverage even though their brokerage firms are members of the organization.
Mr. Miller, the trustee at Weil Gotshal, has argued successfully to the bankruptcy court that Stratton customers do not qualify for S.I.P.C. coverage because their assets were not held physically at Stratton, they were held at the firm that cleared Stratton's trades. The act of Congress that created the corporation states that the coverage extends only to customers of firms that hold their assets. Customers of a failed broker that used another firm to clear its trades and conduct administrative duties do not qualify.
This delineation may have made sense in 1970, when most brokerage firms cleared their own trades. But today, most of the nation's brokerage houses use clearing firms to carry out their customers' transactions and administer accounts. Using Mr. Miller's argument, customers of these firms, were they to fail, could get no satisfaction from the corporation.
* * * *

Robert M. Morgenthau, the Manhattan district attorney, who has aggressively pursued fraudulent brokerage firms to help wronged investors recoup some of their losses, said: ''The investor protection act has to be revisited for two reasons. It doesn't cover a majority of investors' losses, such as those incurred by fraud or malfeasance, and the red tape that is involved for investors trying to recover is incredible.''
As I say, the news from Morgenson, as far back as September of 2000, was not good. And, as far as I can see, nothing has changed. So, if one is right in thinking nothing much has changed, in precisely what way would this have relevance today, by what mechanics, so to speak, would it have relevance today?

Well, today SIPC has something like 1.6 billion in its coffers. But the amount claimed to be owing the Madoff investors at $500,000 per claim is said to be in excess of four billion dollars (and one suspects could be a lot higher even than that). Therefore SIPC does not have enough to cover the amounts that are owing on the basis of the final, November 30th statements from Madoff. To cover those amounts, it would either have to tap and then repay a line of credit, borrow from and then repay the government, and/or increase the annual charges to the securities industry (which to some extent it already has, I believe). None of these possibilities does it consider desirable, one gathers.

How then, to avoid these undesirable alternatives? Well, one obvious way is to lessen the payout to victims so that SIPC will not have to pay out the full $1.6 billion in its coffers, and will only have to pay out far less. Avoiding payouts does seem to be its modus operandi historically, after all (even to the point of making ridiculous arguments). And since SIPC must pay out $500,000 (or lesser amounts) to people whose positive net equity reaches $500,000 (or the lesser amounts), an easy way to avoid paying out money is to define net equity in a way that is different from usual and (i) that results in negative net equity for many people so that they will get nothing from SIPC, or (ii) that results in a net equity that is positive but is nonetheless far below $500,000 so that victims will get only this lesser amount. This is an especially easy way to accomplish SIPC’s goal of non payment to victims because smart lawyers like SIPC’s, and like Picard, who works for SIPC, can come up with rationalization after rationalization for doing this. Even if, in the end, their numerous rationalizations are insupportable, and destructive of what Congress intended to accomplish when it passed the Securities Investor Protection Act to help protect investors, still they may persuade courts to rule as they request. Courts are not overly famous for doing the right thing, you know. They are often persuaded, or fooled, by rationalizations to rule quite differently.

Now, one would not expect Irving Picard to resist SIPC’s desire to greatly lessen its payout. As said, Picard has, after all, made what looks to be a lucrative career as SIPC’s go-to guy, and he cannot be expected to bite the hand that feeds him. And, if you ask me, it probably is even likely, or at minimum there is a good chance, that not Picard, but SIPC itself, developed the idea of using the novel and niggardly definition of net equity that is injuring Madoff’s victims and is being used to lessen SIPC’s payout, and that Picard “merely” went along with this. I know that, if I were a lawyer for Madoff victims in regard to SIPC, I surely would press actively for discovery on the question of how the niggardly definition came into being, a matter which I think is not subject to privilege as between SIPC and Picard.

So to sum up this part of the story, it seems to me that a desire on the part of SIPC to greatly lessen what it must pay to Madoff victims is almost surely the motivating force behind the novel and stingy definition of net equity currently being used by Picard and SIPC.

But just what, you should ask, does all this have to do with the three percent commission that could be paid to Picard under the bankruptcy code, not the law establishing SIPC. Well, the relationship is this: For reasons about which I know absolutely nothing (but which I wonder about, and wonder as well what their relationship to the niggardly definition might conceivably be), when SIPC gets involved in a bankruptcy case -- as when a broker-dealer such as Madoff goes bust -- the Trustee appointed by SIPC to be the SIPC Trustee also becomes the bankruptcy trustee. This is exactly what happened here, of course, when the originally appointed bankruptcy trustee, Lee Richards, was replaced as bankruptcy trustee just a few days later by Irving Picard, as soon as Picard became the SIPC Trustee. Picard began to immediately wear both hats, as is customary.

When Picard began to wear the customary two hats, he began, as the SIPC Trustee, to participate in decisions, in particular the decision on how net equity would be defined for SIPC purposes, that would affect his commission as bankruptcy trustee. Which is to say that, as discussed earlier, the niggardly definition of net equity, which will result in victims getting less or nothing from SIPC, will also result in more being clawed back from some victims to be distributed to other victims. And by resulting in more being clawed back and distributed, the niggardly definition of net equity will result in the permissible three percent commission under the bankruptcy act being a higher number than otherwise. As said, an extra billion being clawed back from some victims for distribution to other victims will result, at three percent, in an extra 30 million dollars in commission being permissible for Picard’s commission, and, even if a court thinks $30 million in commission is outrageous, will result in Picard’s fee award being higher than it otherwise would be. So, as the SIPC Trustee, Picard is affecting -- perhaps dramatically -- what he may be paid as the bankruptcy trustee.

There seems to me to be a good deal wrong with this as a systemic matter. SIPC is a quasi governmental entity in my opinion (it is set up under a complex statute, for example), although some, maybe many, would claim -- only the worse for Picard’s position here -- that it is a private company. So, as trustee for SIPC, Picard must be acting as a private, or, at best, quasi governmental officer, not a government official. The bankruptcy court, on the other hand, is a governmental body, and therefore the trustee in bankruptcy must be acting in a governmental capacity. So what you have here is a self-interested private or at best quasi governmental body and trustee (SIPC and Picard as SIPC’s trustee) making a crucial decision (the definition of net equity) that will play a major role in establishing the compensation of a governmental officer (Picard as bankruptcy trustee). That does not seem proper to me. Is there any other example of where it is done?

Even worse, conceivably, it is systemically the case that Picard is unavoidably, even if unintentionally, involved in self dealing. For as SIPC trustee he is involved in establishing and enforcing a rule that will affect his compensation as bankruptcy trustee. Maybe this could be thought bearable if all that was happening was that he was enforcing a standard definition of net equity, a definition that is commonly used. But this is not what is happening. What is happening, rather, is that Picard -- whether at SIPC’s direction or not -- has created and enforced a novel rule, a rule that is, to boot, greatly injuring the very people that Congress established SIPC to help: investors who have lost huge sums of money and in many cases have lost everything. How self dealing can possibly be allowed in such cases -- even if it results from a systemic problem rather than a perhaps unlikely Picardian venality regarding the three percent commission -- simply escapes me.

There is even a line of cases in this country which bears on the problem. They are the cases usually referred to as the Tumey v. Ohio line of cases. They began in the Supreme Court with Tumey in 1927, and the latest opinion in the Supreme Court was delivered just a few days ago, on June 8th, in what I will refer to, with total lack of reverence for the supposed niceties, as the West Virginia three million dollar judicial bribery case. (Caperton v. A.T. Massey Coal Co. Inc., No. 08-22 O.T. 2008, decided June 8, 2009.) The underlying idea is that, where a judge or administrator has a pecuniary interest in the outcome of a case, whether that interest be personal or on behalf of an institution he heads (e.g., a village of which he is mayor), he must not sit on the case as a judge. In the June 8th case, a three million dollar campaign contribution from a party meant that a West Virginia Supreme Court Justice should not have sat on the party’s case.

To be sure, Picard, as Trustee, is not a judge. And there will later be judges who rule on the matter, although it is equally true that there are (often already ruined) people who are so frightened of possible clawbacks arising from Picard’s novel and niggardly definition of net equity that they have not yet and may never file a claim, but instead will waive a SIPC claim and thus would not benefit from a later ruling against Picard by judges (assuming judges would have the courage to rule against SIPC, Picard, and their rationalizations). Also, one could argue on Picard’s behalf that something analogous to his situation has been permitted to exist, despite extensive criticism, in so-called forfeiture cases, where police forces can decide whether to seize property and then are permitted to keep (and sell) what they seize in order to help fund themselves this way. Yet one still thinks the Tumey rule should apply here. For the idea that an official can make a decision which can benefit him personally to the tune of tens or scores of millions of dollars, while injuring victims in the face of a statute whose passage was an expression of congressional solicitude for the victims and of a congressional desire to help them, is just too much. The West Virginia judge was forbidden to do this because of a campaign contribution of “only” three million dollars. Picard, even if only because of the system rather than personal venality, has done it in a matter that could mean tens or scores of millions of dollars in income for him personally. I really don’t think this should be allowed, whether systemically caused or caused by other reasons.*

* This posting represents the personal views of Lawrence R. Velvel. If you wish to comment on the post, on the general topic of the post, or on the comments of others, you can, if you wish, post your comment on my website, All comments, of course, represent the views of their writers, not the views of Lawrence R. Velvel or of the Massachusetts School of Law. If you wish your comment to remain private, you can email me at

VelvelOnNationalAffairs is now available as a podcast. To subscribe please visit, and click on the link on the top left corner of the page. The podcasts can also be found on iTunes or at

In addition, one hour long television book shows, shown on Comcast, on which Dean Velvel, interviews an author, one hour long television panel shows, also shown on Comcast, on which other MSL personnel interview experts about important subjects, conferences on historical and other important subjects held at MSL, and an MSL journal of important issues called The Long Term View, can all be accessed on the internet, including by video and audio. For TV shows go to:; for conferences go to:; for The Long Term View go to:¬_LTV.htm.

Tuesday, June 02, 2009

The Infestation of Government Values In Industry.

June 2, 2009

Re: The Infestation of Government Values In Industry.

On Monday, May 18th, David Brooks had a column in the Times that seems to have attracted a lot of attention: three days later, on Thursday, May 21st, the Times ran no less than seven letters addressing Brooks’ points. Curiously -- one wonders if it’s pure coincidence, pure serendipity arising from events in the world around us -- two days after Brooks’ column, and one day before publication of the responding letters, the Wall Street Journal ran an op ed piece by John Steele Gordon on the same ultimate subject as Brooks’ column -- not entirely the same subject, but the same ultimate subject.

Discussing successful executive leadership in business, Brooks said that the research and writing shows that what is needed is not warmth, empathy, extroversion, agreeableness, team orientation, flexibility or other such aspects of what one might call our feel good culture. What is needed, rather, is attention to detail, analytical thoroughness, efficiency, persistence, relentlessness -- even unidimensionalness -- willingness to work long hours.

What is needed for topnotch executive leadership in business, said Brooks, is very different from what is needed in politics. Political leaders, he said, need “charisma, charm, [inter]personal skills.” In his own piece two days later, Gordon elaborated this by saying the politician’s job one is to get reelected (forever), which causes him/her to have a short term bias at the expense of foreseeably bad long term consequences, to favor “parochial interests over sound economic sense” (amen to that, brother), and to do things to get headlines “even when doing nothing would be the better option.”

In his very last paragraph, Brooks made clear where he was going -- made clear what the entire rest of his column was prelude to (which was also what Gordon’s entire piece unabashedly was all about from sentence one). Now that the government is in effect taking over major industries -- is “freely interposing itself in the management culture of industry after industry,” said Brooks -- “CEO’s are forced to adopt the traits of politicians. That is the insidious way that other nations have lost their competitive edge.” In short, corporate leaders will have to be smiling, charming, political glad handers, agreeable extroverted types, empathetic charismatic types who feel [y]our pain as Billy Bum used to say, instead of persons who live by diligence, analytic thoroughness, persistence, relentless pursuit of a goal, and horridly long hours of work.

Gordon is of the same view -- only more so -- regarding what will happen because of government’s intercession into management. His column is dedicated to the idea that government always and inevitably messes up when it tries to run businesses. To reasons that were mentioned above, he adds some others. To me, his most important addition is that government, unlike corporations, is always using other peoples’ money (the taxpayers’), rather than its own, regards cost cutting as alien, rarely faces competition, and is designed to be, and is, inefficient rather than being run efficiently, as he says businesses are by benevolent despots.

Of course, in opining (correctly, I think) of the dangers of government-run businesses, dangers arising from government value systems inappropriate to business and incompatible with values that they believe propel business, both Brooks and Gordon overlook the salient fact of present economic life. We are living through a disaster caused mainly by private businesses and their values. We are living through a disaster mainly caused by Wall Street and its value of uncabined greed, by the mortgage companies and banks, and by businesses like GM. True, government functionaries like Robert Rubin, Lawrence Summers and Alan Greenspan participated in causing the disaster, but Rubin and Greenspan were in reality from business (and, in Greenspan’s case, from the insane nation of Ayn Randism) and Summers might as well have been from Wall Street given who he apparently buddied around with and who he later joined. To say that danger lies in importing governmental values into business (as it does), while ignoring the disaster caused (and, in capitalist history, regularly caused) by the values of business, strikes me as more than a little ridiculous.

It was said earlier that seven responses to Brook’s piece were printed by the Times on May 21st. As often the case, the letters were sometimes pretty good. A couple of them said that the current Administration, as opposed to Brooks’ claims about government, had a number of level headed, methodical types, and that it was a business type -- the lifelong serial failure, “splashy product rollouts” type (remember “Mission Accomplished”?) -- who was responsible for the disasters we are in. (One should add other business types such as Greenspan and the 1990s business leaders Cheney and Rumsfeld.) It was also pointed out in the letters that vision, charisma and motivational ability can be combined with nuts and bolts competence, and that the greed so recently on display year after year in business had led to environmental disaster and rocketing costs of health care. The ideas in the letters were useful counterpoints to Brooks -- and to Gordon.

Now let me tell you what I think, as in part has already been done. My views come not just from reading, but from the extensive experience of myself and several other people in starting, running and expanding a law school -- a job at which some of us now have 21 years of experience.

It is absolutely true that the key to creating or running a private institution -- any kind of private institution, be it a business, a school, or what have you -- is, as Brooks says is characteristic of successful executives, unremitting attention to detail, thoroughgoing analysis, obsessive diligence, unending persistence and a thoroughgoing, never ending dedication to getting the job done -- the kind of dedication that causes one to create a to-do list with scores of items and, when they are accomplished, to already have in place a new to-do list of similar length. Nor does it hurt to have a high level of motivation and of motivational ability. Many of my colleagues who participated in starting the school possessed all these traits, and several of them are still with us and still exercising those traits.

One thing that strikes me as puzzling is that there are people who have a high order of ability to get things done -- the most essential quality in administration -- yet do not have a high regard for this ability which they possess. It’s as if the gift, because it comes from nature, not from endless “practice,” is therefore not thought a worthy one. This disregard for nature’s gift is a great mistake. I have often thought that the ability to get things done, which in an institution is, as I say, an essential one, is also the rarest one. People who have it but don’t think well of it or don’t use it are doing themselves an injustice.

It is also my judgment, after decades of dealing with academic and political bodies, that getting the job done is not high in the pecking order of values for these bodies. What generally matters most to them is talk. Talk, talk and more talk. Brooks is right when he says that “people in the literary, academic and media worlds rarely understand business. It is nearly impossible to think of a novel that accurately portrays business success. That’s because the virtues that writers tend to admire -- those involving self-expression and self-exploration -- are not the ones that lead to corporate excellence.”

In the academic, governmental and media worlds, continuous, undammed expression reigns supreme, and in the media world, the pundit world, one can, as we know, be continuously wrong, yet suffer no penalty. Lots of columnists and commentators owe their livings to this fact.

Yes, there are times in politics when a legislator or official is hell bent to get something done, but this usually occurs only when a major campaign donor insists on some bill or action. This hardly qualifies as an overall ethos of “get the job done.” It is only a bending to the powerful in order to accomplish job one -- the never ending job of seeking reelection after reelection after reelection.

Nor, looked at from the other side of the ledger, do I think that most CEO’s can be quite as despotic (even if benevolent) as Gordon indicates. The days of Harold Geneen are past. Largely ditto for Chainsaw Al. Despots who do as they wish regardless of the wishes of employees and Boards of Directors are likely these days to rather quickly find themselves ruling not over France, but only over Elba.

Yet, for all this, I do think that, from the ubiquitous earmarks that Congress now awards each year by the hundreds or thousands to private parties, to the potential running of major businesses, it will be very bad for the country if the values of politics increasingly infest the private sphere, as they already have to a significant extent and as will become more pronounced if government doesn’t rapidly get out of the business of business. Obama vigorously claims that government will not try to run businesses, and that it will get out as quickly as it can, but the media is filled today with reasons why this may not happen, and the truth is that when government gets involved with owning businesses, it often stays deeply involved for a long time, especially because so much money can be at stake, and gets involved in business decisionmaking. This would probably be very bad if now replicated in the next five to ten or twenty years. We do not need smiley-faced glad handers, those who go along to get along, the charismatic, non-working, lazy, personality boy, political types running huge businesses. We need the analytical, the workaholic, the detail oriented, the relentlessly goal oriented, the person who can combine these traits with fairness to employees and the public. You know, it is already the case that government is bought and sold by wealthy donors and by those who can deliver votes. This conduces not to competence and usually not to fairness, but instead, generally, to the rich getting richer, to favoritism to the nth degree, and to ordinary people getting left out. We don’t need more of this in politics -- we have way too much of it there already -- and we don’t need any of the values these traits represent in business.*

*This posting represents the personal views of Lawrence R. Velvel. If you wish to comment on the post, on the general topic of the post, or on the comments of others, you can, if you wish, post your comment on my website, All comments, of course, represent the views of their writers, not the views of Lawrence R. Velvel or of the Massachusetts School of Law. If you wish your comment to remain private, you can email me at

VelvelOnNationalAffairs is now available as a podcast. To subscribe please visit, and click on the link on the top left corner of the page. The podcasts can also be found on iTunes or at

In addition, one hour long television book shows, shown on Comcast, on which Dean Velvel, interviews an author, one hour long television panel shows, also shown on Comcast, on which other MSL personnel interview experts about important subjects, conferences on historical and other important subjects held at MSL, and an MSL journal of important issues called The Long Term View, can all be accessed on the internet, including by video and audio. For TV shows go to:; for conferences go to:; for The Long Term View go to:¬_LTV.htm.