Friday, October 23, 2009

The Briefs Of The Trustee And SIPC On The Net Equity Question.

October 23, 2009

Re: The Briefs Of The Trustee And SIPC
On The Net Equity Question.

Having read the opening briefs filed by the Trustee and by SIPC on the net equity question, I thought to set down a few of what I believe are my most important impressions. Admittedly, whether I correctly understand all parts of the briefs seems to me a question. Like most Madoff victims, and perhaps even like a large number of the army of lawyers now involved in cases and in advisory roles, less than one year ago I had not even ever heard the words SIPC or SIPA to the best of my knowledge. Like other victims, I have spent the months since December 11, 2008 trying to play catch-up with regard to this very complex statute, and with regard to other matters too, such as tax matters. In regard to SIPA and SIPC, the victims, often not even lawyers, struggle to play catch up while confronted by a SIPC management and a Trustee who not only are lawyers but who have spent about 34 years or so making their livings from this complex statute, and in some cases have written about it. (The briefs sometimes quote their own writings.) So it can be difficult for us Johnny-come-latelies to be sure we have things right or, with regard to the recent briefs, to be completely confident we understand aright all that is being said or claimed.

With this disclaimer of certainty, then, let me nonetheless set forth here some of what seem to me the most important underlying points of the briefs of the Trustee and SIPC. As implied, I shall not attempt to be catholic with a small c in my descriptions or comments, but rather shall focus on what appears to me most important. With but few exceptions, I shall not, for example, either here or in a brief to be filed in about three weeks, discuss the cases relied on by the Trustee and SIPC or the Congressional reports or other legislative history. For that kind of legal analysis, and for most other legal analysis of the kind usually contained in responsive briefs, I shall rely on the hoped-for efforts of excellent lawyers who already have shown, in prior briefs, that they are very knowledgeable on the pertinent matters, lawyers such as Helen Chaitman, Brian Neville and Jon Landers. My efforts, both here and in a forthcoming brief, will usually be of a more philosophical or “overall” cast.

Let me start with a feature of the briefs of the Trustee and SIPC that strikes me as being somewhat of a psychological ploy as well a legal argument. (In the 1940s, a Supreme Court Justice said of a case in which the Supreme Court reversed itself in just a year or two -- I think the comment was made in the second of the so-called flag statute cases decided during World War II -- that the second opinion would be of more interest to students of psychology than to lawyers. That comment strikes me as applicable to parts of the briefs of SIPC and the Trustee.) The feature in mind is that the briefs contain lengthy, up-front, page after page descriptions of all the things Madoff & Co. did to create a phony universe in which nothing was real, not the supposed purchases and sales of securities or options, not the profits that were credited to victims, not what was stated on the statements received by victims, etc. One’s reaction to all this is, in a way, the sarcastic reaction of “Thank you very much. You are spending page after page telling us what all already know, including the bankruptcy judge. What a waste of time and print, and what a trial of the reader’s patience.”

But, as indicated, there seems to me to be an underlying legal and psychological ploy for this seeming waste of space. It is to cause the court to treat the whole case, everything, from the standpoint of “Everything here was false. Therefore the victims should not receive any treatment of a type that might accrue if anything had been real.” By means of this underlying ploy, the Trustee and SIPC hope to get the court to ignore, for example, innocent victims’ legitimate expectations that they had what their statements showed. (One of the briefs even takes the truly amazing position that victims’ only legitimate expectation was that they owned securities, and not that they owned the dollar amount of securities shown on those statements. Do you know any innocent person who thought, from the monthly statements, that he or she owned securities, but not the dollar amount of securities shown on the statements?)

To take another example of the effect of the previously described ploy, by means of the underlying argument that everything was false, the briefs of the Trustee and SIPC also hope to persuade the Court to ignore the part of the New Times litigation that dealt with unbought but real securities, and instead focus exclusively on the part of the litigation that dealt only with unbought and unreal -- i.e, nonexistent -- securities. Once again the general underlying idea is, “Focus on the fact that everything Madoff did was fake and let that control everything you do -- regardless, by the way, of Congress’ desire to help investors, and regardless also, incidentally, of the fact that everything in New Times was also faked, but people whose unbought securities existed in the real world -- as did Madoff’s -- were given credit for what they would have made had the securities been bought. (The briefs pretend this is irrelevant because in New Times the existing but unbought securities increased in value in the real world, wherein Madoff profits existed only on his 17th floor computer. They ignore, however, the salient point that Madoff’s statements reflected prices in the real world, just as in New Times, and that this meant investors could check out the prices shown by Madoff (as some did), just as in New Times. (I gather that there were a few instances in which Madoff’s prices, or his names of securities, slipped up, and a tiny number of Wall Street experts were aware of this, as well as of the fact that he always appeared to buy and sell remarkably advantageously (i.e., had great “fills” in Wall Street parlance -- which the SEC was told of but ignored). But as a general matter that was almost always true, the phony prices he showed reflected observable reality.))

The briefs of SIPC and the Trustee also use another apparent ploy: They extensively present the history behind SIPA even though much of it seems irrelevant to the case. But my guess is that what they are attempting to do is to plant in the court’s mind, in this way, the idea that SIPA is in reality a part of bankruptcy law for virtually all purposes, that it should therefore be treated as just another part of bankruptcy law whenever and wherever SIPC says it should be (which, I believe, does not include the limits on Trustee compensation imposed by bankruptcy law -- surprise, surprise), that the people who have what they call a negative net equity on a cash-in/cash-out basis should not receive SIPC protection because they assertedly would not receive bankruptcy protection, and that, for these reasons, victims should not receive money from SIPC and will not receive monies from the estate, from the so-called “customer property” collected by the Trustee -- who is suing people for somewhere around 15 billion dollars in “customer property.” (I note that, for reasons which need not be elaborated here, if anything like this amount were to be recovered by the Trustee, then SIPC and some investors would make out like bandits under the theories espoused in the briefs of SIPC and the Trustee, while a host of investors would be victimized by receiving back nothing from SIPC and nothing from the bankruptcy estate.)

To try to further explain this very complex stuff (and assuming I have it right though I do not find the briefs’ explanations all that easy to understand), let me put it this way: The briefs say that SIPA is only a part of bankruptcy law, and that the amount of money given by SIPC to victims -- up to $500,000 per account -- is simply an advance on and a species of “customer property” that will ultimately be distributed from the bankruptcy estate, property in which a victim has no right to share unless, as under bankruptcy law, the victim’s actual cash-in exceeds his actual cash-out, with the statement of November 30th being completely irrelevant. Therefore, a victim who has a negative net equity on a cash-in/cash-out basis gets no advance from SIPC, since to give him an advance would be to give him “customer property,” in which he has no right to share.

Given what I at least found to be the difficulty of understanding the briefs on these matters, I can’t be sure I have it right. But I think I do, and, if I do, the matter seems to me to boil down to the view that SIPA is merely a part of bankruptcy proceedings, and that the ordinary rules of bankruptcy proceedings, as the briefs present them, are applicable. This view is, of course, quite convenient for SIPC in this case. But it does seem, at least to me, to ignore Congress’ intent to protect investors and thereby build crucial confidence in markets. For it ignores the Congressional desire to protect investors up to $500,000 for what they legitimately believed they were owed by a broker like Madoff, a belief long accepted in law as being based on written statements received by investors.

The legitimate question, I would think, is not, as the briefs would have it, whether SIPC investors should be treated as if a SIPC proceeding is just another bankruptcy case in which the ordinary rules of bankruptcy as presented in the briefs are applicable (ordinary rules which the briefs say include cash-in/cash-out) and therefore lots of Madoff victims should get screwed out of up to $500,000 by SIPC, and should likewise get nothing from the “customer property” collected by the Trustee, despite Congress’ clear intent to help them. Rather, the legitimate question is whether due to Congress’ intent to help investors, the rules of SIPA, under which so many have over $500,000 in net equity as shown by their November 30th statements, should govern not just in SIPA matters, but in the bankruptcy aspect of the case, too, i.e., should govern in the ultimate distribution of the estate after all recoverable “customer property” is recovered. In other words, if one has a positive net equity of, say, one million dollars for SIPA purposes on the basis of the November 30th statements and thus were to receive $500,000 from SIPC, but would have a negative net equity on the basis of cash-in/cash-out, does one therefore necessarily also have the same positive net amount based on the November 30th statements for purposes of sharing in the bankruptcy estate (the “customer property”) because of Congress’ desire to protect investors? In seeking to avoid payments to victims (I put it this way advisedly), the briefs take the position that one’s net amount is the same for both SIPC purposes and for bankruptcy purposes and is based on cash-in/cash-out. The briefs say, in other words, that bankruptcy rules govern both bankruptcy and SIPA -- while others believe Congress’ desire to protect investors means the normally applicable SIPA rules must govern both bankruptcy and SIPA in the special case of broker bankruptcy which Congress specifically covered in its SIPA statute. Frankly, it might be desirable if bankruptcy rules on net equity governed the bankruptcy side of a case and SIPA rules governed the SIPA side, but, having read the statutory provisions cited in the briefs, I believe the Trustee and SIPC are correct in claiming that a single rule must govern both sides. That currently being the case, it seems to me that the only legitimate way to look at the matter at this time is that unless you want to overthrow Congress’ intent to help investors, overthrowing it by fiat of SIPC approved by courts, the only way to look at the matter is that normal SIPC rules must govern both the SIPA and bankruptcy sides of the matter. If there is to be a change, it must come from Congress, not from SIPC fiat approved by courts.

Another theme of the briefs is the long standing claim that, if the November 30th statements are used to determine net equity, then the result will be to harm the later investors -- whose claims are mainly for real money, it is asserted -- while helping earlier investors -- whose claims are mainly for phony profits, it is asserted. This argument has been dealt with here before, and in the main I shall not reiterate the previously identified shortcomings such as its embrace of merely abstract legal principles of what allegedly constitutes equity and fairness, while it simultaneously ignores, and indeed implicitly rejects consideration of, economic realities when determining equity and fairness. But while not reiterating previous arguments, I do want to note two crucial points that have now surfaced.

The first is that the briefs offer no factual support whatsoever for the assertion that the claims of long term investors are mainly for false profits (while the claims of later investors are said to be for real money that they put in, which seems true only if they are very late investors, as of 2006 or later, for example). It is my impression that the claims of many long-term and mid-length investors are, to a significant extent, for the principal they put in. It would not surprise me if forty to sixty percent of the claims -- or more -- may be for principal. To be sure, this may be, likely is, due to the fact that fake profits were taken out over the years -- though often for the purpose of paying income tax to what appears to be the single largest beneficiary of Madoff’s fraud, the Internal Revenue Service. But the briefs, as said, provide no facts whatever in support of the claim they made regarding long term and short term investors, a dearth of factual evidence which is consonant with the general practice of the Trustee, SIPC, and prosecutors in this case of disclosing, one thinks, as little as they can get away with.

The other point may be more important. It is being argued that later investors will be harmed by use of the November 30th statements because, by resulting in recoveries of up to $500,000 for persons who would receive nothing if cash-in/cash-out is used, the use of the November 30th statements will lessen the monies available to the later investors. In fact, however, a recovery of up to $500,000 under SIPC will not cause later investors to lose dime one. For that money, as is admitted, will come from SIPC itself, not from the so-called “customer property” (or bankruptcy estate). What SIPC and the Trustee are and long have been worried about here seems obviously not to be that less money will be available to later investors if the November 30th statements are used, but that SIPC would be broke if it had to use the November 30th statements as the measure of net equity for SIPA purposes of giving victims up to $500,000. SIPC doesn’t have the necessary amount of money. Its shortfall in money is in large part due to failure to assess the securities industry more than a deminimus pittance for many years rather than assessing brokers enough to build up a sufficient fund. To meet its obligations and avoid bankruptcy, SIPC would have to seek more money from Congress or tap lines of credit, etc. All of this it would consider undesirable, but, in any event, the point is not that late investors would lose money, but that SIPC would be out a ton of money.

There is, however, one scenario under which SIPC and the Trustee could be right in claiming that late investors could be harmed, in addition to SIPC being out a lot of money due to its payments of $500,000. If the net equity shown on the November 30th statements controls not only what one receives from SIPC, but also one’s share in the bankruptcy estate, then people who have a positive net equity shown on the November 30th statement but a negative net equity on the basis of cash-in/cash-out will share in the bankruptcy estate though they otherwise wouldn’t. Their sharing in the estate would mean that less would go to others from the estate. In this way late investors who did not take money out of Madoff could be “harmed.” Of course, such harm wouldn’t be dramatic unless the Trustee recovers many billions of dollars for the estate, whereas the harm to persons denied $500,000 from SIPC often is very dramatic: it has caused many people to be in the poorhouse.

There is another aspect of the briefs which appears to indicate -- completely unintentionally -- that SIPC and the Trustee have always been concerned about SIPC’s coffers, not investors. The briefs make clear that, if securities lost by a victim can be purchased in a fair and orderly market, a SIPC Trustee is supposed to return to an investor the securities she lost because of a broker’s bankruptcy. If this is done, there is no need for SIPC to pay people up to $500,000 to cover their losses up to that amount. A return of their securities might prove financially better for victims or financially worse for them than paying them up to $500,000, but, as said, it is what must be done if possible.

Here, returning their securities to customers would have meant purchasing in the open market the securities shown on customers’ November 30th statements. This, however, generally seems never to have been considered. From the beginning the talk always was about the $500,000, and those of us who started out knowing absolutely nothing about SIPC -- which I believe was almost everyone -- were none the wiser. (It does turn out, however, that some people knew this, or quickly found out, because apparently some people have submitted claims for securities instead of for cash.)

Beyond this, to the extent any of us tyros heard early on that SIPC was supposed to return securities if this could be done, we assumed it could not be done in view of the size of the Ponzi scheme, so that cash of up to $500,000 was the only feasible alternative.

But the briefs unintentionally bring much of this into question by pointing out that the Trustee is supposed to return securities to customers if he can. A librarian has obtained for me information on the number of shares of stock in the S&P 100 (which are the stocks Madoff used) that are traded each day. It is in the range of three to five billion shares per day. Individual companies in the S&P 100 trade in the range of many millions of shares per day -- a sampling of some of them shows average daily volumes that can range from 10 to 50 million shares per day. Given these facts, why couldn’t the Trustee have gone into the market to acquire, in a fair and orderly market, the number of shares needed to be given to customers? He need not have bought the securities in a disruptive way, you know. Like persons acquiring large blocs often do, he could have had traders acquire the shares for him a bit at a time, spacing out purchases over weeks or months in order to avoid disrupting or even moving markets.

Perhaps it is noteworthy in this regard that, having read every word of the SEC Inspector General’s 557 page report, in which he discusses the views of a small number of major-league Wall Street experts who suspected something might be wrong, I do not recollect a single word from any of them to the effect that Madoff could not successfully acquire and sell the S&P 100 securities that he claimed to be trading -- and that he claimed to be trading in one fell swoop, not in stages as traders in large blocs often buy and sell the shares in those blocs. The most that I recollect being said was that a few of the experts were surprised that Madoff’s huge claimed trades did not move the market, were not “visible” in the market. None of them thought it could not be done. Well, if experts apparently thought it could be done in huge, one-fell-swoop trades of S&P 100 shares without untoward effects, why couldn’t the Trustee acquire such securities in the market slowly, having his traders buy a bit at a time so that there would be no untoward market effects? Personally, I know of no reason why this couldn’t be done successfully, and victims would have been far better off had it been done, as the briefs say is required if it can be done in a fair and orderly way.

But, as said, it was never publicly considered by SIPC and the naifs with whom SIPC and the Trustee were dealing -- myself included -- had little or no idea about any of this. SIPC, The Trustee, and their counsel -- the experts -- took advantage of the widespread ignorance of those who had never dealt previously with this very complex statute that the experts had spent up to 34 years or so of their lives dealing with. And why did they take advantage in this way? Isn’t the answer obvious -- aren’t you saying it to yourself as you read this, even before I tell you my opinion? My opinion -- the obvious opinion -- is that they did it because SIPC did not have the money to do what they now admit the statute requires. SIPC did not have the money to go into the market and purchase the securities that it should have purchased and returned to investors. Nor did it want to assess the brokerage industry for the necessary monies, nor did it wish to seek the money from Congress (which was or became busy bailing out culprits in the banking industry to the tune of up to ten trillion dollars, not the “mere” scores of billions it might have taken to assist SIPC to do what it now has said was its duty under Congress’ statute).

SIPC, as I’ve said, took advantage of the fact that most of us victims were (and are) mere tyros -- or less -- when it comes to the complex statute that SIPC and its lawyers have worked with for decades. Of course, I am willing to be dissuaded from my views of the matter -- views triggered by the briefs of SIPC and the Trustee themselves on the net equity question -- but unless and until dissuaded I feel that most of us have simply been bamboozled by the experts with regard to these matters. One cannot help wondering whether victims should investigate the question whether the statute of limitations on making claims for securities can be avoided in the kind of situation which exists here, so that novices who were bamboozled by the official experts could put in claims for the securities to which the novices had a right. (Perhaps the last sentence should be underlined and italicized.)

All of this moreover, supplies yet another reason why there should be discovery from SIPC and the Trustee on why they did what they did -- discovery that the Trustee’s counsel has informed me will not willingly be given when asked for in the context of why SIPC and the Trustee used cash-in/cash-out. (The bankruptcy judge has scheduled what is called a pretrial conference for next Tuesday on the question of discovery pertaining to the reasons for using cash-in/cash-out.) Discovery on the question of why SIPC and the Trustee did not seek to buy securities is a broader, related question than discovery merely on the question of cash-in/cash-out, though one would bet there are numerous documents that relate to both questions because the questions are linked by the financial problems they would cause SIPC. In any event, if there are future Congressional hearings on SIPC and what it and the Trustee have been doing, the entire broader question of why SIPC and the Trustee did not seek to acquire securities, as well as the narrower question of why they chose cash-in/cash-out, should be plumbed. I am perfectly willing to be dissuaded if I am wrong, but to me, as of now, the answer to all such questions most probably is that SIPC did not have the money, did not want to assess brokers for the money, and did not want to ask Congress for it.

There are a few other items of major import, and a few of lesser import, that should at least be briefly noted here.

One of the ideas which has surfaced over the months in connection with net equity is that, if cash-in/cash-out is used to establish net equity, then investors are entitled to interest on their investment. (I gather the applicable New York state interest rate is a very significant one.) And, in his memorandum decision holding that there should be briefing on the net equity question, the Bankruptcy Judge said that “it is in the best interests of all customers for this Court to limit the Net Equity Issue to the determination of net equity (cash-in/cash-out vs. account statement balance as of November 30, 2008 vs. cash-in plus interest minus cash out . . . in accordance with a . . . scheduling order . . . to be submitted to this Court . . . .” (Emphasis added.) The Court thereby made clear that the question whether interest should be added to the cash-in is before it on the net equity question. Yet, in its next to last paragraph, the Trustee’s brief says “Certain claimants have suggested that the Trustee include an interest factor when calculating a customer’s ‘cash-in/cash-out’ figure to reflect the various entry points of investors in Madoff’s lengthy scheme. Whether and to what extent such a calculation is appropriate is not before the Court in this briefing, nor are other particular nuances of the ‘cash-in/cash-out’ method.”

Thus, it would seem that the Trustee has taken it upon himself to revoke the Court’s ruling that the question of whether interest should be added to the amount of cash-in if the cash-in/cash-out theory were to prevail is before the Court. It is amazing if the Trustee has in fact taken it upon himself to in fact countermand the Judge. What I suspect happened, however, is this (though I surely don’t know for certain that my suspicion is correct): In accordance with the Judge’s above-quoted instruction for submission to him of a briefing schedule, the Trustee submitted a schedule which the Judge signed. (It is the schedule under which we are all operating.) The scheduling order submitted by the Trustee said that

The briefing to be submitted to the Court pursuant to the Order shall be limited to discussing the proper interpretation of Net Equity, specifically the following two issues:

1. Whether a customer’s Net Equity under SIPA is equal to “cash in/cash out”; or

2. Whether a customer’s Net Equity under SIPA is equal to the value of the securities positions and credit balance reflected in the customer’s last statement.

This statement in the scheduling order regarding the forthcoming discussion of net equity, as you can see, did not include the issue of interest on cash-in, which the judge’s opinion had said is part of the briefing. Not realizing the omission, the Judge signed the order. Now, relying on the order it submitted to the Court and he signed, the Trustee is claiming that the question of interest on net equity is not part of the briefing on net equity though the Judge’s opinion said it was.

If all this is what happened in fact, it is fair to say that, even if it did so unintentionally, which for various reasons is at least possible, the Trustee’s office has pulled a fast one on the Court, and has attempted to convert -- or subvert -- the Judge’s opinion that interest is part of the briefing to a situation in which it is not part of the briefing. I know but do not feel it necessary to elaborate what will be the reaction to this action by the Trustee of victims who already are very angry at him for what they believe is high handed, unfair treatment.

Another item of some significance is that, in trying to persuade the Court not to use the November 30th statements as the measure of net equity, the briefs point out that while those statements are one guide to what people had, there are numerous other books and records that also are guides, that show the whole deal was a fake, and that make clear that all that victims really had was what they put in less what they took out. The problem with this argument is not that its claims regarding what other records show are untrue. Rather, the problem is that victims had no way whatever of knowing anything of what the other records showed. To use the other records because they show the truth, even though victims knew nothing but what their statements showed, is to destroy SIPC protection for victims of Ponzi schemes who took out money they honestly thought they had -- destruction which is, in fact, the end result of all the arguments being made by SIPC and the Trustee.

I know of no legislative history indicating Congress wished to work such destruction on such victims. To the contrary, the legislative history, presented by various lawyers in various prior briefs, and doubtlessly to be presented again by them, indicates that Congress wanted to protect all innocent victimized investors up to $500,000 in order to maintain confidence in markets. To punish innocent victims here who took out monies they honestly thought they had seems especially harsh and improper, moreover, when one considers that the SEC, which repeatedly had far more information than it needed to uncover the Ponzi scheme, nonetheless didn’t uncover it and instead gave victims comfort that their investments were safe, and when one likewise considers that some of the greatest and most sophisticated investors in the world, such as those working with James Simons, did not uncover the Ponzi scheme and left money with Madoff -- despite certain red flags that caused them concern -- because they felt the SEC had placed an imprimatur of legitimacy and non fraudulence on Madoff.

There are a couple of matters of perhaps lesser concern which I would also like to mention before closing. One is that there is some hint of concern in one of the briefs that, if cash-in/cash-out is not used, and the November 30th statements are used instead, then money could be owed to accused coconspirators who made hundreds of millions or, like Picower, billions of dollars from the fraud. But one cannot believe such hints are serious. There is no way that SIPC or the Trustee thinks SIPC or the estate would have to pay money to coconspirators -- if they are judicially found to be coconspirators -- regardless of what their net equity might be according to their November 30th statements. Still less is such payment a possibility if it is true, as the Trustee has charged, that they often told Madoff what numbers to use in their accounts.

A second minor point is that, in lengthily detailing the workings of the fraud -- which all now know anyway to a very considerable extent -- as a psychological gambit to persuade the Court to uphold their relatively early-on decision to use cash-in/cash-out, the briefs of SIPC and the Trustee rely heavily on facts that they probably could not have known when they made the decision. One obvious example is their extensive description of what was done by DiPascali, which they are very unlikely to have known in full -- or even more than very partially -- relatively early-on when they made the decision for cash-in/cash-out. Though they could not have known very much about what DiPascali did at that early time, they rely on what he did to justify what they did before they could know much of what he did. Of course, they would argue that later revelations of what he did simply reinforced the correctness of their earlier decision. Anyway, it is not particularly unusual for courts to rely on facts that merely could exist, even if they are not known to exist, at the time a decision is made (and to do so even if the relevant facts never become known). Laymen might find this odd, and I too find it odd, but it’s the way it often is.

* * * * *

As mentioned here in a prior posting, Jon Landers once said to me that people would be outraged, and justifiably so, if a bank went bankrupt and then the FDIC refused to pay depositors because the bank had been insolvent for years and thus all the interest the depositors honestly thought had been accumulated in their accounts, and all such interest they had withdrawn from the bank, were nothing but completely improper book entries. But that is identical to what has happened here. SIPC has refused to pay people who honestly believed they had earned money in their accounts and who withdrew earnings, and SIPC has based its refusal on the fact that the earnings were fake, just as the monies credited to and/or withdrawn from the bank were improper in the bank example suggested by Landers.

It is absolutely the case that if SIPC succeeds -- no matter what argument it succeeds on -- then SIPC protection will always be at risk, and investors will have no right or ability to rely on SIPC protection. For if, God forbid, it should turn out that one has invested in what ultimately proves to be a fraud, then one will be SOL and will get nothing from SIPC if one has over the course of years taken out more than one put in, doing so in the honest belief that the money had accumulated, existed, and belonged to the person taking it out. This has to be considered a disastrous situation for the individual, directly contrary to Congress’ intent to protect innocent investors and to promote confidence in markets, and has to be considered no better than if the FDIC refused to pay innocent depositors because it turns out that their banks were insolvent and were defrauding them all along.*

*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, you can, if you wish, email me at

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