Tuesday, January 26, 2010

Some Important Ideas Regarding Madoff That May Not Have Been Picked Up On Yet, And Comments On The Mid January Briefs Of The Malefactors Three.

January 26, 2010

Some Important Ideas Regarding Madoff That May Not Have Been Picked Up On Yet, And Comments On The Mid January Briefs Of The Malefactors Three.

This posting was originally intended to deal with a few -- nothing like all -- of the arguments made by the SEC, SIPC and the Trustee in the briefs they filed in mid January 2010. The arguments to be dealt with were the ones I thought to be of greater importance. Yet, the more I considered the briefs, the more it seemed to me that many of even the most important arguments have been amply dealt with before in many places: in briefs filed by Helen Chaitman, Brian Neville, David Bernfeld, Davis Polk, Milberg, Goodwin Procter, Schulte Zabel, Sonnenschein, and others, in blogs posted here on October 23rd and December 21st of 2009, and in a brief I filed that was posted here on November 6, 2009.

So I decided not to deal with certain of the arguments that have already been amply handled, except perhaps -- and relatively briefly -- in instances where the arguments have been particularly stressed or some sort of new twist has been put on them in one or more briefs filed in January by the SEC, SIPC and the Trustee (“The Malefactors Three,” or “TMT”). I also decided that before dealing with the arguments in the January briefs of TMT, I would make some general comments regarding the briefs, and regarding points which I think very important to our side but which I am not necessarily sure that the lawyers who will argue for us on February 2nd have yet picked up on.

* * * * *

Let me start with some generalized comments on the mid January briefs of The Malefactors Three. I don’t believe that in 47 years at the bar I have ever said that the brief of an opponent is dumb. This is both impolite and bad tactics. But given the terrible conduct of TMT towards victims, the time has now come to do what I’ve not done before.

There are parts of the SEC’s brief that are just dumb -- a view shared by others who have given me their view, incidentally. That the SEC has written a dumb paper on such important matters is hugely unfortunate. For it is yet another illustration that the incompetence of this agency continues, to the vast detriment of American shareholders. Judging by the SEC’s brief, the vaunted ascension of Mary Schapiro, in whom Congress is said to be reposing great (but some feel misplaced) confidence, has made no difference whatever.

As to all of the briefs of The Malefactors Three, their tune has been named by Marshall Krause. They all use whatever argument or factual slant comes to hand in order to try to defeat the victims. Truth, accuracy, or objectiveness of the argument appear to play little or no role. It is a pluperfect example of bad aspects of the lawyer’s so-called “art.” That the three organizations arguably are each supposed to further the public interest but are actually defeating it, only heightens the misfortune. (The Trustee, of course, falsely claims to be pursuing the public interest with regard to the latest investors, but he is helping them by screwing over the now-impoverished long term and mid length investors who for years took out monies from Madoff in order to live, now have little or nothing, and live with fear of attempted clawbacks of blood from a stone under the Trustee’s supposedly “holistic” but actually exceptionally narrow, lawyerish, purely dollars driven, Wall Streetish analysis that, like much of what Wall Street has done, destroys the public interest rather than furthering it.)

And what, one may ask, underlies the dubious conduct represented by the January briefs and the prior briefs of The Malefactors Three? Well, as said in this space before, and as even cautious lawyers and other cautious types are finding it ever more acceptable to say, what underlies it is a desire to protect SIPC and its management from accountability for incompetence and worse -- incompetence and worse that caused SIPC not to build up a sufficient fund to cover the bankruptcy of a major broker even though Congress and the GAO warned SIPC about this the best part of a decade ago. One can only wonder what would have happened if one or more brokers that conceivably might each have scores of thousands of accounts had gone down, as Merrill almost did. It is obvious (i) that this -- SIPC’s lack of sufficient funds due to malperformance and worse -- has driven everything, (ii) that this is why SIPC and the Trustee vigorously fought this lawyer’s effort to obtain discovery of the reasons why they chose the cash-in/cash-out method (a fight by SIPC and its Trustee that was slavishly rewarded by the judge in a very brief opinion (if it can even be called an opinion) of a paragraph or two -- an opinion which was a joke), and (iii) that this is why SIPC and the Trustee will do everything they can to persuade Congress not to hold hearings into the performance and actuarial assumptions over the years of SIPC, its management, and its politically appointed Board members, into its relationships with Wall Street, and into the slavish adherence to its dictates of Trustees, whom a federal judge has called its “puppet[s].” (Trustees make extremely lucrative careers for themselves by puppetishly doing whatever SIPC wants, and (including Irving Picard) have therefore made a practice for decades of finding alleged reasons why huge percentages of investors -- up to 90 percent or more -- are supposedly ineligible for the relief Congress intended -- reasons (including ones given by Picard) that federal judges have simply excoriated.) No, you can bet your last farthing that SIPC wants no Congressional inquiry or judicial discovery into any of these matters, and will fight to the last ditch against any such investigation or discovery.

Let me acknowledge that there is a point of view which holds that, under the numbers released by the Trustee as to the number of Madoff accounts of one kind and another, SIPC, by use of its fund, and by drawing on its lines of credit, could nearly satisfy its obligations to Madoff victims under SIPA (obligations which, in this scenario are posited as being something over $2.5 billion, I believe). The burden of this view, if I understand it correctly, is that SIPC and the Trustee did not adopt cash-in/cash-out because of an inability to pay Madoff’s victims. Rather they adopted it because they considered the Madoff circumstances to be propitious for changing the whole nature of SIPC’s obligations regarding net equity.

I have to respectfully disagree with this viewpoint. I believe that, at the inception, and for many months afterwards, SIPC and the Trustee did not know the extent of SIPC’s monetary obligations in the Madoff case under the final statements method -- or, perhaps more appropriately, the “final confirmations” method -- but they feared the worst since they knew Madoff had a huge number even of direct investors and they knew that paper losses were said to be in the 50-65 billion dollars range. If even 10,000 people each had a right under the final confirmation method to SIPC advances of only $400,000 on average (not $500,000), which is likely quite a lowball estimate of monetary rights under the final confirmation method of calculating net equity, SIPC would have been on the hook for four billion dollars. Change some of the assumptions and it might have been on the hook for five or six billion dollars or more. Early on it couldn’t know the extent of its liability. But it certainly could, and I believe did, fear the worst. And even if it was on the hook for “only” $2.5 billion or somewhat more, which would wipe out its reserves and one or more lines of credit, etc., it certainly didn’t want this to happen, with the concomitant huge hassles that would arise with Wall Street and with Congress -- which would demand to know how such a result could have come to pass. So SIPC had to find a way to drastically limit its liability to victims -- as it has done for decades, to the vast detriment of injured investors -- and it therefore settled on use of cash-in/cash-out.

Am I right about all this? Well, one cannot at this point know for sure because there has as yet been no discovery, and no Congressional investigation, into the matter. But I personally am likely to remain convinced I am right unless and until discovery in law cases or a Congressional investigation shows me wrong. I believe judicial discovery or a Congressional investigation would likely prove me right, not wrong, and that this is the real reason why SIPC and the Trustee raised holy hell when this lawyer sought relevant discovery on why cash-in/cash-out was used, discovery which was denied by the judge in a farcical “opinion” even though the Trustee has such an army of lawyers that there was no possibility that putting one or a few lawyers to work gathering the documents requested in discovery could materially delay the accomplishment of other work.

* * * * *

Let me now turn, as previously said, to some points that I consider very important but that, as near as I can tell, have not necessarily been picked up on yet by the lawyers who will argue for the victims on February 2nd. Now, the lawyers for the victims have written a sensational set of briefs; as one who has spent significant parts of my career writing briefs in the U.S. Supreme Court, where briefing is generally much better than in lower courts, I would nonetheless have to say that the set of briefs submitted by lawyers for Madoff victims is the equal of, or better than, any set I have seen elsewhere in nearly 47 years at the bar. But this is a very complex case, all of us are constantly picking up new ideas and facts, and it is not possible, I should think, for the lawyers to be totally abreast of everything all the time. So I shall set down some new ideas that have surfaced relatively recently and that I think are important, and shall hope lawyers for the victims are made aware of them and use them. If the lawyers are already aware of the ideas, then I apologize to them for my ignorance of their knowledge.

The first of the new ideas is this: If SIPC uses cash-in/cash-out instead of the November 30th statements as the measure of net equity, under the former method it will be able to obtain from many victims monies (alleged preferences they received over and above the principal they put in) that it could not obtain if it used the latter method. In this way SIPC and the Trustee will be able -- very perversely -- to euchre, from many victims, monies they receive via theft deductions and refunds of taxes on phony profits (taxes to which the government never had any statutory or constitutional right), monies that many will need to escape impoverishment. It is utterly perverse for SIPC and the Trustee to have even a theoretical right to obtain money given back to victims by the IRS -- money often needed, as said, to escape poverty.

The excuse for this perverse result given in the Trustee’s brief is that the result is permissible because two different bodies with two different statutes are involved, SIPC and the IRS. But that is no excuse. I know it has been common in Washington for decades for different agencies to each regard themselves as individual fiefdoms that need have no concern for and need not follow what other agencies are doing. But common or not, this view is dead wrong. There is still only one United States Government. Its differing agencies and quasi agencies cannot permissibly adopt and implement inconsistent views to the disadvantage of citizens. Thus, the Office of Solicitor General spends (much) time forcing reconciliation of differing agency views into a single governmental view for presentation to the Supreme Court. I can to this day remember a Justice of the Supreme Court and Solicitor General Archibald Cox agreeing with the point being made here at an oral argument as far back as the early or early-mid 1960s. The Supreme Court often demands reconciliation between differing fields of law -- e.g., regulatory and antitrust law. The idea that SIPC (a quasi governmental agency) and the Trustee (an officer of the Federal government’s court system) are perfectly free to alter the rules heretofore prevailing under their governing statute, SIPA, in a way that nullifies or counterminds another agency, here the IRS, which is necessarily acting with the implicit or explicit approval of the Treasury -- is pure bovine defecation. SIPC and the Trustee must instead continue to follow the heretofore prevailing interpretation of their statute so that the government’s position is consistent.

A second idea is this. A truly major prop of the argument of The Malefactors Three has from the beginning been, and still is, that everything was fictitious. The briefs of TMT have covered page after page with descriptions of the fake ways in which purchases and sales were manufactured, the fake statements were produced, the methods by which everything was done, etc. Because it was all fake, they say, the normal rules of net equity do not apply (and they are free to break the normal rules as they choose). The huge long descriptions of what Madoff and DiPascali did amount to saying that this wasn’t a common garden variety fraud. Rather, it was a highly sophisticated fraud carried out by deeply unusual and sophisticated means. And it was that. Indeed, the fraud was so sophisticatedly done that the SEC didn’t catch it in 16 years and five or six inspections, leading investors like James Simons’ Renaissance Technologies invested in it, and so forth.

The question which arises from TMT’s desire to use cash-in/cash-out rather than the final confirmation rule to measure net equity in what they themselves correctly portray as a sophisticated fraud, is this: how can it be -- isn’t it exceptionally perverse to say -- that the victims of a highly sophisticated fraud that drove a broker into bankruptcy receive far less protection from SIPA than victims of a simple-minded, garden variety fraud that drives a broker into bankruptcy? How could Congress have intended that? How is that consonant with Congress’ desire to protect investors in order to build confidence in markets? Under TMT’s point of view, people know that their danger from investing has increased, not, as Congress desired, diminished, and that their protection, contrary to Congress’ intent, has decreased, not increased. For the more sophisticated the fraud, and the harder it is for the SEC, prosecutors, financial mavens and investors to detect it, the more likely it is that investors will receive diminished protection. This destruction of protection and confidence because something is sophisticated is certainly not what Congress intended.

The last idea to be discussed in this part of this posting is one which has been brought out in at least one brief (admittedly mine), and perhaps in some others though I don’t recollect it, but which has slowly been gaining some traction with laymen. It is that the position of The Malefactors Three with regard to calculation of net equity in a Ponzi scheme will go far to destroy all confidence in investing through brokers. Instead of building confidence in the industry, as Congress desired, it will destroy confidence.

The reason is simple: it is that no investor with a broker-dealer can be certain that his investment is not part of a Ponzi scheme. After all, one cannot know that one has invested in a Ponzi scheme until after the scheme is revealed. So no investor will be able to withdraw earnings from his investment with confidence that he will not later be told that the withdrawn monies never existed, that the withdrawals might therefore diminish his net equity unexpectedly, possibly making it a negative number, that he will lose SIPC protection if it is a negative number, that he will also lose claims against customer property and the estate, and that he is subject to clawbacks.

Thus every investor with a broker-dealer will be at risk, will be threatened with potential economic disaster, if he takes out income from an investment, although taking out income to live, to pay expenses and taxes, and to make other investments is one of the main purposes people have when making an investment in the first place. Investors will have no guaranty of protection -- contrary to the purposes of Congress. They will know they have no protection and that their reasonable expectations, which Congress intended to protect, are irrelevant. Confidence in the securities markets -- another purpose of Congress -- will be vastly diminished. People will quickly realize that they might be much better off simply putting their money in a bank or splitting it among several or many banks, at lower rates of return but with assurance that the FDIC will pay them up to $250,000 for each separate account if a bank should prove fraudulent and bankrupt so that the money the depositors thought was in their accounts was not there in fact.

* * * * *

I turn now to a few of the points in the briefs filed by TMT in mid January. The more I think about those briefs, I must admit, the more I think they are mainly just reprises, sometimes with some tweaking or new twists, of points TMT made previously. So this part of this posting will be shorter than originally envisioned.

The SEC says, as have the others, that because we now know from Madoff’s books and records that he didn’t buy securities -- as if we otherwise wouldn’t know this but for the books and records -- net equity cannot be based on the final confirmations of November 30th. Net equity also cannot be based on the final confirmations, it is said, because purchases, sales and profits were all a fiction manufactured after the fact. Madoff couldn’t pay for the purported securities, victims did not pay for securities or make profits, and for these reasons Madoff did not owe victims the amounts shown in their confirmations.

This, which has been put forth by TMT in prior briefs, is one of the major props, one of the hearts, of TMT’s position. If I had to bet, I would bet that on February 2nd the TMT are going to constantly pound and pound on their claim that the fictionality of the deal, of its purchases, sales and profits, is dispositive. They are not about to give up on this argument even though their claims have been devastated time and again in briefs filed by the victims’ lawyers and in other writings. So let me say yet again that the claim is a humbug for a host of reasons. SIPC is intended to protect victims, and the victims -- at least about 99 percent of us -- did not have the least idea that anything was fictional. Our legitimate expectation was that the confirmations we received were all true. Congress knew of Ponzi schemes when it passed SIPA -- Ponzi schemes go back to the early part of the 20th Century -- yet Congress did not define net equity in the statute and then say that “this is how you define net equity except for Ponzi schemes, where you use cash-in/cash-out.” Instead, rather than say that, the legislative history explicitly makes plain that SIPC’s full protection applies even when the broker never buys the promised securities, which is a hallmark of fraud, of Ponzis in particular, and is what occurred here. What happened in Madoff is exactly what happened with regard to real securities in New Times, with the sole exception that there the purchases, holdings and amassing of profits in securities allegedly being held were fictional and here the purchases, sales and profits were fictional. If the fact that a Ponzi scheme is involved makes a difference, then why should investors in a Ponzi scheme be credited with any net equity, whether measured by final confirmations or by cash-in/cash-out; after all, all of their investments played a role in furthering the Ponzi scheme, right up through the investments of the final investors whom Picard and SIPA claim are the parties they are trying to help (rather than admitting that their true concern is to help SIPA, which would otherwise be in a huge jam). If the rule of Picard and SIPC prevails, nobody can feel safe in investing through a broker because it is impossible to know in advance that the investment is not a Ponzi that will cause one to be subject to cash-in/cash-out and clawbacks.

It is also the case that Madoff owed victims what was shown on their confirmation statements. If he did not owe this to them, where was the fraud? There is no fraud if one is unable to pay people money that one does not in fact owe them. That Madoff owed people what was shown in their account statements was confirmed by Madoff himself when he paid people the amounts shown on their statements when they asked for it.

The TMT claim he paid solely to cover up his fraud, not because he owed. Of course he paid to cover up his fraud. But he had to pay to cover up the fraud only because he owed; there is no need to cover up a fraud by paying people if you don’t owe them the money, and there would be no exposure arising from failure to pay if the money was not owed. Would Madoff, after all, in order to cover up his fraud, have sent $100,000 to an aborigine who, never before having heard of Madoff and having no account with him, one day wrote to demand payment of $100,000 from his non-existent account? The SEC’s point is just dumb.

I frankly consider that the whole position under discussion that was taken by the TMT -- that confirmation statements which one has no reason to disbelieve cannot be the measure of net equity when the investment ultimately turns out to be a (highly sophisticated) fictional one -- to be simply stupid. It is an invention, is populated by sub inventions, and would destroy Congress’ purpose. It is also a device being seized upon by TMT to supposedly justify a refusal to follow the rules -- the rules provided by the statute, intended by Congress, and followed in the past.

One of its sub inventions, however, is actually pretty clever because it has a surface ring of plausibility. The SEC and SIPC say investors cannot possibly have, in the SEC’s words, “legitimate expectations . . . [in] fabricated securities positions like those at issue in this case -- based on hindsight and designed to facilitate a fraudulent scheme -- just because those positions were shown on a customer’s final account statement.” (SEC Brief, p. 6.) This cleverly plays on our distaste for fraud -- who can believe, after all, that one can have a legitimate expectation in the proceeds of fraud?; cleverly but falsely conflates time periods; and magically causes legitimate expectations to disappear in a puff of smoke as it were.

I need not get into yet again, as has been done in blogs, so many briefs, etc., all of the reasons why people thought that what was represented on their confirmations was true, governed their lives on the basis of their belief in the truth of their confirmations, and were justified in so governing their lives. The conflation of time periods under discussion is, however, a clever, important and deeply false, reprehensibly false, method of destroying the legitimacy of what people did. The SEC’s statement is worded so as to cause one to think that there is no right now to have thought, on November 30th when one received his final confirmation, that one had a legitimate expectation then to what then appeared to be in one’s account. This is baloney, as discussed. One has every right now to think one had a right to what was shown then and to what one thought one had then. What one wouldn’t have a right to now, and what is in no way involved here, is to think that one would have had a right to more than that if -- to take a crazed hypothetical -- Madoff had issued a statement after December 11th -- when the fraud was revealed -- saying that you had yet more money in your account then was shown on November 30th. In short, one justifiably has a legitimate expectation to what was shown in the final confirmation received before the fraud became exposed, and no legitimate expectation to claimed accessions to that amount if such had bizarrely been claimed after exposure of the fraud.

To look at the matter from a slightly different angle, the TMT are claiming that the second it became known that Madoff was a fraud, all legitimate expectations held up until then evaporated instantly, no matter how appropriate they were, and were replaced by a different legitimate expectation of . . . . nothing. That is plainly nuts, would make a mockery of the statute, and would nullify Congress’ intent.

The SEC, like SIPC, makes claims designed to show that the amount received by one customer can affect the amounts available to other customers. SIPC, in fact, sets forth page upon page of complicated calculations to prove this entirely obvious point. The point is so obvious that SIPC’s complicated calculations remind one of the old lawyer’s saw, “Argue the facts. If you don’t have the facts, argue the law. If you don’t have the law, baffle them with bullshit.” I think that that is what SIPC is trying to do; I think its method of calculation is an invention it uses, instead of simpler calculations, which have been discussed previously in this space, in order to try to falsely persuade the court to its point of view; and there is even what appears to be an evident arithmetical error in its calculation. (Perhaps I should add that it seems to me, simpleton that I am, that if you have a net equity of one million dollars, if total net equity of all investors is 100 million dollars so that your own net equity is one percent of total net equity, and if the estate and the Trustee’s recoveries total 50 million dollars, then you get $500,000 from SIPC plus one percent of the 50 million dollars of the estate and recoveries, or another $500,000. If it is this simple, as I think it is, there cannot really be any excuse for SIPC trying to muck it all up with fancy calculations. If the total estate and recoveries were 75 million dollars instead of 50 million dollars, you would get one percent of the total up to $500,000, which, with your prior payment from SIPC, would make you whole. The rest of your one percent, or $250,000, would go into the pot, so to speak. (SIPC seems to claim that it would get your “excess” $250,000, because it is next in line as security lawyers term it, but under the statute, it is next in line only if it gave you securities instead of cash. (Section 78fff-2(c)(1).)

Be all this as it may, the fact is that the amount available to customers depends on how much money SIPC itself has, how much is in the estate, and how much is recovered by the Trustee. If SIPC doesn’t have enough to pay everyone $500,000 (or less where one’s net equity is less), and if the estate and recoveries don’t make up the remainder of what is owed investors, then of course payment of something to one investor will lessen the amounts received by others. Does one really need to be a SIPCian arithmetical Einstein to understand this? Yet the SEC, and especially SIPC, with its complex arithmetical calculations, makes a huge deal of this in an effort to prove that cash-in/cash-out should be used in order to give more to some and less or nothing to others and to be able to claw back from them.

This exercise has inherently been carried out by SIPC and the Trustee, of course, as has been said so often by so many, in order to support the idea that later investors should receive more than people who took out more than they put in. This is supposed to be “holistic” and is supposed to be the personification of fairness. In reality it is not holistic at all, as has been discussed here before. It is, rather, a wholly dollar driven, crabbed, Wall Street/accountant/lawyerish version of fairness among victims -- a version that holds it more fair to deny money to the impoverished so that additional millions of dollars can be given to the already and still hugely wealthy. It is an imposition of what Harbeck and Picard consider fair, not what Congress has ordered. And it is supported by arithmetical examples that are so blatantly slanted as to be laughable. (The numbers one uses in arithmetical hypotheticals, of course, can make all the difference in what looks fair. Different numbers will make it appear that different results are the fair ones. SIPC’s numbers are so slanted that it is farcical.)

I mention all this, even though most of it has been commented on before, because the notion of using cash-in/cash-out to allegedly achieve fairness -- while in fact achieving only a false, money-alone-driven fairness at the expense of Congress’ intent -- is almost certain to be presented big-time by The Malefactors Three at the February 2nd hearing. After all, Picard and Harbeck have been pushing this idea since at least early 2009, and their idea has a simpletonish patina of fairness, to those who cannot see beyond dollars alone, because they claim it necessarily is fair, and achieves equality, to deny money to investors who previously took out money in order to give it to those who haven’t, regardless of their true relative economic and human circumstances. Picard and Harbeck resolutely refuse to recognize -- and most lawyers on our side seem not yet to have realized -- that instead of resulting even in monetary fairness (let alone holistic fairness), the ideas of Harbeck and Picard merely help late investors, do nothing to get back money from people who took out their entire investments more than six years before December 2008 and who thereby benefitted from the investments by people who came after them, and harm the latter people, who came in the “middle” so to speak, never pulled their principal out, had to use their Madoff income to live on, and are now impoverished. This is some idea of fairness and equity, isn’t it?

There is one admission in the briefs of the SEC and SIPC that is surprising. Few lawyers on our side seem to have made the quite relevant, and I believe quite correct, argument that SIPC owes victims the securities shown in their November 30th statements. Perhaps only Helen Chaitman and I have made the argument; it was a significant part of a brief I filed which showed that this was the remedy Congress wanted implemented whenever possible, in preference to providing victims with cash, so long as the securities could be purchased in a fair and orderly market. The argument also received discussion in Chaitman’s papers.

The SEC admitted in its brief that “conceivably, it would be possible for the trustee to purchase real securities to cover the securities position shown on the account statements” (but said this shouldn’t be done because the account statements were fictitious). (SEC Brief, p. 8.) SIPC did not go as far. It only admitted (though at some length) that providing customers with securities is Congress’ preferred method, although it too, like the SEC, said this shouldn’t be done where a securities position had been fictitious. Yet I know of nothing in the legislative history saying that securities should not be provided if the position was fictitious but was honestly believed by the investor. Instead, Congress specifically said in the legislative history that securities should be bought by the Trustee to replace securities that are “missing” -- as they are missing here -- if the purchase can be made in a fair and orderly market, i.e., a market not subject to manipulation, which can also be done here. All of this is extremely important because the securities that are missing here have gone up dramatically in value since December 11th, and obtaining them, as Congress desired, would therefore be extraordinarily important, especially for people who have been impoverished. I don’t know whether any of the victims’ lawyers intend to make the argument for requiring SIPC to acquire and deliver securities, but someone should, the more so in light of the concessions by the TMT.

Finally, I note that SIPC’s brief reiterates the truly offensive, ultra legalistic (if it even “rises” to that level) absurdity that victims are responsible for what Madoff did because he was their agent in committing fraud. Victims, SIPC says -- and I am going to quote its brief because it is hard to think people could believe it otherwise -- “are chargeable with the underlying fraud because they rely on BLMIS’s fraudulent statements as the foundation for their ‘net equity’ claims.” (SIPC Brief, p. 23.) If victims wish to “disavow” Madoff’s fraud and not be chargeable as principals of an agent, says SIPC, then the “first and most obvious step in disavowing the Debtor’s fraud would be to reject, not rely on, the fraudulent statements generated and provided to Claimants by BLMIS.” (Id., p. 25.) In short, the victims are culpably chargeable with Madoff’s fraud because they rely on confirmations which the legislative history says are the usual measure of legitimate expectations, which they had no reason to disbelieve, by which they governed their lives for years, and which have been the measure of net equity previously in SIPC cases. This is, as said, a truly offensive argument, is as stupid as anything in the SEC’s often stupid brief, and shows how desperate SIPC is. And this stupidity and offensiveness comes, I will not resist saying, in a brief that was filed by a quasi governmental body; in a brief filed by a quasi governmental body headed by a person who a few years ago was already making over $700,000 per year and in a quasi governmental brief whose lead signatory was already making somewhere around $400,000 a few years ago. With such monies going to the perpetrators of such offensiveness and stupidity, is it any wonder that the government is in continuous trouble and seems to be a general repository of incompetence?*

*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 Velvel@VelvelOnNationalAffairs.com.

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