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NIAP Update on Kanjorski Capital Markets Subcommittee Hearing

Dear Friend –

We came away from the Kanjorski Capital Markets Subcommittee Hearings on September 23 with a guarded sense of optimism. Key members of the Subcommittee – Kanjorski, Ackerman, Garrett, King – appear to be outraged by the behavior of SIPC and the Trustee, describing SIPC and the Trustee’s behavior “immoral”, “the worst possible behavior at the worst possible time” in terms of investor confidence, treating investors like “criminals” and “conspirators” not following the “spirit of the law”. Panelists were largely supportive of major changes to SIPC (even Professor Coffee, who proposed a potentially feasible solution to clawback). I can also say that the briefing session of staff that preceded the Hearings conducted by me and attorney David Bernfeld went extremely well, and the extensive work done behind the scenes I believe bore fruit. Still, I was surprised (and pleased) by how much time key members were focused on the current plight of Madoff victims. A few of my observations are bullet-pointed below.

Our big concern is that the Subcommittee may get bogged down in some of the more complicated issues regarding the distribution of customer property in lieu of taking immediate action to help Madoff victims.

What’s pressing now is the need to stage a final press for Congressional action during the current legislative break, but in time for the lame duck session that begins right after the election. Frankly, we are running out of time for this year to pass SIPC and tax changes. Simply put: we need to radically ramp up our grassroots letter writing campaign in a big way, and fast! We’re going to post directions for two grassroots mail efforts – first on SIPC and HR5032, the next on Tax — S3166 and HR5058.

Direct and indirect investors alike need to participate in this effort. Please look to the coming grass roots announcement and help out. Time is running out.

Thanks,
Ron Stein

Summary of Observations About the 9/23 Hearings:

  • A fairly implicit demand that the Trustee desist from clawback of innocent victims, SIPC must change from being an adversary of investors, and become more akin to the FDIC
  • The clear conflict of interest between SIPC and the appointment of the Trustee was emphasized
  • The Trustee has selected a six year carryback period (instead of a 2 year period) was the choice of the Trustee
  • The Task Force’s general dissatisfaction with HR5032, in whatever form they were reviewing it
  • There is a need to review the definition of “customer” and to provide protection for indirect investors
  • It is inappropriate that the Trustee should prevent fair discovery and access to information by others seeking to defend themselves
  • SIPC has been misused to create “a false sense of security”
  • The cash-in-cash-out approach being used by the Trustee may be inaccurate as there were operational profits in BLMIS
  • The SIPC response to the Kanjorski request letter made absolutely clear that the SIPC fund HAS sufficient capital to cover all customer SIPC claims based on final account statement of net equity
  • Professor John Coffee, in opposition to HR5032, believes that while nothing should be done to impede the Trustee’s ability to go after the big funds,but that recovery could/should be based upon a de minimis or opportunity cost (8-10%) approach, which may provide a workable middle ground for many Madoff investors. (We are currently evaluating the viability of his proposed solution.)
  • Professor Coffee, in his testimony also stated that if we are looking to modify clawback, we should change bankruptcy law, which would benefit all ponzi fraud victims.
  • Orlan Johnson was not well briefed, and misspoke about the Trustee receiving some $37 million, when the more accurate amount is nearly $90 million
  • The Committee staff and the panel were engaged, as Andrew Lerman would suggest, in a “game of chicken,” in terms of who really had responsibility to taking the lead in making changes to SIPC.
  • To access a video replay of the hearings, written transcripts of the testimonies and more, click here.

    For more information, please contact NIAP at admin@investoraction.org or by calling (631) 425-0770.

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