FOR IMMEDIATE RELEASE
Nov. 10, 2010
NIAP TO COURT: ‘INCOMPREHENSIBLE’ SIPC TRUSTEE MOTION
VIOLATES MADOFF VICTIMS’ RIGHTS
The Network for Investor Action and Protection (NIAP) filed a letter with US Bankruptcy Court in the Southern District of New York saying that the Securities Investor Protection Corporation (SIPC) Trustee on the Madoff case is egregiously depriving victims of basic due process rights and intimidating innocent victims into settling with the Trustee.
The letter followed a Trustee motion filed with the court that gives him autocratic-like power to go about filing claims on innocent Madoff victim assets as part of the so-called clawback process. NIAP’s letter counters the Trustee’s motion, saying that the rules are a clear attempt on the Trustee’s part to pressure victims into settling.
“The settlement process proposed by the Trustee is slanted in favor of the Trustee and necessarily carries with it a coercive threat that unless the investors come in now, and settle, in manner deemed correct by the Trustee, they will be dealt with more harshly in the future,” the letter states. “This attitude does violence to the mandate of protecting these investors which is at the very core of the [Securities Investor Protection Act] statute.”
The Trustee has not yet identified who he will target with clawback attempts, and the NIAP letter asks that the judge not allow any clawback motions until those targeted victims at least know who they are. The Trustee has no explicit policy guiding which victims will be targeted for funds, adding further confusion to an already alarmingly secretive process.
Despite collecting fees in excess of $100 million, the Trustee has recouped a small fraction of what he anticipated, and is turning to innocent, non-complicit victims themselves to collect additional funds. In a recent court filing, the Trustee said he recovered $849,000 of Madoff assets in a six-month period despite charging nearly $26 million in fees.
The letter, submitted by NIAP President Ron Stein, notes that the Trustee’s clawback procedure is dependent upon a Second Circuit appeal of how Madoff investor account values will be determined. The Trustee expects to use a principal investment method (called cash-in/cash-out) to determine net equity, while victims have appealed to the Court to require the Trustee to use their final brokerage statements to determine eligibility for SIPC’s limited protection. That case is pending.
The letter states that the Trustee’s motion will require victims to seek and compensate counsel to defend themselves in clawback proceedings, even though the court has not ruled on the appeal.
“The Trustee’s motions concern significant issues and can seriously affect the rights of the potential (and as yet unidentified) investor-defendants,” the letter states. “Indeed, it is no overstatement to say that the relief sought by the Trustee, if granted, may prove literally to be outcome determinative. Given all that, it is, bluntly, incomprehensible that the Trustee would choose to proceed in this fashion.”
NIAP’s letter urges the court to deny the motion, saying that allowing the Trustee to proceed this way “is harmful to any Madoff victim against whom an adversary proceeding is commenced. There is no reason to force him or her to incur legal fees and expenses prematurely when those costs may ultimately prove unnecessary.”
The letter also notes other dubious objectives by the Trustee that appear in his motion, including the following:
• The Trustee’s request for an exemption from being deposed in clawback proceedings, even though victims should have the right to know what the Trustee knows
• The Trustee would like restrictions on when defendants can file motions, even though the Trustee is not bound by any restrictions in filing motions, as he has already demonstrated
• The motion also would restrict victims to mediation, rather than court hearings, with the mediator chosen at the Trustee’s discretion, which would continue to tip the scales in favor of the Trustee
NIAP’s letter incorporates the various legal points and arguments made in a brief in opposition submitted by Massachusetts Law School Dean and NIAP advisor Lawrence Velvel, who urges the Court to reject the Trustee’s motions.
About NIAP (www.investoraction.org)
The Network for Investor Action and Protection (NIAP) is a not-for-profit organization founded by former investors of Bernard L Madoff Investment Securities Inc. An advocacy group for victims of Ponzi frauds and for all investors, NIAP supports regulatory reform to enforce effective policing for the prevention of future investment and securities fraud, and improved and proper support for all victims currently suffering from the unfortunate and potentially devastating fallout from this type of crime.
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For further information contact:
Michael Wichman
Hamilton Public Relations
212-328-5203
mwichman@getpr.com
