IN WASHINGTON… CONGRESSIONAL CHAIRMAN SENDS STRONG LETTER TO SEC CHARGING VIOLATION OF SIPA STATUTE AND CONFLICT OF INTEREST BY SIPC, TRUSTEE
IN THE COURTS… RECENT DECISION REGARDING METS’ OWNERS TOSSES MAJORITY OF TRUSTEE’S COMPLAINTS. TRUSTEE TO APPEAL
Washington, DC Update:
Garrett follows up on Becker/SEC Hearings with powerful letter to SEC Chairman. Madoff investors might take heart in Congressman Garrett’s October 3rd letter to SEC Chairman Mary Shapiro. (Investors are encouraged to read that letter here.) As you may recall Congressman Garrett was one of the few legislators who highlighted issues raised by the SEC Inspector General’s report at the recent Congressional hearing on the issue of David Becker’s alleged conflict of interest. The letter to Mary Shapiro alleges that the SEC’s decision to support a cash-in-cash-out “net equity” was the product of extensive lobbying and pressure from SIPC and Trustee. The letter argues that the Inspector General report proves that the SEC used factors and information not based on standards found in SIPA law. Garrett quotes from the OIG’s report to support his contention that SIPC and the SEC were most concerned about “draining the fund” or causing “dramatic fee increases for broker-dealers”.
He further alleges that the “net equity” approach “was patently self-serving, created an inherent conflict of interest, and misled the Commission…” In a nutshell, Garrett charges the SEC, SIPC and the Trustee as being more concerned about protecting themselves than investors, and by changing the definition of net equity “have violated the statute and disregarded the express intent of Congress.” (emphasis ours).
The day before the hearings, Mary Shapiro announced in a press release (link) that due to the allegations regarding Mr. Becker’s role in the decision-making, the SEC would hold a re-vote on its recommended “net equity” approach. In response, Mr. Garrett’s letter reminds Ms. Shapiro that the U.S. Government Accountability Office (the GAO) is investigating SIPC and the Trustee, and he requests that the SEC withhold its vote until the results of this investigation are fully incorporated..
Meanwhile, hearings on Garrett’s proposed legislation, HR757, which revalidates the final account statement methods of net equity, are expected in November.
Legal Update:
Rakoff decision on Mets’ Owners points to shorter clawback period. District Court Judge Jed Rakoff issued a ruling regarding Sterling Equities that appears to significantly limit the Trustee’s clawback actions. Rakoff dismissed nine of eleven complaints against Sterling, and he further limited the Trustee’s ability to clawback funds withdrawn beyond two years prior to the fraud’s unmasking. While it remains unclear what can be sought by the Trustee as well as implications for other clawback victims, this ruling could offer relief for many innocent investors. The Trustee, naturally, submitted a strongly worded request for an appeal. Finally, rulings on the Milberg and Chaitman cases are forthcoming. Judge Rakoff also indicated that he would rule as to whether or not the Trustee can pursue clawback actions against those who have taken mandatory withdrawals from their retirement account.
Upcoming Activity & Help Needed:
Hearings over HR757 (the Equitable Treatment of Investors Act), which may include reviews of the soon-to-be-released SIPC Modernization Task Force report, are expected in the next six weeks. Also expected are preliminary findings from the GAO report in its investigation of SIPC and the Trustee. A response from Chairman Shapiro to Congressman Garrett’s letter was just received.
The grassroots letter-writing effort will be restarting vigorously shortly before hearings on HR757.
As always we need your help. If you’ve not already become a NIAP member, please do so. It will entitle you to updates, daily news updates, as well as important action alerts for Madoff investors. Please forward this on to friends and family members as well. The larger and more effective our membership, the greater impact we can have in Congress not just for Madoff investors, but for all investors.
Click here for more information, and once again, please check out our new investor action center which will be central to our upcoming grassroots letter writing campaign.
Thanks,
Ron Stein, CFP
