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NIAP Update - January 23rd, 2012

Third Anniversary Update, Part II: Legal Landscape

MESSAGE FROM THE PRESIDENT:

The Courts have yielded mixed results at best in 2011 for Madoff victims. This is the second of a Three Part Anniversary Update. If you haven’t already done so, I encourage you to read Part One – which focused on legislative action, while next week, Part Three will address The Media and Where We Stand.

The Courts
Madoff victims had a difficult year in the courts in 2011. On Net Equity, in particular, many victims were shocked and outraged by the Second Circuit’s ruling that further muddies the content of investor protections and dooms future victims to painful court proceedings. A more reasonable ruling would have permitted SIPC compensation to all BLMIS customers to the $500,000 limit based on statement values, with minimal impact to net losers, instead of serving to protect the SIPC fund. Because victims were denied a rehearing with the Appellate Court, the victims are limited to the possibility of a Supreme Court hearing, a statistical longshot.

In addition, we are troubled by the dismissal of several important lawsuits over the last year. Rulings dismissed the Trustee’s lawsuits against JP Morgan Chase and HSBC banks, the indirect cases, and actions against the failures of the SEC. In the first case, the District Court has weakened hopes for the Trustee – and all Madoff investors — to collect damages from the large banks, particularly JP Morgan Chase and HSBC, who stood by and allegedly allowed the fraud to flourish. The Court rejected the Trustee’s standing in his pursuit of financial institutions, which now effectively limits victims’ recourse against an institution that contributes to the existence or expansion of a fraud, and the ability of the Trustee to recover funds for innocent investors.

The dismissal of the cases against the SEC in District Court, despite Judge Swain’s devastating rebuke of the SEC and its extraordinary failures, seems counter to Congress’ intent. Indirect investors have not yet succeeded in gaining any ground in the courts. Finally, the Trustee’s trickle of the distributions of recoveries of customer property to those victims in need remains deeply troubling.

The District Court, however, has given innocent clawback victims some reason for hope, as Judge Rakoff, for example, has agreed to withdraw many key legal key issues out of the Lifland Bankruptcy Court to the District Court. Rakoff’s rulings on the Mets’ owners’ case should also give Madoff investors some optimism, particularly his ruling dramatically shortening the clawback period, and in his most recent ruling, where he refused the Trustee’s request for an appeal before the March trial commences. Rakoff, meanwhile, is considering the motions from the other attorneys, and is expected to move quickly on them. Many clawback victims remain confused.

2012 should see numerous important legal actions, although it is becoming increasingly clear that Madoff victims – direct or indirect — cannot rely on the courts for relief. Should the results of the Met’s trial and other subsequent rulings, come down against the Trustee, those rulings will be appealed by the Trustee to the Appellate Court, leaving Madoff clawback victims to suffer continued anxiety and pile up considerable legal fees for perhaps several more years. And without leadership from a well-known Supreme Court attorney, the likelihood that the Net Equity decision will be heard by the Supreme Court is significantly diminished. Moreover, any positive Rakoff rulings will ultimately head to the 2nd Circuit Court – the same court which ruled against the investors in the Net Equity appeal.

Additional pressure continues to be put on the SEC via a new round of lawsuits, however. As you know, NIAP strongly supports these lawsuits as we continue to stress the importance of pressuring the SEC from all directions. (Check out our new SEC Action Center .)

Cases against the major banks which allegedly helped the fraud along – notably JP Morgan Chase and HSBC – will continue to be a challenge in the courts, given a federal statute –the SLUSA law – which is being asserted as a bar to prevent even worthy lawsuits from being filed against allegedly complicit financial firms. Stanford victims are seeking to challenge this misapplication of law in the Fifth Circuit, and NIAP is actively considering similar supportive actions as well.

Coming up next week: The third and final section on The Media, with a special summary section: Where We Stand

Bottom line: for most, the legal situation remains unclear. One thing is certain: barring congressional intervention, the legal actions will continue in the courts for several years, piling up costs for victims and adding insult to injury for thousands of Madoff investor sufferers. The Trustee will continue to benefit immensely from the hundreds of millions of dollars of fees collected, while victims will continue to suffer. Even though the District court will hopefully move quickly with its decisions, the appeals process will certainly be lengthy and extremely expensive – and resolution could be years down the road.

The upshot is that the best relief is likely to come from Congress via effective grassroots and professional lobbying, and an effective media effort, and this is where all victims can make an impact. Support for passage of HR757 offers victims an opportunity for restoration of their SIPC protections.

Please get involved now. We are gearing up our volunteer and fundraising efforts in anticipation of the upcoming Congressional hearings – expected in the next month or so, when we will kick-off our grassroots campaign. Please get familiar with our Investor Action Center and its letter-writing tool. Talk with friends and family members, and anticipate asking non victims to prepare to write letters as well. Most importantly, if you can donate or help NIAP raise funds, please do so. We urgently seek victims willing to share their stories with the media as well. The contact information is below.

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.

Success in Congress, the Media, and perhaps even in the Courts will depend in large part on how effectively we can mobilize and unify in our efforts to support the legislation.

Thanks, and in Peace,

Ron Stein, CFP
President

CONTACT INFORMATION:

Email us at: admin@investoraction.org

Call us at: 631-425-0770

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