Irving H. Picard v. Saul B. Katz et al

Filing 13

DECLARATION of Fernando A. Bohorquez Jr. in Opposition re: 1 MOTION TO WITHDRAW THE BANKRUPTCY REFERENCE. Bankruptcy Court Case Numbers: 10-5287A, 08-1789 (BRL).MOTION TO WITHDRAW THE BANKRUPTCY REFERENCE. Bankruptcy Court Case Numbers: 10-5287A, 08-1789 (BRL).MOTION TO WITHDRAW THE BANKRUPTCY REFERENCE. Bankruptcy Court Case Numbers: 10-5287A, 08-1789 (BRL).MOTION TO WITHDRAW THE BANKRUPTCY REFERENCE. Bankruptcy Court Case Numbers: 10-5287A, 08-1789 (BRL).MOTION TO WITHDRAW THE BANKRUPTCY REFERENCE. Bankruptcy Court Case Numbers: 10-5287A, 08-1789 (BRL).MOTION TO WITHDRAW THE BANKRUPTCY REFERENCE. Bankruptcy Court Case Numbers: 10-5287A, 08-1789 (BRL).MOTION TO WITHDRAW THE BANKRUPTCY REFERENCE. Bankruptcy Court Case Numbers: 10-5287A, 08-1789 (BRL).MOTION TO WITHDRAW THE BANKRUPTCY REFERENCE. Bankruptcy Court Case Numbers: 10-5287A, 08-1789 (BRL).MOTION TO WITHDRAW THE BANKRUPTCY REFERENCE. Bankruptcy Court Case Numbers: 10-5287A, 08-1789 (BRL).MOTION TO WITHDRAW THE BANKRUPTCY REFERENCE. Bankruptcy Court Case Numbers: 10-5287A, 08-1789 (BRL).. Document filed by Irving H. Picard. (Attachments: # 1 Exhibit A, # 2 Exhibit B, # 3 Exhibit C, # 4 Exhibit D, # 5 Exhibit E, # 6 Exhibit F, # 7 Exhibit G, # 8 Exhibit H, # 9 Exhibit I, # 10 Exhibit J, # 11 Exhibit K, # 12 Exhibit L, # 13 Exhibit M)(Bohorquez, Fernando)

Exhibit F

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424 B.R. 122, Bankr. L. Rep. P 81,726
(Cite as: 424 B.R. 122)

United States Bankruptcy Court,
S.D. New York.
In re BERNARD L. MADOFF INVESTMENT SECURITIES LLC, Debtor.
Securities Investor Protection Corporation, Plaintiff,
v.
Bernard L. Madoff Investment Securities LLC, Defendant.
No. 08–01789 (BRL).
March 1, 2010.
Background: Trustee for substantively consolidated liquidation of broker-dealer and its principal pursuant to
Securities Investor Protection Act (SIPA) moved for order upholding his determination denying customer
claims for amounts listed on broker-dealer's last customer statements, affirming his determination of net
equity, and expunging objections to his determinations
of net equity claims filed by group of claimants.
Holdings: The Bankruptcy Court, Burton R. Lifland, J.,
held that:
(1) SIPA did not allow bifurcation of claims process,
with customers recovering payments by Securities Investor Protection Corporation (SIPC) based on determination of net equity relying upon last customer statements and recovering customer property shares based
on determination of net equity relying upon customers'
net investments, and
(2) customers' net equity had to be determined through
their cash deposits and withdrawals, which were only
verifiable amounts manifest from broker-dealer's books
and records.

[2] Securities Regulation 349B

West Headnotes
[1] Securities Regulation 349B

185.19

185.19

349B Securities Regulation
349BI Federal Regulation
349BI(F) Liquidation of Broker–Dealers; Securities Investor Protection Corporation
349Bk185.19 k. Distribution and allocation of
assets and funds; priority. Most Cited Cases
Provision of Securities Investor Protection Act
(SIPA) governing advances to be made by Securities Investor Protection Corporation (SIPC) to trustee, subject
to cap, as required to pay or otherwise satisfy claims for
amount by which net equity of each customer of brokerdealer exceeded customer's ratable share of customer
property did not allow bifurcation of claims process,
with customers recovering SIPC payments based on determination of customers' net equity relying upon last
customer statements issued by broker-dealer and recovering customer property shares based on determination
of net equity relying upon customers' net investments
with broker-dealer. Securities Investor Protection Act of
1970, § 9(a)(1), 15 U.S.C.A. § 78fff–3(a)(1).
[3] Securities Regulation 349B

Motion granted.

349B Securities Regulation
349BI Federal Regulation

349BI(F) Liquidation of Broker–Dealers; Securities Investor Protection Corporation
349Bk185.19 k. Distribution and allocation of
assets and funds; priority. Most Cited Cases
Payments made by Securities Investor Protection
Corporation (SIPC) in broker-dealer liquidation proceedings under Securities Investor Protection Act
(SIPA) serve only to replace missing customer property,
and cannot be ascertained independently of the determination of a customer's pro rata share of customer property. Securities Investor Protection Act of 1970, §
9(a)(1), 15 U.S.C.A. § 78fff–3(a)(1).

185.19

349B Securities Regulation
349BI Federal Regulation
349BI(F) Liquidation of Broker–Dealers; Securities Investor Protection Corporation
349Bk185.19 k. Distribution and allocation of
assets and funds; priority. Most Cited Cases

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424 B.R. 122, Bankr. L. Rep. P 81,726
(Cite as: 424 B.R. 122)

Securities positions of customers of broker-dealer
that operated Ponzi scheme could be ascertained to determine each customer's net equity only by reference to
broker-dealer's books and records in Securities Investor
Protection Act (SIPA) liquidation of broker-dealer and
its principal, since broker-dealer's customer account
statements were entirely fictitious and did not reflect actual securities positions that could be liquidated, and
therefore customers' net equity had to be determined
through their cash deposits and withdrawals, which
were only verifiable amounts manifest from broker-dealer's books and records. Securities Investor Protection
Act of 1970, §§ 8(b), 16(11), 15 U.S.C.A. §§ 78fff–2(b)
, 78lll(11) .
[4] Securities Regulation 349B

185.19

349B Securities Regulation
349BI Federal Regulation
349BI(F) Liquidation of Broker–Dealers; Securities Investor Protection Corporation
349Bk185.19 k. Distribution and allocation of
assets and funds; priority. Most Cited Cases
Assuming that legitimate expectations of brokerdealer's customers are relevant under Securities Investor
Protection Act (SIPA) to any determination other than
whether customers hold “claims for securities” or
“claims for cash,” they do not apply in determining customers' net equity where they would give rise to an absurd result. Securities Investor Protection Act of 1970,
§§ 9(a)(1), 16(11), 15 U.S.C.A. §§ 78fff–3(a)(1), 78lll
(11) .
[5] Securities Regulation 349B

185.19

349B Securities Regulation
349BI Federal Regulation
349BI(F) Liquidation of Broker–Dealers; Securities Investor Protection Corporation
349Bk185.19 k. Distribution and allocation of
assets and funds; priority. Most Cited Cases
Trustee liquidating broker-dealer involved in Ponzi
scheme, pursuant to Securities Investor Protection Act
(SIPA), satisfied legitimate expectations of broker-dealer's customers in determining their net equity by providing all customers with “claims for securities,” rather

than “claims for cash” with significantly lower limit on
advances by Securities Investor Protection Corporation
(SIPC). Securities Investor Protection Act of 1970, §§
8(b), 9(a)(1), 16(11), 15 U.S.C.A. §§ 78fff–2(b),
78fff–3(a)(1), 78lll(11) .
*123 Baker & Hostetler LLP, by David Sheehan, Marc
E. Hirschfield, Oren J. Warshavsky, Seanna R. Brown,
New York, NY, Attorneys for Irving H. Picard, Trustee
for the Substantively Consolidated SIPA Liquidation of
Bernard L. Madoff Investment Securities LLC and
Bernard L. Madoff.
Securities Investor Protection Corporation, by Josephine
Wang, Kevin H. Bell, Washington, DC, Attorneys for
the Securities Investor Protection Corporation.
Securities and Exchange Commission, by Katharine B.
Gresham, Alistaire Bambach, Washington, DC, Attorneys for the Securities and Exchange Commission.
Davis Polk & Wardwell LLP, by Karen Wagner,
Jonathan D. Martin, New York, NY, Attorneys for Sterling Equities Associates.
Goodwin Procter LLP, by Daniel M. Glosband, David J.
Apfel, Brenda R. Sharton, Larkin M. Morton, Boston,
MA, Attorneys for Jeffrey A. Berman, Russell DeLucia,
Ellenjoy Fields, Michael C. Lesser, Norman E. Lesser
11/97 Rev. Trust, Paula E. Lesser 11/97 Rev. Trust, and
Jane L. O'Connor, as Trustee of the Jane O'Connor Living Trust.
Lax & Neville, LLP, by Brian J. Neville, Barry R. Lax,
New York, NY, Attorneys for Mary Albanese, the Brow
Family Partnership, Allen Goldstein, Laurence Kaye,
Suzanne Kaye, Rose Less, and Gordon Bennett.
Milberg LLP, by Jonathan M. Landers, Matthew Gluck,
Lois F. Dix, Joshua E. Keller, New York, NY, Attorneys for Albert J. Goldstein U/W FBO, Ruth E. Goldstein TTEE, Ann Denver, Norton Eisenberg, Export
Technicians, Inc., Stephen R. Goldenberg, Judith Rock
Goldman, Jerry Guberman, Anita Karimian, Orthopaedic Specialty Group PC, Martin Rappaport, Paul J.
Robinson, Bernard Seldon, Harold A. Thau, and The
Aspen Company.

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Phillips Nizer LLP, by Helen Davis Chaitman, New
York, NY, Attorneys for Diane and Roger Peskin,
Maureen Ebel, and a group of other customers.
Shearman & Sterling LLP, by Stephen Fishbein, New
York, NY, Attorneys for Carl Shapiro and related entities.
*124 Sonnenschein Nath & Rosenthal LLP, by Carole
Neville, New York, NY, Attorneys for certain investors.
MEMORANDUM DECISION GRANTING TRUSTEE'S MOTION FOR AN ORDER (1) UPHOLDING
TRUSTEE'S DETERMINATION DENYING CUSTOMER CLAIMS FOR AMOUNTS LISTED ON
LAST CUSTOMER STATEMENT; (2) AFFIRMING
TRUSTEE'S DETERMINATION OF NET EQUITY;
AND (3) EXPUNGING OBJECTIONS TO DETERMINATIONS RELATING TO NET EQUITY
BURTON R. LIFLAND, Bankruptcy Judge.
Before the Court is the motion (the “Motion”) of
Irving H. Picard, Esq. (the “Trustee” or “Picard”), trustee for the substantively consolidated Securities Investor
FN1
Protection Act
(“SIPA”) liquidation of Bernard L.
Madoff Investment Securities LLC (“BLMIS”) and
Bernard L. Madoff (“Madoff”), seeking an order (1) upholding the Trustee's determination denying customer
claims for amounts listed on last BLMIS customer statements, dated November 30, 2008 (the “November 30th
Statements”); (2) affirming the Trustee's determination
of net equity; and (3) expunging objections to the Trustee's determinations of net equity claims filed by a certain group of claimants (the “Objecting Claimants”)
FN2
in the above-captioned adversary proceeding. The
Motion is filed pursuant to the Court's “Order Approving Form and Manner of Publication and Mailing of Notices, Specifying Procedures For Filing, Determination,
and Adjudication of Claims; and Providing Other Relief” (the “Claims Procedure Order”) entered on December 23, 2008, and the Court's “Order Scheduling Adjudication of ‘Net Equity’ Issue” (the “Scheduling Order”) entered on September 16, 2009. See Peskin v. Picard (In re Bernard L. Madoff Inv. Secs. LLC ), 413
B.R. 137 (Bankr.S.D.N.Y.2009) (expounding generally
on the Claims Procedure Order and the Scheduling Or-

der).
FN1. 15 U.S.C. §§ 78aaa et seq. References to
sections of SIPA hereinafter shall replace “15
U.S.C.” with “SIPA.”
FN2. A list of the Objecting Claimants, as well
as other parties who have appeared and filed
written submissions, is attached hereto as Appendix 1.
The Madoff proceeding and its accompanying SIPA
liquidation involve staggering numbers, with more than
15,000 claims filed and billions of dollars at stake. As
FN3
of December 11, 2008 (the “Filing Date”),
customers' November 30th Statements reflected $73.1 billion
in fictional net investments and related gains. Net of
“negative” accounts approximating $8.3 billion, customers are purportedly owed a total of $64.8 billion.
The critical issue before the Court is how to define a
claimant's “net equity” under SIPA for purposes of distributing against these astounding sums.
FN3. Here, the Filing Date is the date on which
the SEC brought suit against BLMIS, December 11, 2008, which resulted in the appointment
of a receiver for the entity. See SIPA § 78lll (7)
(B).
The statutory framework for the satisfaction of customer claims in a SIPA liquidation proceeding provides
FN4
that customers share pro rata in customer property
to *125 the extent of their net equities, as defined in
FN5
SIPA section 78lll (11) (“Net Equity”).
See SIPA §
78fff–2(c)(1)(b). If the fund of customer property is insufficient to make customers whole, the trustee is enFN6
titled to an advance
from the Securities Investor
Protection Corporation (“SIPC”) to pay each customer
the amount by which his Net Equity exceeds his ratable
share of customer property, subject to a cap of $500,000
for securities claims. See SIPA § 78fff–3(a).
FN4. A fund of “customer property” consists of
assets garnered by the SIPA trustee on account
of customers. These assets are not ascribable to
individual customers, but rather are distributed

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pro rata to the extent of a customer's Net
Equity. See SIPA § 78lll (4) (defining
“customer property”); see infra at Discussion,
section I.
FN5. SIPA section 78lll (11) defines Net
Equity as “the dollar amount of the account or
accounts of a customer, to be determined by—
(A) calculating the sum which would have
been owed by the debtor to such customer if
the debtor had liquidated, by sale or purchase
on the filing date, all securities positions of
such customer ...; minus
(B) any indebtedness of such customer to the
debtor on the filing date....”
FN6. Some Objecting Claimants refer to this
advance as “insurance,” a designation strenuously controverted by the Securities and Exchange Commission (the “SEC”), SIPC and the
Trustee, and a designation that is not supported
by the controlling SIPA statute. See SIPA §
78fff–3(a) (titled, “ Advances for Customers'
Claims”) (emphasis added).
The Trustee defines Net Equity as the amount of
cash deposited by the customer into his BLMIS customer account less any amounts already withdrawn by him
(the “Net Investment Method”). In contrast, the Objecting Claimants define Net Equity as the amounts reflected on customers' November 30th Statements (the “Last
Statement Method”). The Trustee and the Objecting
Claimants maintain that their respective definitions of
Net Equity are thoroughly consistent with SIPA, statutory and case law, and notions of equity.
Congruent to the import and complexity of this issue, the briefs filed in support and opposition to the Motion are voluminous and impressive. For the purposes of
this decision, the Court has considered all papers filed
in response to the Scheduling Order, including over
thirty briefs and more than twenty pro se submissions.
FN7
SIPC and the SEC submitted briefs in support of
FN8
the Motion.
The Court recognizes that the applica-

tion of the Net Equity definition to the complex and
unique facts of Madoff's massive Ponzi scheme is not
plainly ascertainable in law. Indeed, the parties have advanced compelling arguments in support of both positions. Ultimately, however, upon a thorough and comprehensive analysis of the plain meaning and legislative
history of the statute, controlling Second Circuit precedent, and considerations of equity and practicality, the
Court endorses the Trustee's Net Investment Method.
FN7. The principal arguments made in support
and opposition to the Motion have been outlined in a dispassionate manner and organized
in a table for ease of reference, attached hereto
as Exhibit A. This table is not exhaustive of all
arguments made. The Court does not necessarily agree or disagree with the arguments set
forth in Exhibit A.
FN8. The SEC differs from the Trustee in an
area that does not affect the Court's analysis
(the SEC recommends compensating Madoff
customers for the time value of money when
utilizing the Net Investment Method (the
“Constant Dollar Approach”)).
Accordingly, for the reasons set forth below, the
Trustee's determination of Net Equity is hereby APPROVED.
BACKGROUND
I. PROCEDURAL HISTORY
The Motion arises in connection with the infamous
Ponzi scheme perpetrated by Madoff through his investment company, BLMIS. On December 11, 2008,
Madoff was arrested by federal agents and charged with
securities fraud in violation of 15 U.S.C. sections 78j(b)
, 78ff and *12617 C.F.R. section 240.10b–5, in the
United States District Court for the Southern District of
New York (the “District Court”). United States v.
FN9
Madoff, No. 08–MJ–02735.
That same day, the Securities and Exchange Commission (the “SEC”) filed a
civil complaint in the District Court, alleging, inter alia,
that Madoff and BLMIS were operating a Ponzi scheme
through BLMIS's investment advisor activities. S.E.C.
v. Madoff, et al., No. 08–CV–10791, 2008 WL 5197070

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(the “Civil Action”).
FN9. On March 10, 2009, this action was assigned to the Honorable Denny Chin in the
United States District Court for the Southern
District of New York, and was given a new
docket number, No. 09–CR–213 (DC).
On December 15, 2008, SIPC filed an application
in the Civil Action seeking a decree that the customers
of BLMIS are in need of the protections afforded by
SIPA. The District Court granted SIPC's application and
entered an order on December 15, 2008, placing
BLMIS's customers under the protections of SIPA (the
“Protective Order”). The Protective Order appointed Picard as trustee for the liquidation of the business of
BLMIS, appointed Baker and Hostetler, LLP as counsel
to the Trustee, and removed the SIPA liquidation proceeding to this Court pursuant to SIPA sections
78eee(b)(3) and (b)(4).
On March 12, 2009, Madoff pled guilty to an
11–count criminal indictment filed against him and admitted that he “operated a Ponzi scheme through the investment advisory side of [BLMIS].” See United States
v. Madoff, No. 09 CR 213(DC), Docket No. 57, Plea
Hr'g Tr. at 23:14–17. On June 29, 2009, Madoff was
sentenced to 150 years in prison.
II. CLAIMS ADJUDICATION PROCEDURE
On December 23, 2008, the Court approved the
Claims Procedure Order, which sets forth a systematic
framework for the filing, determination and adjudication of claims in the BLMIS liquidation proceeding.
Pursuant to this order, all claims by customers must be
filed with the Trustee, who must determine the claims in
writing. If the claimant does not object to the determination, it is deemed approved by the Court and binding
on the claimant. If the claimant objects and files an opposition, the Trustee must obtain a hearing date and notify the claimant thereof. Certain, but not all, Madoff
claimants objected to the Trustee's determination of Net
Equity due to his use of the Net Investment Method.
After a number of these objections were filed, the
Court entered the Scheduling Order establishing a hear-

ing date of February 2, 2010 to address whether Net
Equity, as defined by SIPA, is calculated using the Net
Investment Method or the Last Statement Method. In
the interim, the Trustee continues to process and pay
customer claims in the ordinary course. As of February
26, 2010, 12,047 claims have been determined, 1,936
claims have been allowed, and thus far $649,643,586.95
FN10
has been committed by SIPC.
FN10. See http:// www. madofftrustee. com.
FACTUAL HISTORY

FN11

FN11. These facts are largely undisputed and
have been taken primarily from the Trustee's
memorandum of law and supporting declarations, as well as the criminal allocutions of
Madoff and Frank DiPascali, Jr. (“DiPascali”).
On August 11, 2009, DiPascali pled guilty to
10 criminal charges stemming from his extensive participation in the Madoff fraud. On February 11, 2010, an order was entered releasing
DiPascali on bail pending sentencing.
I. THE STRUCTURE AND ORGANIZATION OF
BLMIS
BLMIS is a New York limited liability company,
founded by Madoff as a sole *127 proprietorship in
1960. BLMIS was wholly-owned by Madoff, who was
also its chairman and chief executive officer. Together
with family members and a number of additional employees, Madoff operated the company from its principal place of business at 885 Third Avenue, New York,
New York. On January 19, 1960, BLMIS registered
with the SEC as a broker-dealer under section 15(b) of
the Securities Exchange Act of 1934, 15 U.S.C. section
78o (b), and, beginning in 2006, as an investment advisor. By virtue of its registration as a broker-dealer,
BLMIS is a member of SIPC. BLMIS's annual audits
were conducted by Friehling & Horowitz, CPAs, P.C.,
an accounting firm consisting of three employees, one
of whom was semi-retired, with offices located in a
FN12
strip mall in Rockland County, New York.
Outwardly, BLMIS functioned both as an investment advisor to its customers and a custodian of their securities.
Based on the Trustee's investigation, it appears that

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BLMIS began to offer investment advisory services as
early as the 1960s, yet never truly acted as a legitimate
investment advisor to its customers.
FN12. David Friehling is the subject of a criminal information filed by the United States alleging, inter alia, securities fraud. See
Friehling Information, United States v.
Friehling, No. 09–CR–0700 (AKH) (S.D.N.Y.
July 17, 2009), Dkt. No. 14. He has since pled
guilty, and sentencing is scheduled for September 3, 2010. Id. at Dkt. No. 37.
BLMIS had three business units: market making
(the “MM Business”), proprietary trading (the “PT
Business”), and investment advisory (the “IA Business”). While these business units were financially inFN13
tertwined,
the MM and PT Businesses were
largely operated separately from the IA Business. Specifically, the MM Business competed with other market
makers, and the PT Business traded on behalf of the
firm for profit. These units, albeit unprofitable, generally conducted legitimate activities; they traded with institutional counterparties, used live computer systems
and trading platforms that interfaced with multiple outside feeds and data sources, and utilized a large information technology staff to support and maintain these
trading platforms. In addition, they participated in compliance and risk monitoring programs and were held accountable by a number of entities, including the clearing
houses they used, the exchanges they traded on, and the
National Association of Securities Dealers and its successor, the Financial Industry Regulatory Authority.
FN13. See the criminal complaint dated February 24, 2010 filed by the United States against
Daniel Bonventre, a former BLMIS operations
director, charging, inter alia, securities fraud
and conspiracy in connection with the Madoff
scheme, and alleging that investor money was
used to support the PT and MM Businesses.
The IA Business, on the other hand, perpetuated
Madoff's fraudulent activity. Physically isolated on the
17th floor from the MM and PT Businesses, the IA
Business was accessible only to select employees and

FN14
insiders.
Unlike the SEC registration of the MM
and PT Businesses, registration of the IA Business was
fabricated; only 23 of its thousands of customers were
reported. In contrast to the MM and PT Businesses' live
computer trading system interfacing with outside feeds,
the IA Business had no contact with opposite brokers or
counterparties and used only one unsophisticated and
archaic computer *128 that was not programmed to execute trading of any kind. The legitimate MM and PT
Businesses limited scrutiny of the IA Business. In turn,
the proceeds generated by the IA Business enabled the
MM and PT Businesses to remain viable, at least from
2007 forward.
FN14. The IA Business was staffed by more
than 25 employees, including Madoff and DiPascali, who directed its day-to-day affairs.
II. MECHANICS OF THE PONZI SCHEME
Rather than engage in legitimate trading activity,
Madoff used customer funds to support operations and
fulfill other investors' requests for distributions of
profits to perpetuate his Ponzi scheme. Thus, any payment of “profit” to a BLMIS customer came from another BLMIS customer's initial investment. Even if a
BLMIS customer could afford the initial fake purchase
FN15
of securities reported on his customer statement,
without additional customer deposits, any later
“purchases” could be afforded only by virtue of recorded fictional profits. Given that in Madoff's fictional
world no trades were actually executed, customer funds
were never exposed to the uncertainties of price fluctuation, and account statements bore no relation to the
United States securities market at any time. As such, the
only verifiable transactions were the customers' cash deposits into, and cash withdrawals out of, their particular
accounts. Ultimately, customer requests for payments
exceeded the inflow of new investments, resulting in the
Ponzi scheme's inevitable collapse.
FN15. The Trustee notes that, in most instances, the customer likely did not invest
enough capital to buy even those securities listed on his first BLMIS customer statement,
given that prices selected for the purchase of
securities for customer accounts were back-

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dated and orchestrated.
A. Solicitation of Customers and Opening of Accounts
Madoff solicited billions of dollars from investors
through his fraudulent IA Business. Entry into the IA
Business was coveted and selective, akin to membership
in an elite club. This aura of exclusivity, combined with
the secrecy and reported success of Madoff's investment
strategies, limited the transparency of the IA Business
to prospective investors, particularly non-institutional
clients.
Once a customer was granted entry into the IA
Business, standard account opening procedures followed. Under standardized written agreements, customers relinquished all investment authority to Madoff,
agreeing that
[i]n all such purchases, sales or trades ... [Madoff] is
authorized to act for the undersigned and in the undersigned's behalf in the same manner and with the
same force and effect as the undersigned might or
could do with respect to such purchases, sales or
trades as well as with respect to all other things necessary or incidental to the furtherance or conduct of
such purchases, sales or trades. All purchases, sales or
trades shall be executed strictly in accordance with
the established trading authorization directive.
See Decl. of Joseph Looby in Supp. of Trustee's
Motion (“Looby Decl.”) at Ex. 3. Customers retained
only the authority to deposit cash and request withdrawals; all other rights associated with their accounts, including the ability to make investment decisions, were
FN16
ceded to Madoff. With few isolated exceptions,
customers did not direct the purchase or sale of any specific security.
FN16. The Trustee's investigation indicates that
one customer directed the purchase and sale of
a few specific securities. This is exclusive of
those holding “friends and family” accounts,
such as Jeffry Picower and Stanley Chais, who
also directed securities transactions for their
accounts.

*129 B. The 703 Account
Although customer account statements reflected
trading activity, funds were merely deposited into a
bank account at J.P. Morgan Chase Manhattan Bank
(“Chase Bank”), Account Number 140081703 (the “703
Account”), and never invested. As Madoff admitted at
his plea hearing, none of the purported purchases of securities actually occurred, and the reported gains were
entirely fictitious. This has been confirmed by the
Trustee's investigation, which reveals that with the exception of isolated individual trades, there is no record
of BLMIS having cleared any purchase or sale of securities in the Depository Trust & Clearing Corporation
(the “DTCC”), a custodian for most stock and governFN17
ment debt securities issued in the United States.
Instead, investors' funds were principally deposited into
the 703 Account, which was little more than a “slush
fund.” Money was misappropriated from the 703 Account solely to enrich Madoff and his inner circle.
FN17. The customer funds were not segregated
in a “15c3–3” account, as required by SEC
Rule 15c3–3(e) and 17 C.F.R. section
240.15c3–3 promulgated under the Securities
Exchange Act of 1934, which requires brokers
and dealers to maintain a “Special Reserve
Bank Account for the Exclusive Benefit of
Customers.” See SEC Rule 15c3–3a. This special reserve bank account is “separate from any
other bank account of the broker or dealer” and
is required to maintain a certain minimum balance. Id. BLMIS maintained a $20,000 balance
from the end of 2002 until the Filing Date,
which was outrageously insufficient given the
apparent multi-billion dollar value of its customer accounts.
IA Business employees prepared daily reports for
Madoff reflecting all 703 Account deposit and withdrawal activity. At the close of each business day, any
net cash balances from this account were transferred to
affiliated overnight investment accounts at Chase Bank
to buy United States Treasuries or other short term paper until necessary to fund customers' withdrawal requests, BLMIS's capital obligations, or Madoff's per-

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sonal wishes. At all relevant times, the fabricated
amounts recorded on the monthly customer statements
far exceeded the capital deposited in the 703 Account.
C. The Split–Strike Conversion Strategy
The vast majority of BLMIS customer accounts
were supposedly invested in the “split-strike conversion” strategy (the “Split Strike Conversion Strategy”).
FN18
Madoff outwardly attributed the success of his IA
Business to this strategy, which appeared to generate remarkably consistent and above-average returns. Under
this strategy, Madoff purportedly invested customer
funds in a subset, or “basket,” of Standard & Poor's 100
Index (“S & P 100 Index”) common stocks, and maximized value by purchasing before, and selling after, price
increases. Several times per year, customer funds would
move “into the market,” whereby a basket of stocks was
supposedly purchased. Customer funds were then
moved entirely “out of the market” to “invest” in United
States Treasury Bills, money market funds, and cash reserves until the next trading opportunity. This continued
until the end of each quarter, when all baskets would be
sold and “invested” in these “out of the market” repositories. Focusing on large cap stocks, the strategy evaded
inquiry into the volume of stocks in which BLMIS was
fictitiously trading. Madoff's quarter-end liquidation of
the split-strike security basket positions enabled him to
avoid disclosure*130 of the equities in the baskets reFN19
quired by SEC Form 13F.
BLMIS also devised a
hedging strategy to purchase and sell S & P 100 Index
option contracts corresponding to the stocks in the baskets. This allowed Madoff to appear to manage the
downside risk associated with possible unfavorable
price changes in the baskets and limit profits associated
with increases in underlying stock prices.
FN18. Although the Split Strike Conversion
Strategy was carried out by Madoff, DiPascali,
and the employees who worked for them, DiPascali had primary responsibility for the customer accounts.
FN19. Institutional investment managers who
exercise investment discretion over $100 million or more in Section 13(f) securities must report their holdings on SEC Form 13F. This

form requires disclosure to the SEC of the
names of the institutional investment managers,
the names of the securities they manage and the
class of securities, the CUSIP number, the
number of shares owned, and the total market
value of each security. See 17 C.F.R. §
240.13f–1.
Madoff never executed his split-strike investment
and hedging strategies, and could not possibly have
done so. First, the customer funds were never actually
invested “in the market” or “out of the market,” despite
customer statements to the contrary. In reality, funds
were maintained in the 703 Account at Chase Bank.
Second, according to the Trustee's investigation, an unrealistic number of option trades would have been necessary to implement the Split Strike Conversion
Strategy because there were insufficient put and/or call
option contracts available at the Chicago Board Options
Exchange to properly hedge the volume of securities
positions reflected on the customers' statements. In addition, one of the money market funds in which customer resources were allegedly invested through BLMIS, as
reflected on customer statements, was Fidelity Brokerage Services LLC's “Fidelity Spartan U.S. Treasury
Money Market Fund.” Fidelity Brokerage Services
LLC, however, has acknowledged that it did not even
offer investment opportunities in any such money market fund from 2005 forward.
Yet Madoff successfully created the illusion that
his trading activity was legitimate and his Split Strike
Conversion Strategy was effective. In order to do so,
Madoff and a select group of employees assembled historical price and volume data for each stock within the
basket. Using this data, they strategically selected
stocks after the fact at favorable prices to ensure promised, consistent annual returns of between 10–17%.
They monitored the baskets to make certain that the selected stocks yielded returns that were neither above nor
below the desired range. This practice of backdating allowed Madoff to engineer trades on the perfect dates at
the best available prices to guarantee such results. Consequently, all documentation related to this strategy, including order tickets, trades, and customer statements,

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were necessarily concocted by Madoff. In fact, the
Trustee's investigation revealed many occurrences
where purported trades were outside the exchange's
FN20
price range for the trade date.
At bottom, the
BLMIS customer statements were bogus and reflected
Madoff's fantasy world of trading activity, replete with
fraud and devoid of any connection to market prices,
volumes, or other realities.
FN20. For example, in one instance, a monthly
account statement for December 2006 reported
a sale of Merck (“MRK”) with a settlement
date of December 28, 2006. BLMIS records reflect a trade date of December 22, 2006 at a
price of $44.61 for this transaction. However,
the daily price range for MRK stock on December 22, 2006 was a low of $42.78 and a high of
$43.42. See Looby Decl. at ¶ 106.
D. Non–Split–Strike Conversion Customer Accounts
While the majority of customers were supposedly
invested in the Split Strike *131 Conversion Strategy,
as of the Filing Date there were fewer than 245 active
non-split strike conversion BLMIS customer accounts
(the “Non–Split Strike Accounts”), or roughly 5% of
total active BLMIS accounts. The Non–Split Strike Accounts were held by devoted customers such as Stanley
Chais, Jeffry Picower, and Madoff family members and
employees, and reported unusually high rates of return
in excess of the consistent 10–17% generated for Split
Strike Conversion Strategy accounts. For example, the
Trustee alleges that Chais's family and corporate accounts generated annual returns as high as 300%, and
Picower's generated annual returns as high as 950%. See
Trustee's Compl. at ¶ 3 (May 1, 2009) (Adv.Proc. No.
09–01172(BRL)); Trustee's Compl. at ¶ 3 (May 12,
2009) (Adv.Proc. No. 09–01197(BRL)). These accounts
were handled on an account-by-account basis, in contrast to the more common basket approach. This timeconsuming and labor-intensive process required the
manual input of backdated transactions to represent the
purported trades executed on behalf of each account.
Fundamentally, however, both the split-strike and nonsplit-strike accounts were subjected to the same basic
method—statements were fabricated based on after-

the-fact published selections of stocks and related
prices. With the exception of a few isolated trades and
physical custody of a limited number of securities entrusted to BLMIS by certain customers, trading in the
Non–Split Strike Accounts did not take place.
E. The AS/400 Computer System
To manage purported split-strike trade activity, the
IA Business used an archaic computer system, the AS/
400, consisting of an IBM computer and custom software dating to the early 1990s. The AS/400 was programmed to store BLMIS customer account information, record fictitious securities positions and customer
cash transactions, prepare customer statements, and produce trade confirmations. Specifically, it contained software that could enter a basket of trades with any price
or trade date and allocate the trades pro rata to BLMIS
customer accounts in the database. Once a fictitious return was chosen for a given basket trade, “key punch
operators” would manually input the relevant pricing information into the AS/400 database. This basket trade
was automatically replicated in each customer account
and divided proportionately according to the fraction or
number of baskets each customer could afford. The AS/
400 then generated the customer statements and related
trade confirmations for BLMIS customers. This
monthly process repeatedly compounded customers'
false profits during the course of the scheme. The AS/
400 was not programmed, however, to execute, communicate, or facilitate trading of any kind. None of the
split-strike trades inputted into the AS/400 was reconFN21
ciled with the DTCC.
FN21. DTCC records from 2002–2008 were
made available to the Trustee.
This outmoded technology prevented customers
from obtaining electronic, real-time online access to
their accounts, as was customary in the industry by the
year 2000, and instead generated paper trade confirmaFN22
tions.
Mailing these paper statements and confirmations to customers allowed BLMIS additional time to
concoct *132 trading records and delay the delivery of
information, thereby facilitating Madoff's scheme.
FN22. The Trustee's investigation indicates that

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BLMIS provided customer statements in electronic form to only two of its thousands of customers, representing only six accounts. Even
though these statements were electronic, they
consisted merely of data files. No BLMIS customer had real-time access to his account information and trading data, as no such information or data existed because no trading actually
took place.
III. CLASSIFICATION OF CLAIMANTS
Under the Trustee's Net Equity calculus, the Objecting Claimants fall into three classifications according to their respective deposit and withdrawal histories.
FN23
The first group of Objecting Claimants withdrew
funds from BLMIS in an amount that exceeds their initial investments and subsequent deposits (the “Net Winners”). A customer in this category received a full return of his principal as well as some “profit,” which
consisted, in reality, of other customers' investments.
Under the Net Investment Method, these customers
have zero Net Equity, and thus no allowed claims.
FN23. For purposes of this decision, the Court
will adopt the Trustee's nomenclature with regard to his classification of claimants.
A second category of customers withdrew less
money from BLMIS than they deposited, with net investment amounts over the $500,000 statutory limit
(“Over the Limits Net Losers”). According to the Trustee's Net Investment Method, an Over the Limits Net
Loser has positive Net Equity, and thus an allowed
claim for the amount invested less the amount withdrawn. The Over the Limits Net Losers will receive full
$500,000 advances from SIPC, as their respective pro
rata shares of customer property will be insufficient to
satisfy their Net Equity claims.
A third category of customers similarly withdrew
less money than they deposited, with net investment
amounts under the $500,000 statutory limit (“Under the
Limits Net Losers”) (together with “Over the Limits Net
Losers,” “Net Losers”). An Under the Limits Net Loser
receives a SIPC advance against his pro rata share of
customer property in the amount of his net investment.

This is so even though his November 30th Statement
may reflect a balance higher than $500,000. These customers are not entitled to a further distribution from the
fund of customer property because their Net Equity
claims will be fully satisfied by the SIPC advance. In
general, Net Winners will be concentrated among early
investors, while a critical mass of Net Losers will be
FN24
found among later investors.
FN24. For reasons that are self-evident, a majority of those objecting to the Trustee's Net Investment Method are Net Winners.
DISCUSSION
I. THE HISTORY OF SIPA
A. Generally
As a backdrop for the Court's review of the Net
Equity issue in this SIPA proceeding, a brief overview
of the history and purpose of the statute will provide
helpful context. Congress enacted SIPA in 1970 for the
primary purpose of protecting customers from losses
caused by the insolvency or financial instability of
broker-dealers. See SEC v. S.J. Salmon & Co., Inc., 375
F.Supp. 867, 871 (S.D.N.Y.1974). In doing so, Congress sought to “reinforce the confidence that investors
have in the U.S. securities markets” and “strengthen[ ]
... the financial responsibilities of broker-dealers.”
H.R.Rep. No. 91–1613, at 2–4 (1970), reprinted in 1970
U.S.C.C.A.N. 5254, 5257.
To accomplish these aims, SIPA establishes procedures for liquidating failed brokerdealers and
provides “customers,” as defined by SIPA section 78lll
FN25
(2),
with *133 special protections. A SIPA liquidation is essentially a bankruptcy liquidation tailored to
achieve SIPA's objectives. See SIPA § 78fff(b) (“[A] liquidation proceeding shall be conducted in accordance
with, and as though it were being conducted under
chapters 1, 3 and 5 and subchapters I and II of chapter 7
of Title 11.”); In re Adler Coleman Clearing Corp., 195
B.R. 266, 269–70 (Bankr.S.D.N.Y.1996). Separate from
the general SIPA estate, a fund of “customer property”
is established for priority distribution exclusively
among the debtor's customers. See SIPA § 78lll (4)
(defining “customer property”); In re Adler, Coleman
Clearing
Corp.,
216
B.R.
719,
722

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(Bankr.S.D.N.Y.1998) (“A person whose claim against
the debtor qualifies as a ‘customer claim’ receives preferential treatment in the distribution of assets from the
debtor's estate.”). Each customer is entitled to share in
this fund pro rata to the extent of his Net Equity. See
SIPA § 78fff–2(c)(1)(b). In many SIPA liquidations,
however, customer property is inadequate to wholly satisfy customers' Net Equity claims. Under these circumstances, SIPC, an independent, non-profit membership
corporation created by SIPA, provides additional protection. SIPC is charged with establishing and administering a SIPC fund to advance money to the SIPA trustee to promptly pay each customer's valid Net Equity
FN26
claim, up to $500,000 per customer.
See SIPA §§
78ddd(a)(1), ccc(a)(1), fff–3(a). However, these advances cover only “the amount by which the net equity
of each customer exceeds his ratable share of customer
property.” SIPA § 78fff–3(a). If the amount of the SIPC
advance taken together with the subsequent customer
property distribution exceeds the customer's Net Equity,
SIPC recoups the excess. In effect, SIPC becomes subrogated to the claims of customers to the extent it has
supplied advances, and cannot seek recovery from customer property “until after the allocation thereof to customers.” SIPA §§ 78fff–3(a), 2(c)(1).
FN25. A “customer” is defined as—
any person ... who has a claim on account of
securities received, acquired, or held by the
debtor in the ordinary course of its business
as a broker or dealer from or for the securities accounts of such person for safekeeping,
with ... collateral security, or for purposes of
effecting transfer. The term ‘customer’ includes any person who has a claim against
the debtor arising out of sales or conversions
of such securities, and any person who has
deposited cash with the debtor for the purpose of purchasing securities....
SIPA section 78lll (2).
FN26. SIPA section 78fff–3(a)(1) divides customer claims into “claims for cash” and
“claims for securities” in order “to distinguish

the custodial functions of a broker-dealer with
respect to securities from the broker-dealer's
depository-like functions with respect to cash
deposits.” In re New Times Secs. Servs., Inc.,
371 F.3d 68, 86 (2d Cir.2004). When eligible,
claims for cash are entitled to a $100,000 advance from SIPC, while claims for securities
are entitled to a $500,000 advance from SIPC.
See SIPA § 78fff–3(a)(1).
B. SIPC Payments Are Inextricably Connected to
Payments from Customer Property.
[1][2] Contrary to the contention of many Objecting
FN27
Claimants,
permitting a customer to recover SIPC
payments based on final account statements would in
fact affect the limited amount available for distribution
from the customer property fund. These Objecting
Claimants rely upon the false premise that Madoff customers are statutorily entitled to an additional source of
recovery in the form of SIPC insurance, separate and
apart from customer property*134 distributions. This
argument finds no support in the text of the statute,
which characterizes SIPC payments as advances inextricably tied to distributions of customer property. SIPA
provides that:
FN27. See, e.g., Reply Mem. of Phillips Nizer
Claimants at 8 (arguing that SIPC advances
take the form of a completely separate and independent insurance obligation).
In order to provide for prompt payment and satisfaction of net equity claims of customers of the debtor,
SIPC shall advance to the trustee such moneys, not to
exceed $500,000 for each customer, as may be required to pay or otherwise satisfy claims for the
amount by which the net equity of each customer exceeds his ratable share of customer property ....
SIPA § 78fff–3(a)(1) (emphasis added). SIPC payments therefore serve only to replace missing customer property and cannot be ascertained independently
of the determination of a customer's pro rata share of
customer property. Accordingly, the SIPA statute
does not allow bifurcation of the claims process, with
customers recovering SIPC payments based on the
Last Statement Method, and recovering customer

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property shares based on the Net Investment Method.
II. PLAIN LANGUAGE AND LEGISLATIVE HISTORY SUPPORT THE NET INVESTMENT
METHOD
[3] Given that BLMIS account statements purport
securities positions totaling an unparalleled $64.8 billion, the dispute concerning the definition of Net Equity
is pivotal both to customers and SIPC. Resolution of
this issue “begins where all such inquiries must begin:
with the language of the statute itself.” U.S. v. Ron Pair
Enter., Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 103
L.Ed.2d 290 (1989); see also Conn. Nat. Bank v. Germain, 503 U.S. 249, 253–54, 112 S.Ct. 1146, 117
L.Ed.2d 391 (1992) (“[C]ourts must presume that a legislature says in a statute what it means and means in a
statute what it says there.”). SIPA defines Net Equity in
section 78lll (11):
The term “net equity” means the dollar amount of the
account or accounts of a customer, to be determined
by—
(A) calculating the sum which would have been owed
by the debtor to such customer if the debtor had liquidated, by sale or purchase on the filing date, all securities positions of such customer ...; minus
(B) any indebtedness of such customer to the debtor
on the filing date....
SIPA § 78lll (11) (emphasis added).
The main source of contention between the Trustee
and the Objecting Claimants lies in how each would determine a customer's “securities positions,” as that term
is used in the definition of Net Equity. The Objecting
Claimants state that the best evidence of a customer's
securities positions is the customer's account statement
as of the Filing Date, or in this case, his November 30th
Statement. They assert that SIPA's legislative history,
indicating the intent to protect investors' “legitimate
customer expectations” and “make customer accounts
whole,” supports this position. H.R.Rep. No. 95–746,
95th Cong., 1st Sess. at 21 (1977). Written upon consideration of the 1978 amendments to SIPA, a House of

Representatives' Report states,
A customer generally expects to receive what he believes is in his account at the time the stockbroker
ceases business. But because securities may have
been ... never purchased or even stolen, this is not always possible.... [C]ustomers generally receive pro
rata portions of the securities claims, and as to any remainder, they will receive cash based on the market
value as of the filing date.
Id. (emphasis added). Here, as argued by the Objecting Claimants, the customers had legitimate expectations that they held *135 the securities positions reflected on their November 30th Statements. Therefore, the
Objecting Claimants espouse the Last Statement Method and believe that Net Equity claims must be recognized in the amount of the customers' account balances
as of November 30, 2008.
[4][5] However, the Court agrees with the Trustee,
joined by the SEC and SIPC, that the Objecting
Claimants' “securities positions” can be ascertained
only by reference to the books and records of BLMIS.
The account statements are entirely fictitious, do not reflect actual securities positions that could be liquidated,
and therefore cannot be relied upon to determine Net
Equity. As a result, the definition of Net Equity under
SIPA section 78lll (11) must be read in tandem with
SIPA section 78fff–2(b), which requires the Trustee to
discharge Net Equity claims only “insofar as such obligations are [1] ascertainable from the books and records
of the debtor or [2] are otherwise established to the satisfaction of the trustee.” SIPA § 78fff–2(b). The BLMIS
books and records expose a Ponzi scheme where no securities were ever ordered, paid for or acquired. Because “securities positions” are in fact nonexistent, the
Trustee cannot discharge claims upon the false premise
that customers' securities positions are what the account
statements purport them to be. Rather, the only verifiable amounts that are manifest from the books and records are the cash deposits and withdrawals. Moreover,
if customers' legitimate expectations are relevant to any
determination other than whether customers hold
“claims for securities” or “claims for cash,” they do not
apply where they would give rise to an absurd result.

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See New Times Secs. Servs., 371 F.3d 68, 87–88 (2d
Cir.2004) (“ New Times I ”) (rejecting the District
Court's Net Equity calculation, which was based on customers' “legitimate expectations”); New Times Secs.
Servs., 463 F.3d 125, 130 (2d Cir.2006) ( “ New Times
II ”) (“The [ New Times I ] court declined to base the recovery on the rosy account statements ... because treating the fictitious paper profits as within the ambit of the
customers' ‘legitimate expectations' would lead to [ ]
absurdity....”). The Trustee has properly satisfied expectations by providing all customers with “claims for
FN28
securities.”
Accordingly, the plain language of
the SIPA statute supports adoption of the Net Investment Method in distributing customer property to
Madoff investors.
FN28. In New Times I, the SEC stated that the
SIPA trustee sought to treat claims as claims
for cash, with a $100,000 limit on SIPC advances. New Times I, 371 F.3d at 74. Here, notwithstanding a cash component reflected on
monthly statements, the Madoff Trustee has regarded all claims as claims for securities, eligible for advances of up to $500,000 each.
III. THE TRUSTEE'S AVOIDANCE POWERS
AND IRS TAX TREATMENT OF MADOFF
CLAIMANTS
A. The Trustee's Calculus of Net Equity is Consistent with his SIPA and Bankruptcy Avoidance
Powers.
The Trustee, in reliance on his avoidance powers
and a substantial body of case law, propounds his theory
of Net Equity as being net of fraudulent transfers. The
Court agrees and finds that only the Net Investment
Method is consistent with the Trustee's statutory avoidance powers. In the context of this hybrid proceeding
(U.S.C. Titles 11 and 15), the definition of Net Equity
cannot be construed in isolation from corollary provisions of SIPA and the Code. See Auburn Hous. Auth. v.
Martinez, 277 F.3d 138, 144 (2d Cir.2002) (“the preferred meaning of a statutory *136 provision is one that
is consonant with the rest of the statute.”); see also
SIPA § 78fff(b) (“[A] liquidation proceeding shall be
conducted in accordance with ... Title 11.”). SIPA and

the Code intersect to, inter alia, grant a SIPA trustee the
power to avoid fraudulent transfers for the benefit of
customers. See SIPA § 78fff–2(c)(3) (“[T]he trustee
may recover any property transferred by the debtor ... to
the extent that such transfer is voidable or void under
the provisions of Title 11.”). The Trustee relies on numerous cases, all holding that transfers made in furtherance of a Ponzi scheme, and specifically transfers of
FN29
fictitious profits, are avoidable.
The Net Investment Method harmonizes the definition of Net Equity
with these avoidance provisions by similarly discrediting transfers of purely fictitious amounts and unwinding, rather than legitimizing, the fraudulent scheme. The
Last Statement Method, by contrast, would create tension within the statute by centering distribution to customers on the very fictitious transfers the Trustee has
the power to avoid.
FN29. See, e.g., Manhattan Inv. Fund Ltd., 397
B.R. 1, 8 (S.D.N.Y.2007) (“There is a general
rule-known as the ‘Ponzi scheme presumption'-that such a scheme demonstrates ‘actual
intent’ as matter of law because ‘transfers
made in the course of a Ponzi scheme could
have been made for no purpose other than to
hinder, delay or defraud creditors.’ ”); Bayou
Superfund, LLC v. WAM Long/Short Fund II,
L.P. (In re Bayou Group, LLC ), 362 B.R. 624,
634 (Bankr.S.D.N.Y.2007) ( “redemption payments of ... wholly-fictitious profits, as reflected on fraudulent financial statements, were
made to earlier investors requesting redemption
using funds invested by subsequent investors.
Indeed, it is impossible to imagine any motive
for such conduct other than actual intent....”);
Drenis v. Haligiannis, 452 F.Supp.2d 418, 429
(S.D.N.Y.2006) (“Plaintiffs' complaint adequately pleads fraudulent intent on the part of
the transferor-namely, the defrauding defendants-who are alleged elsewhere in the complaint to be perpetrators of a Ponzi scheme. In
such cases, courts have found that the debtor's
intent to hinder, delay or defraud is presumed
to be established.”); Donell v. Kowell, 533 F.3d
762, 772 (9th Cir.2008) (“[A]ll payments of

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fictitious profits are avoidable as fraudulent
transfers.”).
Whether the Objecting Claimants have defenses to
avoidance actions in this specific case does not change
the inherent inconsistency between the Last Statement
Method and the Trustee's avoidance powers. The Objecting Claimants devote much discussion to defenses
that could be asserted against hypothetical avoidance
actions, including statutes of limitations, the section
548(c) good faith defense, and the section 546(e) safe
FN30
harbor for securities contracts.
The fact that the
Trustee may be unable to avoid a transfer in particular
circumstances, however, is irrelevant to the Court's
finding that the power itself is *137 inconsistent with a
distribution scheme that credits the reported products of
a fraud. The Net Investment Method allows the definition of Net Equity and the Trustee's powers to avoid and
recover property, contained in the same statutory framework, to be interpreted with preferred consonance. See
Auburn Hous. Auth., 277 F.3d at 144.
FN30. As no avoidance action is currently
pending here, the Court does not reach the merits of these defenses. It should be noted,
however, that the application of section 546(e)
of the Code to insulate transferees of Madoff's
fictitious securities from avoidance actions is
dubious. Indeed, courts have held that to extend safe harbor protection in the context of a
fraudulent securities scheme would be to
“undermine, not protect or promote investor
confidence ... [by] endorsing a scheme to defraud SIPC,” and therefore contradict the goals
of the provision. In re Adler, Coleman Clearing
Corp.,
247
B.R.
51,
105
(Bankr.S.D.N.Y.1999), aff'd, 263 B.R. 406
(S.D.N.Y.2001); see also In re Grafton Partners, 321 B.R. 527, 539 (9th Cir. B.A.P. 2005)
(“The few decisions that involve outright illegality or transparent manipulation reject
[section] 546(e) protection.”); Wider v. Wootton, 907 F.2d 570, 573 (5th Cir.1990) (“To apply the stockbroker defense to shield the payments Cohen made to Wider would lend judi-

cial support to ‘Ponzi’ schemes by rewarding
early investors at the expense of later victims.”) (internal quotations and citations omitted). In any event, the safe harbor provision explicitly excepts from its protection actual
fraudulent transfers avoidable under section
548(a)(1)(A) of the Code. See 11 U.S.C. §
546(e).
B. The Net Investment Method Does Not Contradict
the IRS's Treatment of Madoff Claimants.
Some Objecting Claimants liken the IRS's treatment of Madoff claimants to recognizing fictitious
profits as real income. The characterization of the IRS's
treatment of Madoff claimants is irrelevant, however, as
the IRS and SIPC are governed by disparate statutory
schemes with different purposes. See, e.g., SIPC v. Morgan, Kennedy & Co., Inc., 533 F.2d 1314, 1318–19 (2d
Cir.1976) (declining to interpret SIPA by reference to
the Federal Deposit Insurance Act, as “SIPA and FDIA
are independent statutory schemes, enacted to serve the
unique needs of the banking and securities industries,
respectively”). In addition, the IRS treatment of Madoff
claimants is temporal, rather than part of an established
statutory scheme. See, e.g., Post–Madoff Rev. Proc.
2009–20, 2009–14 I.R.B. 749 (established Mar. 17,
2009 to address, in relevant part, the tax treatment of
losses from criminally fraudulent investment arrangements that take the form of Ponzi schemes).
IV. THE HOLDING IN NEW TIMES I SUPPORTS
THE TRUSTEE'S NET INVESTMENT METHOD
Even though the mechanics of Ponzi schemes are
essentially the same, with later investors' money used to
pay earlier investors, underlying factual disparities
make the definition of Net Equity susceptible to differing formulations. The Second Circuit has addressed this
issue in New Times I. Not surprisingly, both the Trustee
and Objecting Claimants cite New Times I as support
for their respective positions.
The New Times I case was a SIPA liquidation involving a Ponzi scheme in which investors were fraudulently induced to purchase securities through New
Times Securities Services, Inc. and New Age Financial
Services, Inc. (collectively, the “Debtors”). The securit-

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ies intended to be purchased included (1) nonexistent
money market funds and (2) shares of bona fide mutual
FN31
funds.
New Times I, 371 F.3d at 71. Rather than
invested, the customer funds advanced were misappropriated by the Debtors and used to pay fictitious profits
on prior investments. Id. at 71–72, 72 n. 2. To facilitate
the fraud, the Debtors generated bogus confirmations
and fake monthly account statements that reflected fictitious profits and nonexistent securities positions. Id. at
71, 74.
FN31. Certain investors were also induced to
invest in fraudulent promissory notes. Id. at 71.
However, the treatment of those investors is irrelevant for purposes of this decision.
In the course of the liquidation, the SIPA trustee
determined that customers who were fraudulently induced to invest in bogus money market funds (the “Fake
Securities Claimants”) were entitled to claims for cash,
and thus eligible for a SIPC advance of up to only
$100,000. Id. at 71, 74. Moreover, the SIPA trustee concluded that the value of their claims was the amount
principally invested less any withdrawals or redemptions. Id. Thus, fictitious profits shown on their account
statements as interest or dividends on the phantom securities were not included in calculating their net equity
claims. Id. at 74.
*138 By contrast, customers who were induced to
invest in mutual funds that in reality existed (the “Real
Securities Claimants”) were entitled to claims for securities, eligible to receive up to $500,000 in SIPC advances. Id. In addition, their net equity claims were
based upon the “profits” reflected on their customer account statements. These claimants received favorable
treatment from the SIPA trustee because, inter alia, the
trustee could purchase real securities to satisfy their
claims, and the information shown on the account statements reflected what would have happened had the
transactions been executed. Id.
The Fake Securities Claimants filed written objections to both (1) the SIPA trustee's determination of
their claims as claims for cash, and (2) his refusal to
value claims based on the fictitious amounts shown as

dividends and interest on their last account statements.
Id. at 74. In response, the SIPA trustee, joined by SIPC,
filed a motion for an order upholding his determination
of claims. Id. at 74–75. The District Court sustained the
Fake Securities Claimants' objection and held that the
claimants had claims for securities. Id. at 75. Moreover,
the court found that the value of those claims could be
ascertained by reference to the fictitious interest and dividend reinvestments reflected on claimants' last account statements. Id. The SIPA trustee and SIPC
promptly appealed the District Court's decision to the
Court of Appeals for the Second Circuit. Id.
The Second Circuit upheld the District Court's determination that the Fake Securities Claimants had
claims for securities, not claims for cash. Citing SIPC's
FN32
Series 500 Rules
and the legislative history of
SIPA section 78fff–3(a)(1), the court found that
claimants were entitled to claims for securities because
they relied upon the confirmations and account statements they received from the Debtors. Id. at 84–87
(“[T]he premise underlying the Series 500 Rules-that a
customer's ‘legitimate expectations,’ based on written
confirmations of transactions, ought to be protected-supports the SEC's interpretation of section [78fff–3(a)(1)
].”). Moreover, the court held that its ruling promoted
SIPA's goal of providing investor protection. Id. at
83–84.
FN32. These rules apply to determine whether
a securities transaction gives rise to a “claim
for cash” or a “claim for securities” on the filing date of a SIPA liquidation proceeding. See
17 C.F.R. §§ 300.500–300.503.
However, as to the Net Equity issue, the Second
Circuit reversed the District Court's holding. Instead,
the court upheld the joint position of the SIPA trustee,
SEC and SIPC that customer claims should be based
upon the net cash invested in the scheme, not the fictitious interest or dividend reinvestments reflected on the
claimants' account statements. Id. at 87–88. The court
agreed that the amounts on the account statements were
arbitrary, and basing Net Equity claims on them would
FN33
be “irrational and unworkable.”
Id. at 88. Accordingly, the Second Circuit found that the value of the

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claimants' Net Equity claims was the net cash invested
in the scheme.
FN33. When SIPC and the SEC disagreed as to
the interpretation of SIPA section 78fff–3(a)(1)
with regard to whether claimants had claims for
cash or for securities, the court found, in a
lengthy discourse, that the SEC was entitled to
a degree of deference, a deliberative factor not
lost on the Court. See New Times I, 371 F.3d at
82–83.
In a subsequent decision issued in the New Times
SIPA liquidation, New Times II, a different Second Circuit panel explained*139 the court's holding in New
Times I with respect to the Net Equity calculation issue.
The New Times II court highlighted the absurdity and
inherent unfairness that would result from relying on
the fictitious account statements when no such securities existed and explained that reimbursing customers
with actual securities or their market value on the filing
date was impossible. New Times II, 463 F.3d at 129–30.
The Objecting Claimants identify with the Real Securities Claimants while the Trustee analogizes the
Madoff claimants to the Fake Securities Claimants.
The Objecting Claimants assert that Madoff customers, comparable to the Real Securities Claimants in
New Times I, are entitled to the value of the securities
listed on their final account statements. They maintain
that New Times I stands for the proposition that when a
customer's account statement reflects securities positions in real securities, the SIPA trustee must either purchase the securities or pay the market value of those securities as of the filing date. Citing New Times II, they
contend that the Second Circuit used the Net Investment
Method in New Times I only “[b]ecause there were no [
] securities, and it was therefore impossible to reimburse customers with the actual securities or their market value.” New Times II, 463 F.3d at 129. The securities listed on the Objecting Claimants' account statements, they argue, like those of the New Times Real Securities Claimants, exist in the market and therefore
have values that can be ascertained. As such, the Objecting Claimants posit that the Trustee must satisfy Net

Equity claims by either purchasing, or paying the market value of, the securities reflected on their November
30th Statements.
Although somewhat sympathetic to the Objecting
Claimants' arguments, the Court agrees with the Trustee
that New Times I and II support using the Net Investment Method here. The holding in New Times I, as it
relates to the Net Equity analysis, hinged on the fact
that customer account statements reflected “arbitrary
amounts that necessarily ha[d] no relation to reality.”
New Times I, 371 F.3d at 88 (quoting Br. for Amicus
Curaie SEC at 16). In addition, the court recognized
“the potential absurdities created by reliance on the entirely artificial numbers.” New Times I, 371 F.3d at 88.
To adopt the Last Statement Method in this case would
be to likewise base recovery on “rosy account statements,” leading to “the absurdity of ‘duped’ investors
reaping windfalls as a result of fraudulent promises.”
New Times II, 463 F.3d at 130.
Analogous to the account statements of the Fake
Securities Claimants, the BLMIS account statements
“have no relation to reality.” New Times I, 371 F.3d at
88. Although the securities that Madoff allegedly purchased were identifiable in name, the securities positions reflected on customer account statements were artificially constructed. By backdating trades to produce
predetermined, favorable returns, Madoff, like the
fraudster in New Times, essentially pulled the fictitious
amounts from thin air. The resulting securities positions
on customers' November 30th Statements were therefore entirely divorced from the uncertainty and risk of
actual market trading. In fact, at certain times, Madoff
customers, like the Fake Securities Claimants, held at
FN34
least one imaginary security.
FN34. As discussed supra at Factual History,
section II, part C, “Fidelity Spartan U.S. Treasury Money Market Fund,” was reflected on
customer account statements at times when Fidelity Brokerage Services LLC was not offering participation in any such fund for investment.
*140 The Objecting Claimants are also clearly dis-

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tinguishable from the Real Securities Claimants in the
New Times liquidation. The Real Securities Claimants'
initial investments were sufficient to acquire their securities positions, and the corresponding paper earnings
“mirrored what would have happened” had the fraudster
purchased the securities as promised. New Times I, 371
F.3d at 74 (quoting Br. for Appellants James W. Giddens and SIPC at 7, n. 6). In contrast, the Madoff customers' initial investments were insufficient to acquire
their purported securities positions, which were made
possible only by virtue of fictitious profits. Rather than
“mirroring” the market, the account activity was manipulated with the benefit of deliberately calibrated hindsight, and many purported trades were settled outside
the exchange's price range for the trade dates of those
securities. As such, the Objecting Claimants should not
be treated like the Real Securities Claimants, but rather
like the Fake Securities Claimants.
Accordingly, a careful review of New Times I and
II convinces the Court that the Trustee's Net Investment
FN35
Method is correct.
It would be simply absurd to
credit the fraud and legitimize the phantom world created by Madoff when determining Net Equity. See New
Times I, 371 F.3d at 88. The Net Investment Method is
appropriate because it relies solely on unmanipulated
withdrawals and deposits and refuses to permit Madoff
to arbitrarily decide who wins and who loses. Given the
utter disconnect between the securities positions on customer account statements and market trading reality, the
Court finds that the Objecting Claimants and the Fake
Securities Claimants are similarly situated and should
therefore be afforded the same treatment. As such, the
proper way to determine Net Equity is by adopting the
Net Investment Method, which is the only approach that
can appropriately serve as a proxy for the imaginary securities positions shown on customers' last account
statements.
FN35. The Court is also persuaded by the reasoning in Focht v. Athen (In re Old Naples
Secs., Inc.), 311 B.R. 607 (M.D.Fla.2002). In
re Old Naples was a SIPA liquidation involving a Ponzi scheme in which the court adopted the Net Investment Method in satisfying

claims for cash:
According to the Trustee, participants in a
Ponzi scheme such as that involved here are
entitled only to receive their net loss, or the
amount invested less any payments received.
...
[P]ermitting claimants to recover not only
their initial capital investment but also the
phony “interest” payments they received and
rolled into another transaction is illogical. No
one disputes that the interest payments were
not in fact interest at all, but were merely
portions of other victims' capital investments.
If the Court were to agree with the Athens
claimants, the fund would likely end up paying out more money than was invested in Zimmerman's Ponzi scheme. This result is not
consistent with the goals of SIPA, which
does not purport to make all victimized investors whole but only to partially ameliorate
the losses of certain classes of investors.
In re Old Naples, 311 B.R. at 616–17. Some
of the Objecting Claimants attempt to distinguish Old Naples on the grounds that the
claims in that case were for cash ($100,000
SIPC advance), and not for securities
($500,000 SIPC advance). This purported
distinction, however, was irrelevant to the
Net Equity holding. Whether the claims were
for cash or securities, the fact remains that
the Old Naples court found that it would be
“illogical” to rely on fictitious interest payments in determining Net Equity claims. Id.
at 617.
V. EQUITY AND PRACTICALITY FAVOR THE
NET INVESTMENT METHOD
While the Court recognizes that the outcome of this
dispute will inevitably be unpalatable*141 to one party
or another, notions of fairness and the need for practicality also support the Net Investment Method.
As distribution of customer property to the “equally

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innocent victims” of Madoff's fraud is a zero-sum game,
FN36
equity dictates that the Court implement the Net
Investment Method. See Cunningham v. Brown, 265
U.S. 1, 13, 44 S.Ct. 424, 68 L.Ed. 873 (1924). Customer
property consists of a limited amount of funds that are
available for distribution. Any dollar paid to reimburse
a fictitious profit is a dollar no longer available to pay
claims for money actually invested. If the Last Statement Method were adopted, Net Winners would receive
more favorable treatment by profiting from the principal
investments of Net Losers, yielding an inequitable result.
FN36. Zero-sum is a colloquial term that describes a scenario in which a participant's gain
or loss is exactly balanced by the losses or
gains of the other participants. If the total gains
of the participants are added up, and the total
losses are subtracted, they will equal zero. See
http:// www. merriam- webster. com.
To demonstrate the profound negative impact on
Net Losers were Net Equity claims to be based upon
fictitious statements rather than net investment, the
FN37
Trustee submitted an illustrative hypothetical.
Investor 1 invested $10 million many years ago, withdrew
$15 million in the final year of the collapse of Madoff's
Ponzi scheme, and his fictitious last account statement
reflects a balance of $20 million. Investor 2 invested
$15 million in the final year of the collapse of Madoff's
Ponzi scheme, in essence funding Investor 1's withdrawal, and his fictitious last account statement reflects
a $15 million deposit. Consider that the Trustee is able
to recover $10 million in customer funds and that the
Madoff scheme drew in 50 investors, whose fictitious
last account statements reflected “balances” totaling
$100 million but whose net investments totaled only
$50 million.
FN37. See Trustee's Reply Br. in Supp. of the
Motion at 18–19.
Under the Last Statement Method, Net Equity
claims would be fulfilled based on a 10% recovery ($10
million recovered ÷ $100 million in fictitious account
balances). Investor 1 would be entitled to 10% of his

$20 million “account balance” and a $500,000 SIPC advance, or $2.5 million, despite his recent withdrawal of
$15 million from the scheme. The total recovery would
be $17.5 million on an initial investment of $10 million,
or a $7.5 million profit. Investor 2 would be entitled
only to 10% of his $15 million “account balance” and a
$500,000 SIPC advance, or $2 million of his $15 million investment, resulting in a $13 million loss. Therefore, even though Investor 2 invested more money than
Investor 1, and even though Investor 2's money was
used to fund Investor 1's withdrawal, Investor 2 stands
to lose significantly more money. Employing the Last
Statement Method would yield a grossly inequitable
outcome.
In contrast, under the Net Investment Method, Investor 1 would not have a Net Equity claim and would
not be entitled to a SIPC advance because he already
withdrew more than he deposited. Investor 2, however,
would recover 20% ($10 million recovered ÷ $50 million in total net investment) of his $15 million net investment, plus a $500,000 SIPC advance, totaling $3.5
million, a significantly more just result.
This hypothetical demonstrates that if the Last
Statement Method were used, Net Winners such as Investor 1 would continue to recover funds from customer
property at the expense of Net Losers, who recovered
little or nothing from Madoff*142 and whose
“investments” were used to fund the very withdrawals
that made the earlier investors Net Winners. Adopting
the Last Statement Method would only exacerbate the
harm caused to Net Losers and would improperly distribute customer funds based on Madoff's arbitrary
design. Net Winners and Net Losers, equally innocent
in Madoff's Ponzi scheme, should not be treated disparately. Accordingly, the circumstances of this case “call
strongly for the principle that equality is equity.” Cunningham, 265 U.S. at 13, 44 S.Ct. 424.
Equality is achieved in this case by employing the
Trustee's method, which looks solely to deposits and
withdrawals that in reality occurred. To the extent possible, principal will rightly be returned to Net Losers
rather than unjustly rewarded to Net Winners under the
guise of profits. In this way, the Net Investment Method

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brings the greatest number of investors closest to their
positions prior to Madoff's scheme in an effort to make
FN38
them whole.
FN38. Compensating Madoff investors on the
basis of fictional account statements leads to an
additional inequality as it enables the thief to
dictate who receives a larger proportion of the
assets collected by the Trustee. Madoff should
not be entitled to award, to equally deserving
clients, higher and lower returns based solely
on his whim.
With refreshing clarity, Simon Jacobs (“Jacobs”), himself a victim of Madoff's fraud, makes this very point in
his pro se letter brief:
In a Ponzi scheme, the perpetrator takes in money
from investors, promising a return that is wholly fictitious, and instead pays cash returns to early investors
with cash collected from later investors. This means
that any cash returned to an investor was either his
own, or more likely, was taken from another later investor. No money is actually invested for either gain
or loss. Money is simply moved by the perpetrator
from one investor to another.
...
Such cash that [Net Winners] withdrew in excess of
their deposits was, by definition, cash that other customers put in, NOT a return on their purported investment, since there was no investment made, and
hence no return.

investors in proportion to their last monthly statement
would effectively make the trustee perpetrate his own
Ponzi scheme, because the net winners would again
receive money put into the scheme by the net losers.
This is so because any money recovered must, ipso
facto, have come from the net losers, the net winners
having already recovered their original investment,
and more. Thus later investors, the net losers, would
lose even more money and the earlier investors, the
net winners ... would gain still further.
Ltr. Br. in Favor of the Trustee's Motion on the Net
Equity Issue (Dec. 7, 2009) (Case No. 08–1789,
Docket No. 1041) (emphasis added). Jacobs concludes that adoption of the Last Statement Method
would run “directly counter to any concept of equitable fairness.”
The Court agrees and finds that the Net Investment
Method proposed by the Trustee is the more equitable
and appropriate way to determine Net Equity, is consistent with Second Circuit precedent, and gives a workable
blueprint for distribution to the victims of Madoff's incogitable scheme.
*143 CONCLUSION
For all the reasons set forth herein, the Trustee's Motion
for an order, inter alia, upholding his determination of
Net Equity is hereby GRANTED. The Trustee is directed to submit an order consistent with this decision.
*144 EXHIBIT A

...
The idea that because Madoff was a broker dealer, the
assets recovered by the trustee should be returned to

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*145

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*146

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*147

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*148

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*149

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*150

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*151

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*152

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*153

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APPENDIX 1
APPENDIX 1—APPEARANCES
PARTIES SUPPORTING THE NET INVESTMENT METHOD
1.

BAKER & HOSTETLER LLP
45 Rockefeller Plaza
New York, N.Y. 10111
Telephone:

(212) 589–4200

Facsimile:

(212) 589–4201

By:

David Sheehan
Marc E. Hirschfield
Oren J. Warshavsky
Seanna R. Brown

Attorneys for Irving H. Picard, Trustee for the Substantively Consolidated SIPA Liquidation of Bernard
L. Madoff Investment Securities LLC and Bernard L. Madoff
2.

SECURITIES INVESTOR PROTECTION CORPORATION
805 Fifteenth Street, N.W. Suite 800
Washington, DC 20005
Telephone:

(202) 371–8300

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Facsimile:
By:

(202) 371–6728
Josephine Wang
Kevin H. Bell

Attorneys for the Securities Investor Protection Corporation
3.

SECURITIES AND EXCHANGE COMMISSION
100 F. Street, N. E.
Washington, DC 20548
Telephone:
By:

(202) 551–5148

Katharine B. Gresham
Alistaire Bambach

Attorneys for the Securities and Exchange Commission
4.

CRAVATH, SWAINE & MOORE LLP
825 Eighth Avenue
New York, N.Y. 10019
Telephone:

(212) 474–1000

Facsimile:

(212) 474–3700

By:

Richard Levin

Attorneys for Optimal Strategic U.S. Equity Limited and Optimal Arbitrage Limited
5.

Simon Jacobs (Pro Se)
OBJECTING CLAIMANTS

Represented by Counsel
1.

BERNFELD, DEMATTEO & BERNFELD LLP
600 Third Avenue
New York, N.Y. 10016
Telephone:

(212) 661–1661

Facsimile:

(212) 557–9610

By:

David B. Bernfeld
Jeffrey Bernfeld

Attorneys for Dr. Michael Schur and Mrs. Edith A. Schur
2.

BROWN RUDNICK LLP
Seven Times Square
New York, N.Y. 10036
Telephone:

(212) 209–4800

Facsimile:

(212) 209–4801

By:

David J. Molton

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Martin S. Siegel
Attorneys for Kenneth M. Krys and Christopher D. Stride as Liquidators of and for Fairfield Sentry Limited
3.

STANLEY DALE COHEN
41 Park Avenue, Suite 17–F
New York, N.Y. 10016
Telephone:
By:

(212) 686–8200

Stanley Dale Cohen

Attorney for Lee Mellis, Lee Mellis (IRA), Jean Pomerantz T.O.D., and Bonita Savitt
4.

DAVIS POLK & WARDWELL LLP
450 Lexington Avenue
New York, N.Y. 10017
Telephone:

(212) 450–4000

Facsimile:

(212) 701–5800

By:

Karen Wagner
Jonathan D. Martin

Attorneys for Sterling Equities Associates
5.

DEWEY & LEBOEUF LLP
1301 Avenue of the Americas
New York, N.Y. 10019
Telephone:

(212) 259–8000

Facsimile:

(212) 259–6333

By:

Seth C. Farber
James P. Smith III
Kelly A. Librera

Attorneys for Ellen G. Victor
6.

GIBBONS, P.C.
One Pennsylvania Plaza, 37th Floor
New York, N.Y. 10119
Telephone:

(212) 613–2009

Facsimile:

(212) 554–9696

By:

Jeffrey A. Mitchell
Don Abraham

Attorneys for Donald G. Rynne
7.

GOODWIN PROCTER LLP

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53 State Street
Boston, MA 02109
Telephone:

(617) 570–1000

Facsimile:

(617) 523–1231

By:

Daniel M. Glosband
David J. Apfel
Brenda R. Sharton
Larkin M. Morton

Attorneys for Jeffrey A. Berman, Russell DeLucia, Ellenjoy Fields, Michael C. Lesser, Norman E. Lesser
11/97 Rev. Trust, Paula E. Lesser 11/97 Rev. Trust, and Jane L. O'Connor, as Trustee of the Jane O'Connor
Living Trust
8.

HERRICK, FEINSTEIN LLP
2 Park Avenue
New York, N.Y. 10016
Telephone:

(212) 592–1400

Facsimile:

(212) 592–1500

By:

William R. Fried

Attorneys for Magnify, Inc.
9.

KLEINBERG, KAPLAN, WOLFF & COHEN, P.C.
551 Fifth Avenue, 18th Floor
New York, N.Y. 10176
Telephone:

(212) 986–6000

Facsimile:

(212) 986–8866

By:

David Parker
Matthew J. Gold
Jason Otto

Attorneys for Lawrence Elins and Malibu Trading and Investing, L.P.
10.

LAX & NEVILLE, LLP
1412 Broadway, Suite 1407
New York, N.Y. 10018
Telephone:

(212) 696–1999

Facsimile:

(212) 566–4531

By:

Brian J. Neville
Barry R. Lax

Attorneys for Mary Albanese, the Brow Family Partnership, Allen Goldstein, Laurence Kaye, Suzanne
Kaye, Rose Less, and Gordon Bennett

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11.

McCARTER & ENGLISH, LLP
245 Park Avenue, 27th Floor
New York, N.Y. 10167
Telephone:

(212) 609–6800

Facsimile:

(212) 609–6921

By:

Joseph Lubertazzi, Jr.

Attorneys for Wachovia Bank, National Association
12.

MILBERG LLP
One Pennsylvania Plaza
New York, N.Y. 10119
Telephone:

(212) 594–5300

Facsimile:

(212) 868–1229

By:

Jonathan M. Landers
Matthew Gluck
Lois F. Dix
Joshua E. Keller
Sanford P. Dumain
Jennifer L. Young

SEEGER WEISS LLP
One William Street
New York, N.Y. 10004
Telephone:

(212) 584–0700

Facsimile:

(212) 584–0799

By:

Stephen A. Weiss
Christopher M. Van de Kieft
Parvin K. Aminolroaya

Attorneys for Albert J. Goldstein U/W FBO, Ruth E. Goldstein TTEE, Ann Denver, Norton Eisenberg,
Export Technicians, Inc., Stephen R. Goldenberg, Judith Rock Goldman, Jerry Guberman, Anita Karimian,
Orthopaedic Specialty Group PC, Martin Rappaport, Paul J. Robinson, Bernard Seldon, Harold A. Thau,
and The Aspen Company
13.

PHILLIPS NIZER LLP
666 Fifth Avenue
New York, N.Y. 10103
Telephone:

(212) 841–1320

Facsimile:

(212) 262–5152

By:

Helen Davis Chaitman

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Attorneys for Diane and Roger Peskin, Maureen Ebel, and a group of other customers
14.

BRUCE S. SCHAEFFER
404 Park Avenue South
New York, N.Y. 10016
Telephone:
By:

(212) 689–0400

Bruce S. Schaefer

Attorney for Irving J. Pinto Revocable Trust, Irving J. Pinto Grantor Retained Annuity Trust of 1994,
Irving J. Pinto Grantor Retained Annuity Trust of 1996, and Amy Lome Pinto Revocable Trust
15.

SCHULTE ROTH & ZABEL LLP
919 Third Avenue
New York, N.Y. 10022
Telephone:

(212) 756–2000

Facsimile:

(212) 593–5955

By:

William D. Zabel
Michael L. Cook
Marcy Ressler Harris
Frank J. LaSalle

Attorneys for the SRZ Claimants
16.

SHEARMAN & STERLING LLP
599 Lexington Avenue
New York, N.Y. 10022
Telephone:

(212) 848–4000

Facsimile:

(212) 848–7179

By:

Stephen Fishbein
James Garrity
Richard Schwed

Attorneys for Carl Shapiro and associated entities
17.

SONNENSCHEIN NATH & ROSENTHAL LLP
1221 Avenue of the Americas
New York, N.Y. 10020
Telephone:

(212) 768–6889

Facsimile:

(212) 768–6800

By:

Carole Neville

Attorneys for certain investors
Pro Se

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1.

Hugh de Blacam

2.

Ethel and James Chambers

3.

Anthony Fusco

4.

Herbert and Ruth Gamberg

5.

Cynthia Pattison Germaine

6.

Lillian Gilden

7.

Phyllis Glick

8.

Yolanda Greer

9.

Joseph M. Hughart

10.

Marvin Katkin

11.

Marshall W. Krause

12.

Jason Mathias

13.

Michael and Stacey Mathias

14.

Shawn Mathias

15.

Herbert A. Medetsky

16.

Josef Mittleman

17.

Josef Mittleman, on behalf of Just Empire, LLC

18.

Arlene Perlis

19.

Gunther and Margaret Unflat

20.

Lawrence R. Velvel

21.

Alan J. Winters
PARTIES NOT TAKING A POSITION ON THE CALCULATION OF NET EQUITY

1.

JOHNSON, POPE, BOKOR, RUPPEL & BURNS, LLP
911 Chestnut Street
Clearwater, FL 33757
Telephone:

(727) 461–1818

Facsimile:

(727) 443–6548

By:

Angelina E. Lim
Michael C. Cronin

Attorneys for Anchor Holdings, LLC
2.

MORRISON COHEN LLP
909 Third Avenue
New York, N.Y. 10022
Telephone:

(212) 735–8600

Facsimile:

(212) 735–8708

By:

Michael R. Dal Lago

© 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.

Page 36
424 B.R. 122, Bankr. L. Rep. P 81,726
(Cite as: 424 B.R. 122)

Attorneys for David Silver
Bkrtcy.S.D.N.Y.,2010.
In re Bernard L. Madoff Inv. Securities LLC
424 B.R. 122, Bankr. L. Rep. P 81,726
END OF DOCUMENT

© 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.