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

Filing 60

FILING ERROR - WRONG DOCUMENT TYPE SELECTED FROM MENU - BRIEF re: 41 Order,,, MEMORANDUM OF LAW REGARDING DETERMINATION OF FOR VALUE AND NET EQUITY DECISION. Document filed by Charles 15 Associates, Charles 15 LLC, Charles Sterling LLC, Charles Sterling Sub LLC, College Place Enterprises LLC, Coney Island Baseball Holding Company LLC, Estate of Leonard Schreier, FFB Aviation LLC, FS Company LLC, Fred Wilpon Family Trust, Arthur Friedman, Ruth Friedman, Iris J. Katz and Saul B. Katz Family Foundation, Inc., Judy and Fred Wilpon Family Foundation, Inc., Amy Beth Katz, David Katz, Dayle Katz, Gregory Katz, Howard Katz, Iris Katz, 157 J.E.S. LLC, Air Sterling LLC, BAS Aircraft LLC, Jason Bacher, Bon Mick Family Partners LP, Bon-Mick, Inc., Brooklyn Baseball Company LLC, C.D.S. Corp., Michael Katz, Saul B. Katz, Todd Katz, Katz 2002 Descendants' Trust, Heather Katz Knopf, Natalie Katz O'Brien, Mets II LLC, Mets Limited Partnership, Mets One LLC, Mets Partners, Inc., Minor 1 (REDACTED), Minor 2 (REDACTED), L. Thomas Osterman, Phyllis Rebell Osterman, Realty Associates Madoff II, Red Valley Partners, Robbinsville Park LLC, Ruskin Garden Apartments LLC, Saul B. Katz Family Trust, Michael Schreier, Deyva Schreier Arthur, See Holdco LLC, See Holdings I, See Holdings II, Sterling 10 LLC, Sterling 15C LLC, Sterling 20 LLC, Sterling Acquisitions LLC, Sterling American Advisors II LP, Sterling American Property III LP, Sterling American Property IV LP, Sterling American Property V LP, Sterling Brunswick Corporation, Sterling Brunswick Seven LLC, Sterling Dist Properties LLC, Sterling Equities, Sterling Equities Associates, Sterling Equities Investors, Sterling Heritage LLC, Sterling Internal V LLC, Sterling Jet II Ltd., Sterling Jet Ltd., Sterling Mets Associates, Sterling Mets Associates II, Sterling Mets LP, Sterling Pathogenesis Company, Sterling Third Associates, Sterling Thirty Venture LLC, Sterling Tracing LLC, Sterling Twenty Five LLC, Sterling VC IV LLC, Sterling VC V LLC, Edward M. Tepper, Elise C. Tepper, Jacqueline G. Tepper, Marvin B. Tepper, Valley Harbor Associates, Kimberly Wachtler, Philip Wachtler, Bruce N. Wilpon, Daniel Wilpon, Debra Wilpon, Fred Wilpon, Jeffrey Wilpon, Jessica Wilpon, Judith Wilpon, Richard Wilpon, Scott Wilpon, Valerie Wilpon, Wilpon 2002 Descendants' Trust, Robin Wilpon Wachtler.(Wagner, Karen) Modified on 10/25/2011 (ka).

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
----------------------------------- x
:
IRVING H. PICARD,
:
:
Plaintiff,
:
:
11-CV-03605 (JSR)
- against :
:
SAUL B. KATZ, et al.,
:
:
Defendants.
:
:
----------------------------------- x

MEMORANDUM OF LAW REGARDING DETERMINATION
OF “FOR VALUE” AND NET EQUITY DECISION

TABLE OF CONTENTS
PAGE
PRELIMINARY STATEMENT .........................................................................................1
ARGUMENT.......................................................................................................................2
ONLY TRANSFERS WITHIN THE TWO-YEAR PERIOD THAT ARE NOT
“FOR VALUE” MAY BE AVOIDED ................................................................................2
I.

SECTION 548(a)(1)(A)’S TWO-YEAR LIMITATIONS PERIOD MUST
BE RESPECTED .......................................................................................................2
A.

Section 548(a)(1)(A) and “For Value” .............................................................2

B.

Section 548(a)(1)(A) and the Trustee’s Net Investment Method .....................3

C.

Section 548(a)(1)(A) Requires Modification of the Trustee’s Approach.........4

II.

THE NET EQUITY DECISION SUPPORTS DEFENDANTS..................................6

III.

THE NET EQUITY DECISION REQUIRES THAT ALL TRANSFERS
WERE FOR VALUE .................................................................................................9

CONCLUSION..................................................................................................................11

i

TABLE OF AUTHORITIES
PAGE
CASES
Barnhill v. Johnson, 503 U.S. 393 (1992) ...........................................................................2
Brevot v. N.Y. City Dep’t of Educ., 299 F. App’x 19 (2d Cir. 2008)...................................5
Butner v. United States, 440 U.S. 48 (1979)........................................................................2
City of Monroe Employees’ Ret. Sys. v. Hartford Fin. Servs. Group, Inc.,
269 F.R.D. 291 (S.D.N.Y. 2010) ...................................................................................6
City of West Haven v. Commercial Union Ins. Co., 894 F.2d 540 (2d Cir. 1990) ..............6
Foley v. Transocean Ltd., 272 F.R.D. 126 (S.D.N.Y. 2011) ...............................................6
In re Adler, Coleman Clearing Corp., 263 B.R. 406 (Bankr. S.D.N.Y. 2001) ...................8
In re Bernard L. Madoff Inv. Sec. LLC,
10-2378-bk, 2011 U.S. App. LEXIS 16884 (2d Cir. Aug. 16, 2011).................. passim
In re Enron Creditors Recovery Corp., 651 F.3d 329 (2d Cir. 2011) .................................5
In re Manhattan Inv. Fund Ltd., 397 B.R. 1 (S.D.N.Y. 2007)...........................................10
In re Resorts Int’l, Inc., 181 F.3d 505 (3d Cir. 1999)..........................................................5
In re Sharp Int’l Corp., 302 B.R. 760 (E.D.N.Y. 2003) ....................................................10
In re Sharp Int’l Corp., 403 F.3d 43 (2d Cir. 2005) ..........................................................10
Picard v. Katz,
No. 11 Civ. 3605 (JSR), 2011 U.S. Dist. LEXIS 109595
(S.D.N.Y. Sept. 27, 2011).................................................................................... passim
Picard v. Merkin,
11 MC 0012 (KMW), 2011 U.S. Dist. LEXIS 97647
(S.D.N.Y. Aug. 31, 2011) ......................................................................................10, 11
Stolow v. Greg Manning Auctions Inc., 80 F. App’x 722 (2d Cir. 2003)........................5, 6

ii

PAGE
STATUTES
11 U.S.C. § 101(5)(A) ..........................................................................................................9
11 U.S.C. § 101(12)..............................................................................................................9
11 U.S.C. § 546(e)................................................................................................................5
11 U.S.C. § 548(a)(1)(A)............................................................................................ passim
11 U.S.C. § 548(c) ...........................................................................................................1, 2
11 U.S.C. § 548(d)(2)(A).................................................................................................2, 9
15 U.S.C. § 78fff-2(b)..........................................................................................................7
N.Y. Debt. & Cred. Law § 276 ..........................................................................................10
NYUCC § 8-503 ..................................................................................................................3

iii

Defendants respectfully submit this memorandum of law in response to the
Court’s question as to “whether the Trustee can avoid as profits only what defendants
received in excess of their investment during the two year look back period specified by
section 548 or instead the excess they received over the course of their investment with
Madoff.” Picard v. Katz, No. 11 Civ. 3605 (JSR), 2011 U.S. Dist. LEXIS 109595, at
*18 n.6 (S.D.N.Y. Sept. 27, 2011) (“Order”); see also Order, Sept. 28, 2011, doc. no. 41
(questioning whether, in calculating principal and profit, reference should be made to
two-year period only).
PRELIMINARY STATEMENT
In its Order, the Court dismissed all avoidance claims against Defendants except
for those asserted under 11 U.S.C. § 548(a)(1)(A). Under Section 548(a)(1)(A), only
intentionally fraudulent transfers that occurred within two years of an insolvency filing
are subject to avoidance, and a transferee has a defense to the extent the transferee takes
“for value” and “in good faith.” 11 U.S.C. § 548(c).
The Trustee has no legal power to disregard a customer’s account balance
immediately before the start of the two-year period, or to avoid any transfer before that
period. Therefore, a transfer was “for value” during the two-year period, even under the
Trustee’s Net Investment Method, if the value of the customer’s account balance, as
reflected on his account statement immediately before the commencement of the twoyear period, when added to deposits within the period, was greater than the amount of
withdrawals during the period.
This conclusion is supported by the Net Equity Decision, In re Bernard L. Madoff
Inv. Sec. LLC, 10-2378-bk, 2011 U.S. App. LEXIS 16884 (2d Cir. Aug. 16, 2011).

ARGUMENT
ONLY TRANSFERS WITHIN THE TWO-YEAR PERIOD
THAT ARE NOT “FOR VALUE” MAY BE AVOIDED
The question posed by this Court addresses the application of two bodies of law,
one governing brokerage transactions before the onset of bankruptcy and the other
defining avoidance powers after the onset of bankruptcy, to determine whether transfers
within Section 548(a)(1)(A)’s two-year period are “for value.” To give effect to that
temporal limit, transfers before that two-year period may not be avoided, and the nonbankruptcy law that governs the existence of “value” must be respected. The Trustee’s
calculation of value fails to give the temporal limitation any effect.
I.

SECTION 548(a)(1)(A)’S TWO-YEAR LIMITATIONS
PERIOD MUST BE RESPECTED
A.

Section 548(a)(1)(A) and “For Value”

Section 548(a)(1)(A) permits avoidance of transfers as fraudulent conveyances
only if they occurred within two years of a filing. Within the two-year period, a customer
that is acting in “good faith” has a defense to avoidance where the customer receives a
transfer that is “for value.” 11 U.S.C. § 548(c). Therefore, a transfer to such a customer
within the two-year period cannot be avoided if it was “for value.”
As relevant here, “value” is defined under the Bankruptcy Code as “property.”
11 U.S.C. § 548(d)(2)(A). Non-bankruptcy law determines whether a transferee has
“property.” See, e.g., Butner v. United States, 440 U.S. 48, 54-55 (1979); Barnhill v.
Johnson, 503 U.S. 393, 398-400 (1992). Neither Section 548(a)(1)(A) nor any other law
permits the Trustee to ignore, or retroactively alter, applicable non-bankruptcy law.

2

In this brokerage case, Article 8 of the New York Uniform Commercial Code
(“NYUCC”), in conjunction with the federal securities laws, governs transactions before
the SIPA filing and, therefore, governs the existence of “value.” NYUCC § 8-503.
Under Article 8, on the day before the start of the two-year period, a customer was
entitled to the “value” of his account balance. If on that day the customer had withdrawn
the balance owed to him, the Trustee would have no legal basis for avoiding any transfer
from his account. If the customer did not withdraw the balance on that day, it still
constitutes “value” with respect to any withdrawal within the following two years.
Any calculation that disregards these legal rights as they applied prior to the start
of the two-year period, or that depends, as the Trustee’s method does, upon the effective
avoidance of withdrawals before that period, eviscerates the temporal limitation of
Section 548(a)(1)(A). Thus, even if transfers may be avoided using the Trustee’s Net
Investment Method, Section 548(a)(1)(A) requires the Trustee to recognize the sum of a
customer’s account balance at the beginning of that period, plus any deposits within the
period, as “value” against which withdrawals must be evaluated. For example, if a
customer’s account balance on the day before the two-year period was worth $10 and an
additional $10 were deposited within the relevant period, the customer would have
“value” of $20. If $10 were then withdrawn within the two-year period, the withdrawal
would be a transfer “for value.” If $30 were withdrawn, only $20 would be “for value.”
B.

Section 548(a)(1)(A) and the Trustee’s Net Investment Method

The Trustee’s posited calculations are not consistent with these rules for
determining “value.” Prior to the issuance of the Order, the Trustee did not consider that
he was constrained by Section 548(a)(1)(A)’s temporal limit. As a result, his calculations
3

determined “value” by ignoring the customer’s account balance, ignoring the law
protecting the customer’s right to that balance, and assuming that any withdrawal in
excess of deposits over the entire life of a particular account could be avoided.
The Trustee, therefore, treated these brokerage accounts like bank accounts. He
determined whether, over the entire life of an account, total cash withdrawals were
greater or less than total cash deposits. If cash withdrawals were greater in a particular
account, the Trustee deemed that withdrawals in excess of deposits lacked “value.” To
obtain his headline total in this case, the Trustee added together the transfers deemed to
lack “value” from each Defendant’s account, without deducting losses in other
Defendants’ accounts and without ascribing any interest to long-term deposits.
The Trustee’s improper aggregation gave rise to the $295 million figure alleged in
his Complaint, which is the total withdrawals deemed not “for value” over the entire
existence of each Defendant’s account. The $83 million figure reflects the same
calculation, but only as to withdrawals during the two-year period. Both numbers are
based on the assumption that the Trustee may avoid withdrawals over the entire life of
each account. The Trustee has offered no calculation consistent with Section
548(a)(1)(A).
C.

Section 548(a)(1)(A) Requires Modification of the Trustee’s Approach

The Trustee’s use of the Net Investment Method over the life of all accounts is
impermissible given Section 548(a)(1)(A)’s temporal limitation. There is no legal basis
for the Trustee’s determination that a customer is not entitled to the “value” reflected by
his account balance at the start of the two-year period, or that withdrawals prior to that
time may effectively be avoided. The only source of the Trustee’s avoidance power is
4

Section 548(a)(1)(A) of the Bankruptcy Code, which limits avoidance to transfers within
the two-year period.
The Trustee may argue that, because BLMIS was engaged in a massive fraud, he
should not be required to recognize customer rights at any time. But recognizing
customer rights prior to the two-year period is exactly what Section 546(e) of the
Bankruptcy Code requires him to do. Section 546(e) expressly permits avoidance of
some fraudulent transfers, demonstrating that Congress recognized that a broker might
engage in fraud. But Congress also recognized that retroactively invalidating transfers
related to securities transactions would create uncertainty in the financial markets. As
this Court has recognized, the two-year temporal limitation is a compromise between two
worthy policies—providing remedies for fraud and maintaining certainty in modern
financial markets.
“Because Madoff Securities was a registered stockbrokerage firm, the
liabilities of customers like the defendants here are subject to the ‘safe
harbor’ set forth in section 546(e) of the Bankruptcy Code. ‘By restricting
a bankruptcy trustee’s power to recover payments that are otherwise
avoidable under the Bankruptcy Code, the safe harbor stands “at the
intersection of two important national legislative policies on a collision
course—the policies of bankruptcy and securities law.”’ In re Enron
Creditors Recovery Corp., [651 F.3d 329, 334 (2d Cir. 2011)] (quoting In
Re Resorts Int’l, Inc., 181 F.3d 505, 515 (3d Cir. 1999)).” Order, 2011
U.S. Dist. LEXIS 109595, at *9.
The legislative temporal limit of Section 548(a)(1)(A) thus precludes recovery
even for otherwise actionable conduct if it pre-dates the start of the period. Cf., e.g.,
Brevot v. N.Y. City Dep’t of Educ., 299 F. App’x 19, 20-21 (2d Cir. 2008) (dismissing
claims under 42 U.S.C. § 1983 even where harmful conduct was alleged because conduct
preceded limitations period); Stolow v. Greg Manning Auctions Inc., 80 F. App’x 722,
5

725-26 (2d Cir. 2003) (barring claims even though injury may have been sustained
because alleged actionable conduct beyond limitations period); City of West Haven v.
Commercial Union Ins. Co., 894 F.2d 540, 546-47 (2d Cir. 1990) (limiting damages
recovery to statutory period even where continuing misconduct allegedly began before
limitations period); Foley v. Transocean Ltd., 272 F.R.D. 126, 129 (S.D.N.Y. 2011)
(explaining “FIFO” method of approximating Rule 10b-5 damages and finding that “sales
matched with pre-class period purchases are not included in the calculation of class
period losses, [and, thus,] any gains or losses from those most recent sales would not be
included in the total loss”); City of Monroe Employees’ Ret. Sys. v. Hartford Fin. Servs.
Group, Inc., 269 F.R.D. 291, 295 (S.D.N.Y. 2010) (same).
II.

THE NET EQUITY DECISION SUPPORTS DEFENDANTS
The Net Equity Decision supports Defendants’ position. 1
No party disputes that BLMIS owed its customers the securities reflected on

confirmations and statements issued to the customers, and the Second Circuit held that
“claimants who deposited cash with a broker ‘for the purpose of purchasing securities,’
are treated as customers with claims for securities.” Net Equity Decision, 2011 U.S. App.
LEXIS 16884, at *19-20 (internal citation omitted). As the Net Equity Decision notes:
“SIPA’s implementing regulations bolster the shared view of the Trustee,
SIPC, and the SEC that a claimant who has ‘written confirmation’ that
securities have been purchased or sold on his or her behalf should be
treated as a customer with a claim for securities.” Id. at *20-21.

1

The parties have not previously briefed the significance of the Net Equity
Decision to this case, as it was issued the day before oral argument on Defendants’
motion to dismiss or, in the alternative, for summary judgment.
6

The only dispute was whether those claims were entitled to priority distributions
from “customer property” and to SIPC advances. To limit such distributions, SIPC and
the Trustee argued that “net equity” claims must be defined—in this case—as the net
cash invested over the life of an account, so that priority distributions from the limited
fund of customer property, or from the SIPC fund, would not be made on the basis of
account statements reflecting transactions that had not occurred. The remainder of any
customer’s claim could be asserted against the estate, as a general creditor claim, but was
not entitled to distribution until priority claims were paid in full—and SIPC was repaid
for its advances. As SIPC noted:
“[T]o the extent that the Claimants in this case have been harmed by the
Debtor by more than the net amounts deposited by them, their claims are
for damages which are general creditor, and not customer, claims. This is
the true nature of their claims, but as to such losses, investors are not
protected by SIPA.” Brief of Appellee SIPC, In re Bernard L. Madoff Inv.
Sec. LLC, 10-2378-bk, doc. no. 282, at 52 (2d Cir. Sept. 20, 2010).
The Trustee is in accord:
“All BLMIS creditors, including customers whose claims were allowed,
customers whose claims were denied, and general creditors, may have
claims as general creditors against BLMIS for misrepresentation, fraud,
and breach of contract.” (Mot. for an Order Approving an Initial
Allocation of Property to the Fund of Customer Property and Authorizing
an Interim Distribution to Customers, In re Bernard L. Madoff Inv. Sec.
LLC, No. 08-01789 (BRL), doc. no. 4048, at 11 n.9 (Bankr. S.D.N.Y. May
4, 2011).)
The Second Circuit looked to two SIPA provisions to address the priority
distribution question: the “net equity” definition, and 15 U.S.C. § 78fff-2(b), which
requires the Trustee to make prompt payments of obligations reflected on the broker’s
books and records. Both become operative only after a SIPA filing. Based on these
provisions, the Court held that, in this case, “the Net Investment Method allows the
7

Trustee to make payments based on withdrawals and deposits, which can be confirmed
by the debtor’s books and records, and results in a distribution of customer property that
is proper under SIPA.” Net Equity Decision, 2011 U.S. App. LEXIS 16884, at *27.
Central to the Court’s conclusion was its view that “the main purpose of
determining ‘net equity’ is to achieve a fair allocation of the available resources among
the customers.” Id. at *31; see also id. (“[I]f customers receive SIPC advances based on
property that is a fiction, those advances will necessarily diminish the amount of
customer property available to other investors, including those who have not recouped
even their initial investment.”). Thus, although the Court found all customers to have
valid claims for securities, it interpreted SIPA to allow for priority distributions from the
limited fund of customer property to only that subset of customers who had positive “net
equity” under the Trustee’s formula. Footnote 11 reflects this focus on distribution.
“[I]n the context of this Ponzi scheme—the Net Investment Method is . . .
more harmonious with provisions of the Bankruptcy Code that allow a
trustee to avoid transfers made with the intent to defraud, see 11 U.S.C.
§ 548(a)(1)(A), and ‘avoid[s] placing some claims unfairly ahead of
others,’ In re Adler, Coleman Clearing Corp., 263 B.R. 406, 463 (Bankr.
S.D.N.Y. 2001).” Id. at *37 n.11.
Adler, Coleman involved a fraudulent broker who conspired with complicit
customers to create fraudulent “net equity” claims immediately before a failing broker’s
insolvency filing. 263 B.R. at 421-22. Honoring these claims would have defrauded
SIPC and reduced priority distributions to valid claimants by depleting the limited fund
of “customer property.” Id. at 463. Thus, in the Net Equity Decision, the Second Circuit
viewed both Section 548(a)(1)(A) and its ruling on the “net equity” definition as helping

8

to ensure that some claims were not placed “unfairly ahead of others” for purposes of
priority distributions of limited funds.
Nothing in the Net Equity Decision, or footnote 11, addresses the treatment of
claims against BLMIS for purposes of determining the existence of “value” in the context
of avoidance. The Net Equity Decision provides no basis for disregarding customer
rights under non-bankruptcy law, for concluding that such law may be altered
retroactively to eliminate “value,” or for avoiding transfers from brokers.
III.

THE NET EQUITY DECISION REQUIRES THAT
ALL TRANSFERS WERE FOR VALUE
This Court suggested in the Order that cash withdrawals in excess of cash

deposits may not have been taken “for value.” Order, 2011 U.S. Dist. LEXIS 109595, at
*15. The Net Equity Decision recognized, however, that customers have claims against
their broker in excess of their “net equity” claims, and SIPC and the Trustee agree.
Defendants respectfully submit that a necessary corollary of the recognition of those
claims by the Second Circuit is that such claims constitute “value” for purposes of
evaluating whether transfers may be avoided, both before and during the two-year period.
The Bankruptcy Code defines “value” to include not only “property,” but also
“satisfaction or securing of a present or antecedent debt of the debtor.” 11 U.S.C.
§ 548(d)(2)(A). “Debt” is defined as “liability on a claim.” Id. § 101(12). “Claim” is
broadly defined, in relevant part, as a “right to payment.” Id. § 101(5)(A). None of these
definitions is based on the priority of any claim in an insolvency case. The Net Equity
Decision is consistent with these definitions and with prior decisions holding that “value”
exists where a transfer discharges a valid pre-existing claim. In these cases, courts
9

distinguish between the bad intent that may have motivated a transferor and the “value”
that may nevertheless insulate a transfer from avoidance.
Thus, in In re Sharp International Corp., 403 F.3d 43 (2d Cir. 2005), the Court of
Appeals was considering the validity of constructive and intentional fraudulent
conveyance claims where a valid debt existed, but both the transferor and transferee knew
that its repayment was effected with funds obtained by fraud. Id. at 54-57. The Court
assumed, in both contexts, that the transfer was “for value” because it repaid a valid debt
and therefore could not, as a matter of law, “hinder, delay or defraud” creditors. 2 Id.
Under those circumstances, even under New York’s intentional fraud provision, Debtor
and Creditor Law § 276, no intentional fraudulent transfer claim had been stated.
“The fraud alleged in the complaint relates to the manner in which Sharp
obtained new funding from the Noteholders, not Sharp’s subsequent
payment of part of the proceeds to State Street. The $12.25 million
payment was at most a preference between creditors and did not ‘hinder,
delay, or defraud either present or future creditors.’” Sharp, 403 F.3d at
56 (quoting N.Y. Debt. & Cred. Law § 276).
See also In re Manhattan Inv. Fund Ltd., 397 B.R. 1, 22 (S.D.N.Y. 2007) (addressing
only good faith because no dispute that value had been given where transfer at issue
repaid a contractual obligation); Picard v. Merkin, 11 MC 0012 (KMW), 2011 U.S. Dist.

2

That the Court found the claim of intentional fraud under Section 276 of the
New York Debtor and Creditor Law lacked foundation as a matter of law—because the
transfer repaid valid debt—is also reflected in the District Court’s decision:
“Finally, Sharp asserts that payment to State Street was made with the
actual intent to defraud creditors because it was made for the purpose of
‘buying’ State Street’s continued silence, and thus its assistance in the
fraud. As noted supra, State Street owed no duty to Sharp or its creditors,
and its silence did not constitute an act of participation in the Spitzes’
fraud. For these reasons, Sharp’s intentional fraudulent conveyance claim
fails.” In re Sharp Int’l Corp., 302 B.R. 760, 784 (E.D.N.Y. 2003).
10

LEXIS 97647, at *34-35 (S.D.N.Y. Aug. 31, 2011) (finding, consistent with Sharp, that
complaint adequately pleaded transferee’s knowledge of the fraud at time of investment,
not just at time of payment, thereby challenging validity of obligations; therefore, no
basis for interlocutory appeal based on claimed departure from Sharp).
These decisions, when read together with the Net Equity Decision, demonstrate
that “value” should be found where a valid claim against BLMIS was discharged by a
withdrawal, whether or not the withdrawal was supported by an equivalent cash deposit.
CONCLUSION
The temporal limitation of Section 548(a)(1)(A) does not permit the Trustee to
disregard the parties’ legal rights, or to avoid transfers, before its two-year period
commences. Even using the Trustee’s Net Investment Method, the customer’s account
balance at the start of that period, and any deposits during the period, constitute “value.”
This analysis is supported by the Net Equity Decision.
Dated: New York, New York
October 24, 2011
DAVIS POLK & WARDWELL LLP
By: /s/ Karen E. Wagner
Karen E. Wagner
Dana M. Seshens
450 Lexington Avenue
New York, New York 10017
Telephone:
[phone]
Facsimile:
[phone]

Of Counsel:
Robert B. Fiske, Jr.
Robert F. Wise, Jr.

Attorneys for Defendants

11