Bankruptcy Judge Burton Lifland
Bernard L. Madoff Investment Securities LLC (BMLIS) is being liquidated under the Securities Investor Protection Act (SIPA). The trustee sought affirmation of his decision that BLMIS customers’ claims for “net equity” as defined in SIPA §78lll(11) do not include interest, time value of money, or inflation adjustments such as constant dollar. The motion raised an issue of first impression whether to adjust net equity claims to account for any form of Time-Based Damages under SIPA. At stake was a distribution formula affecting BLMIS claimholders’ entitlement to the limited property fund, and release of the $1.4 billion cash reserve. Bankruptcy court upheld the trustee’s determination that net equity should be calculated based on his net investment method without adjustments or enhancements for Time-Based Damages. In addition to finding no basis to extend deference to the SEC’s “constant dollar” position, the court found the language and purpose of the SIPA—and the Second Circuit’s 2013 holding in Commodities Futures Trading Comm’n v. Walsh—supported the trustee’s unadjusted net investment method. If Time-Based Damages are to be awarded as part of the net equity calculus under SIPA, it was for Congress to enact such a law.
