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BLMIS Interest Claims Questioned by Second Circuit in Law360 article naming SIPA Trustee and BakerHostetler

News / October 14, 2014

On October 14, 2014, Law360 reporter Peter Brush filed an article entitled "Doubtful 2nd Circ. Eyes Madoff Investors' Interest Claims" that named BakerHostetler Associate Seanna Brown, as well as SIPA Trustee and BakerHostetler Partner Irving H. Picard, and referenced the oral argument before the Second Circuit Court of Appeals regarding time-based damages, or whether interest can be applied to customer accounts in the Bernard L. Madoff Investment Securities LLC (BLMIS) liquidation. 

As Mr. Brush summarized in his article, a federal appellate panel expressed skepticism that it could order interest payments for the defrauded customers of BLMIS, which would potentially drastically change the court-approved "net equity" method for determining the amount of claims payable to eligible BLMIS customers. "The courts already have rejected investors on the related 'net equity' question of whether they can claim for profits Madoff told them they had, finding instead that they can only collect on the principal they invested," Mr. Brush wrote. One of the appellate judges also "…wondered what in the governing law — the Securities Investor Protection Act — would give the Second Circuit the power to change Picard's formula."

As Mr. Brush's article indicated, the judges also questioned the validity of appellate arguments stating that longtime and later-stage investors in BLMIS were being treated unequally. Quoting Brown's argument, the article said, "SIPA only protects losses in the form of money paid into the fraud, Brown said, noting that although later-stage investors won't be punished by loss of interest, they are more likely to have gotten nothing back from Madoff himself and are more likely to be ‘net losers.' 'What they argue is their method is more fair,' she said of the earlier investors. 'What they really mean is that it's more fair for them.'"

The appeal is 2427 Parent Corp. et al. v. Securities Investor Protection Corp., case number 14-97, in the U.S. Court of Appeals for the Second Circuit.

Read the article.