National Association of Bankruptcy Trustees Supports SIPA Trustee and his BakerHostetler Counsel in Second Circuit 546(e) appeal

News / February 18, 2014

On February 18, 2014, Law360 reporter Stephanie Russell-Kraft filed an article entitled "Trustees Group Backs Picard In 2nd Circ. Clawbacks Appeal" that named BakerHostetler Partners David J. Sheehan, Oren J. Warshavsky, and Tracy Cole, Associates Seanna Brown and Carrie Longstaff, as well as SIPA Trustee and BakerHostetler Partner Irving H. Picard.

The article focused on the amicus brief, filed by The National Association of Bankruptcy Trustees with the Second Circuit Court of Appeals, which delivered strong, unconditional support of the SIPA Trustee’s position on 546(e). Ms. Russell-Kraft writes, "In amicus brief, the nonprofit professional association said the customers shouldn't be covered by the safe-harbor policy of Section 546(e) of the U.S. Bankruptcy Code — which protects transfers made by a debtor in relation to securities trading — because Bernard Madoff Investment Securities LLC never actually had securities underlying its contracts. The NABT said the so-called stockbroker defense was enacted in the code to minimize the ripple effect of unwinding settled securities transactions in an open market."

The article references the ongoing litigation on the matter of 546(e) in the case of Bernard L. Madoff Investment Securities LLC, case number 12-2557, in the United States Court of Appeals for the Second Circuit.

As Ms. Russell-Kraft’s article further relates, "…that defense has no legitimate application to Madoff's Ponzi scheme, which never posed any systemic risk because it consisted of 'nothing but cash and fraud,' according to the association. 'The policy of shielding fraudulent and preferential transfers makes little sense in a Ponzi scheme premised upon a fraudulent and fictitious market, and application of this defense here renders an absurd result that undercuts the very essence of equality,' the brief said."