§ 78eee. — Protection of customers.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 15USC78eee]
TITLE 15--COMMERCE AND TRADE
CHAPTER 2B-1--SECURITIES INVESTOR PROTECTION
Sec. 78eee. Protection of customers
(a) Determination of need of protection
(1) Notice to SIPC
If the Commission or any self-regulatory organization is aware
of facts which lead it to believe that any broker or dealer subject
to its regulation is in or is approaching financial difficulty, it
shall immediately notify SIPC, and, if such notification is by a
self-regulatory organization, the Commission.
(2) Action by self-regulatory organization
If a self-regulatory organization has given notice to SIPC
pursuant to subsection (a)(1) of this section with respect to a
broker or dealer, and such broker or dealer undertakes to liquidate
or reduce its business either pursuant to the direction of a self-
regulatory organization or voluntarily, such self-regulatory
organization may render such assistance or oversight to such broker
or dealer as it considers appropriate to protect the interests of
customers of such broker or dealer. The assistance or oversight by a
self-regulatory organization shall not be deemed the assumption or
adoption by such self-regulatory organization of any obligation or
liability to customers, other creditors, shareholders, or partners
of the broker or dealer, and shall not prevent or act as a bar to
any action by SIPC.
(3) Action by SIPC
If SIPC determines that--
(A) any member of SIPC (including any person who was a
member within one hundred eighty days prior to such
determination) has failed or is in danger of failing to meet its
obligations to customers; and
(B) one or more of the conditions specified in subsection
(b)(1) of this section exist with respect to such member,
SIPC may, upon notice to such member, file an application for a
protective decree with any court of competent jurisdiction specified
in section 78u(e) or 78aa, except that no such application shall be
filed with respect to a member the only customers of which are
persons whose claims could not be satisfied by SIPC advances
pursuant to section 78fff-3.
(4) Effect of other pending actions
An application with respect to a member of SIPC filed with a
court under paragraph (3)--
(A) may, with the consent of the Commission, be combined
with any action brought by the Commission, including an action
by the Commission for a temporary receiver pending an
appointment of a trustee under subsection (b)(3) of this
section; and
(B) may be filed notwithstanding the pendency in the same or
any other court of any bankruptcy, mortgage foreclosure, or
equity receivership proceeding or any proceeding to reorganize,
conserve, or liquidate such member or its property, or any
proceeding to enforce a lien against property of such member.
(b) Court action
(1) Issuance of protective decree
Upon receipt of an application by SIPC under subsection (a)(3)
of this section, the court shall forthwith issue a protective decree
if the debtor consents thereto, if the debtor fails to contest such
application, or if the court finds that such debtor--
(A) is insolvent within the meaning of section 101 of title
11, or is unable to meet its obligations as they mature;
(B) is the subject of a proceeding pending in any court or
before any agency of the United States or any State in which a
receiver, trustee, or liquidator for such debtor has been
appointed;
(C) is not in compliance with applicable requirements under
the 1934 Act [15 U.S.C. 78a et seq.] or rules of the Commission
or any self-regulatory organization with respect to financial
responsibility or hypothecation of customers' securities; or
(D) is unable to make such computations as may be necessary
to establish compliance with such financial responsibility or
hypothecation rules.
Unless the debtor consents to the issuance of a protective decree,
the application shall be heard three business days after the date on
which it is filed, or at such other time as the court shall
determine, taking into consideration the urgency which the
circumstances require.
(2) Jurisdiction and powers of court
(A) Exclusive jurisdiction
Upon the filing of an application with a court for a
protective decree with respect to a debtor, such court--
(i) shall have exclusive jurisdiction of such debtor and
its property wherever located (including property located
outside the territorial limits of such court and property
held by any other person as security for a debt or subject
to a lien);
(ii) shall have exclusive jurisdiction of any suit
against the trustee with respect to a liquidation
proceeding; and
(iii) except as inconsistent with the provisions of this
chapter, shall have the jurisdiction, powers, and duties
conferred upon a court of the United States having
jurisdiction over cases under title 11, together with such
other jurisdiction, powers, and duties as are prescribed by
this chapter.
(B) Stay of pending actions
Pending the issuance of a protective decree under paragraph
(1), the court with which an application has been filed--
(i) shall stay any pending bankruptcy, mortgage
foreclosure, equity receivership, or other proceeding to
reorganize, conserve, or liquidate the debtor or its
property and any other suit against any receiver,
conservator, or trustee of the debtor or its property, and
shall continue such stay upon appointment of a trustee
pursuant to paragraph (3);
(ii) may stay any proceeding to enforce a lien against
property of the debtor or any other suit against the debtor,
including a suit by stockholders of the debtor which
interferes with prosecution by the trustee of claims against
former directors, officers, or employees of the debtor, and
may continue such stay upon appointment of a trustee
pursuant to paragraph (3);
(iii) may stay enforcement of, and upon appointment of a
trustee pursuant to paragraph (3), may continue the stay for
such period of time as may be appropriate, but shall not
abrogate any right of setoff, except to the extent such
right may be affected under section 553 of title 11, and
shall not abrogate the right to enforce a valid,
nonpreferential lien or pledge against the property of the
debtor; and
(iv) may appoint a temporary receiver.
(3) Appointment of trustee and attorney
If the court issues a protective decree under paragraph (1),
such court shall forthwith appoint, as trustee for the liquidation
of the business of the debtor and as attorney for the trustee, such
persons as SIPC, in its sole discretion, specifies. The persons
appointed as trustee and as attorney for the trustee may be
associated with the same firm. SIPC may, in its sole discretion,
specify itself or one of its employees as trustee in any case in
which SIPC has determined that the liabilities of the debtor to
unsecured general creditors and to subordinated lenders appear to
aggregate less than $750,000 and that there appear to be fewer than
five hundred customers of such debtor. No person may be appointed to
serve as trustee or attorney for the trustee if such person is not
disinterested within the meaning of paragraph (6), except that for
any specified purpose other than to represent a trustee in
conducting a liquidation proceeding, the trustee may, with the
approval of SIPC and the court, employ an attorney who is not
disinterested. A trustee appointed under this paragraph shall
qualify by filing a bond in the manner prescribed by section 322 of
title 11, except that neither SIPC nor any employee of SIPC shall be
required to file a bond when appointed as trustee.
(4) Removal to bankruptcy court
Upon the issuance of a protective decree and appointment of a
trustee, or a trustee and counsel, under this section, the court
shall forthwith order the removal of the entire liquidation
proceeding to the court of the United States in the same judicial
district having jurisdiction over cases under title 11. The latter
court shall thereupon have all of the jurisdiction, powers, and
duties conferred by this chapter upon the court to which application
for the issuance of the protective decree was made.
(5) Compensation for services and reimbursement of expenses
(A) Allowances in general
The court shall grant reasonable compensation for services
rendered and reimbursement for proper costs and expenses
incurred (hereinafter in this paragraph referred to as
``allowances'') by a trustee, and by the attorney for such a
trustee, in connection with a liquidation proceeding. No
allowances (other than reimbursement for proper costs and
expenses incurred) shall be granted to SIPC or any employee of
SIPC for serving as trustee. Allowances may be granted on an
interim basis during the course of the liquidation proceeding at
such times and in such amounts as the court considers
appropriate.
(B) Application for allowances
Any person seeking allowances shall file with the court an
application which complies in form and content with the
provisions of title 11 governing applications for allowances
under such title. A copy of such application shall be served
upon SIPC when filed. The court shall fix a time for a hearing
on such application, and notice of such hearing shall be given
to the applicant, the trustee, the debtor, the creditors, SIPC,
and such other persons as the court may designate, except that
notice need not be given to customers whose claims have been or
will be satisfied in full or to creditors who cannot reasonably
be expected to receive any distribution during the course of the
liquidation proceeding.
(C) Recommendations of SIPC and awarding of allowances
Whenever an application for allowances is filed pursuant to
subparagraph (B), SIPC shall file its recommendation with
respect to such allowances with the court prior to the hearing
on such application and shall, if it so requests, be allowed a
reasonable time after such hearing within which to file a
further recommendation. In any case in which such allowances are
to be paid by SIPC without reasonable expectation of recoupment
thereof as provided in this chapter and there is no difference
between the amounts requested and the amounts recommended by
SIPC, the court shall award the amounts recommended by SIPC. In
determining the amount of allowances in all other cases, the
court shall give due consideration to the nature, extent, and
value of the services rendered, and shall place considerable
reliance on the recommendation of SIPC.
(D) Applicable restrictions
The restrictions on sharing of compensation set forth in
section 504 of title 11 shall apply to allowances.
(E) Charge against estate
Allowances granted by the court, including interim
allowances, shall be charged against the general estate of the
debtor as a cost and expense of administration. If the general
estate is insufficient to pay allowances in whole or in part,
SIPC shall advance such funds as are necessary for such payment.
(6) Disinterestedness
(A) Standards
For purposes of paragraph (3), a person shall not be deemed
disinterested if--
(i) such person is a creditor (including a customer),
stockholder, or partner of the debtor;
(ii) such person is or was an underwriter of any of the
outstanding securities of the debtor or within five years
prior to the filing date was the underwriter of any
securities of the debtor;
(iii) such person is, or was within two years prior to
the filing date, a director, partner, officer, or employee
of the debtor or such an underwriter, or an attorney for the
debtor or such an underwriter; or
(iv) it appears that such person has, by reason of any
other direct or indirect relationship to, connection with,
or interest in the debtor or such an underwriter, or for any
other reason, an interest materially adverse to the
interests of any class of creditors (including customers) or
stockholders,
except that SIPC shall in all cases be deemed disinterested, and
an employee of SIPC shall be deemed disinterested if such
employee would, except for his association with SIPC, meet the
standards set forth in this subparagraph.
(B) Hearing
The court shall fix a time for a hearing on
disinterestedness, to be held promptly after the appointment of
a trustee. Notice of such hearing shall be mailed at least ten
days prior thereto to each person who, from the books and
records of the debtor, appears to have been a customer of the
debtor with an open account within the past twelve months, to
the address of such person as it appears from the books and
records of the debtor, and to the creditors and stockholders of
the debtor, to SIPC, and to such other persons as the court may
designate. The court may, in its discretion, also require that
notice be given by publication in such newspaper or newspapers
of general circulation as it may designate. At such hearing, at
any adjournment thereof, or upon application, the court shall
hear objections to the retention in office of a trustee or
attorney for a trustee on the grounds that such person is not
disinterested.
(c) SEC participation in proceedings
The Commission may, on its own motion, file notice of its appearance
in any proceeding under this chapter and may thereafter participate as a
party.
(d) SIPC participation
SIPC shall be deemed to be a party in interest as to all matters
arising in a liquidation proceeding, with the right to be heard on all
such matters, and shall be deemed to have intervened with respect to all
such matters with the same force and effect as if a petition for such
purpose had been allowed by the court.
(Pub. L. 91-598, Sec. 5, Dec. 30, 1970, 84 Stat. 1644; Pub. L. 95-283,
Sec. 7, May 21, 1978, 92 Stat. 254; Pub. L. 95-598, title III,
Sec. 308(a)-(f), Nov. 6, 1978, 92 Stat. 2674.)
References in Text
The 1934 Act, referred to in subsec. (b)(1)(C), means act June 6,
1934, ch. 404, 48 Stat. 881, as amended, known as the Securities
Exchange Act of 1934, which is classified principally to chapter 2B
(Sec. 78a et seq.) of this title. For complete classification of this
Act to the Code, see section 78a of this title and Tables.
This chapter, referred to in subsecs. (b)(2)(A)(iii), (5)(C), and
(c), was in the original ``this Act'', meaning Pub. L. 91-598, Dec. 30,
1970, 84 Stat. 1636. For complete classification of this Act to the
Code, see Tables.
Amendments
1978--Subsec. (a). Pub. L. 95-283, Sec. 7(a), added par. (2),
redesignated former par. (2) as (3) and, as so redesignated, revised
format of provisions by setting out cls. (A) and (B) and inserted
provisions relating to any person who was a member within 180 days prior
to such determination and provisions relating to claims filed under
section 78fff-3 of this title, and redesignated former par. (3) as (4)
and, as so redesignated, substituted ``with respect to a member of SIPC
filed with a court under paragraph (3)'' for ``under paragraph (2)'' in
introductory text and inserted ``may,'' before ``with the'' in cl. (A).
Subsec. (b)(1)(A). Pub. L. 95-598, Sec. 308(a)(1), substituted
``section 101 of title 11'' for ``the Bankruptcy Act''.
Subsec. (b)(1)(B) to (E). Pub. L. 95-598, Sec. 308(a)(2), (3),
redesignated subpars. (C) to (E) as subpars. (B) to (D), respectively.
Former subpar. (B), which provided for issuance of protective decree
where court found that debtor had committed act of bankruptcy within
meaning of Bankruptcy Act, was struck out.
Subsec. (b)(2)(A)(iii). Pub. L. 95-598, Sec. 308(b), substituted
``the United States having jurisdiction over cases under title 11'' for
``bankruptcy by the Bankruptcy Act''.
Subsec. (b)(2)(B)(iii). Pub. L. 95-598, Sec. 308(c), substituted
``any right of setoff, except to the extent such right may be affected
under section 553 of title 11, and shall not abrogate'' for ``the right
of setoff provided in section 68 of the Bankruptcy Act''.
Subsec. (b)(3). Pub. L. 95-598, Sec. 308(d), substituted ``section
322 of title 11'' for ``the applicable provisions of the Bankruptcy
Act''.
Subsec. (b)(4). Pub. L. 95-598, Sec. 308(e), substituted provisions
relating to removal of proceeding to Bankruptcy Court for provisions
relating to reference of proceeding to referee in bankruptcy.
Subsec. (b)(5)(B). Pub. L. 95-598, Sec. 308(f)(1), (2), (5),
redesignated subpar. (C) as (B) and substituted ``title 11 governing
applications for allowances under such title'' for ``the Bankruptcy Act
governing applications for allowances under such Act''. Former subpar.
(B), which covered allowances to a referee in bankruptcy or special
master, was struck out.
Subsec. (b)(5)(C). Pub. L. 95-598, Sec. 308(f)(2), (3), (5),
redesignated subpar. (D) as (C) and substituted ``subparagraph (B)'' for
``subparagraph (C)''. Former subpar. (C) redesignated (B).
Subsec. (b)(5)(D). Pub. L. 95-598, Sec. 308(f)(2), (4), (5),
redesignated subpar. (E) as (D) and substituted ``Section 504 of title
11'' for ``the Bankruptcy Act''. Former subpar. (D) redesignated (C).
Subsec. (b)(5)(E), (F). Pub. L. 95-598, Sec. 308(f)(5), redesignated
subpar. (F) as (E). Former subpar. (E) redesignated (D).
Subsec. (b). Pub. L. 95-283, Sec. 7(b), in par. (1) inserted
``protective'' after ``of'' in heading and substituted provisions
relating to issuance of protective decrees, for provisions relating to
specific findings necessary for issuance of a decree and uncontested,
etc., applications, in par. (2) substituted ``Jurisdiction and powers of
court'' for ``Exclusive jurisdiction over debtor'' in heading and
substituted provisions setting forth jurisdiction and powers of court
with respect to exclusivity of such jurisdiction, for provisions
relating to exclusive jurisdiction over the debtor, in par. (3) inserted
``and attorney'' after ``trustee'' in heading and substituted provisions
relating to appointment of trustee and attorney, for provisions relating
to appointment of trustee, in par. (4) substituted ``Reference to
referee in bankruptcy'' for ``Debtor and filing date defined'' in
heading and substituted provisions relating to reference to referee in
bankruptcy, for provisions defining terms ``debtor'' and ``filing
date'', and added pars. (5) and (6).
Subsec. (d). Pub. L. 95-283, Sec. 7(c), added subsec. (d).
Effective Date of 1978 Amendment
Amendment by Pub. L. 95-598 effective Oct. 1, 1979, see section
402(a) of Pub. L. 95-598, set out as an Effective Date note preceding
section 101 of Title 11, Bankruptcy.
Section Referred to in Other Sections
This section is referred to in sections 78fff-4, 78iii, 78lll of
this title; title 11 section 362.
