[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 15USC78fff-2]
TITLE 15--COMMERCE AND TRADE
CHAPTER 2B-1--SECURITIES INVESTOR PROTECTION
Sec. 78fff-2. Special provisions of a liquidation proceeding
(a) Notice and claims
(1) Notice of proceedings
Promptly after the appointment of the trustee, such trustee
shall cause notice of the commencement of proceedings under this
section to be published in one or more newspapers of general
circulation in the form and manner determined by the court, and at
the same time shall cause a copy of such notice to be mailed 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. Notice to creditors other than
customers shall be given in the manner prescribed by title 11,
except that such notice shall be given by the trustee.
(2) Statement of claim
A customer shall file with the trustee a written statement of
claim but need not file a formal proof of claim, except that no
obligation of the debtor to any person associated with the debtor
within the meaning of section 78c(a)(18) of this title or section
78c(a)(21) of this title, any beneficial owner of 5 per centum or
more of the voting stock of the debtor, or any member of the
immediate family of any such person or owner may be satisfied
without formal proof of claim.
(3) Time limitations
No claim of a customer or other creditor of the debtor which is
received by the trustee after the expiration of the six-month period
beginning on the date of publication of notice under paragraph (1)
shall be allowed, except that the court may, upon application within
such period and for cause shown, grant a reasonable, fixed extension
of time for the filing of a claim by the United States, by a State
or political subdivision thereof, or by an infant or incompetent
person without a guardian. Any claim of a customer for net equity
which is received by the trustee after the expiration of such period
of time as may be fixed by the court (not exceeding sixty days after
the date of publication of notice under paragraph (1)) need not be
paid or satisfied in whole or in part out of customer property, and,
to the extent such claim is satisfied from moneys advanced by SIPC,
it shall be satisfied in cash or securities (or both) as the trustee
determines is most economical to the estate.
(4) Effect on claims
Except as otherwise provided in this section, and without
limiting the powers and duties of the trustee to discharge
obligations promptly as specified in this section, nothing in this
section shall limit the right of any person, including any subrogee,
to establish by formal proof or otherwise as the court may provide
such claims as such person may have against the debtor, including
claims for the payment of money and the delivery of specific
securities, without resort to moneys advanced by SIPC to the
trustee.
(b) Payments to customers
After receipt of a written statement of claim pursuant to subsection
(a)(2), of this section, the trustee shall promptly discharge, in
accordance with the provisions of this section, all obligations of the
debtor to a customer relating to, or net equity claims based upon,
securities or cash, by the delivery of securities or the making of
payments to or for the account of such customer (subject to the
provisions of subsection (d) of this section and section 78fff-3(a) of
this title) insofar as such obligations are ascertainable from the books
and records of the debtor or are otherwise established to the
satisfaction of the trustee. For purposes of distributing securities to
customers, all securities shall be valued as of the close of business on
the filing date. For purposes of this subsection, the court shall, among
other things--
(1) with respect to net equity claims, authorize the trustee to
satisfy claims out of moneys made available to the trustee by SIPC
notwithstanding the fact that there has not been any showing or
determination that there are sufficient funds of the debtor
available to satisfy such claims; and
(2) with respect to claims relating to, or net equities based
upon, securities of a class and series of an issuer which are
ascertainable from the books and records of the debtor or are
otherwise established to the satisfaction of the trustee, authorize
the trustee to deliver securities of such class and series if and to
the extent available to satisfy such claims in whole or in part,
with partial deliveries to be made pro rata to the greatest extent
considered practicable by the trustee.
Any payment or delivery of property pursuant to this subsection may be
conditioned upon the trustee requiring claimants to execute, in a form
to be determined by the trustee, appropriate receipts, supporting
affidavits, releases, and assignments, but shall be without prejudice to
any right of a claimant to file formal proof of claim within the period
specified in subsection (a)(3) of this section for any balance of
securities or cash to which such claimant considers himself entitled.
(c) Customer related property
(1) Allocation of customer property
The trustee shall allocate customer property of the debtor as
follows:
(A) first, to SIPC in repayment of advances made by SIPC
pursuant to section 78fff-3(c)(1) of this title, to the extent
such advances recovered securities which were apportioned to
customer property pursuant to section 78fff(d) of this title;
(B) second, to customers of such debtor, who shall share
ratably in such customer property on the basis and to the extent
of their respective net equities;
(C) third, to SIPC as subrogee for the claims of customers;
(D) fourth, to SIPC in repayment of advances made by SIPC
pursuant to section 78fff-3(c)(2) of this title.
Any customer property remaining after allocation in accordance with
this paragraph shall become part of the general estate of the
debtor. To the extent customer property and SIPC advances pursuant
to section 78fff-3(a) of this title are not sufficient to pay or
otherwise satisfy in full the net equity claims of customers, such
customers shall be entitled, to the extent only of their respective
unsatisfied net equities, to participate in the general estate as
unsecured creditors. For purposes of allocating customer property
under this paragraph, securities to be delivered in payment of net
equity claims for securities of the same class and series of an
issuer shall be valued as of the close of business on the filing
date.
(2) Delivery of customer name securities
The trustee shall deliver customer name securities to or on
behalf of a customer of the debtor entitled thereto if the customer
is not indebted to the debtor. If the customer is so indebted, such
customer may, with the approval of the trustee, reclaim customer
name securities upon payment to the trustee, within such period of
time as the trustee determines, of all indebtedness of such customer
to the debtor.
(3) Recovery of transfers
Whenever customer property is not sufficient to pay in full the
claims set forth in subparagraphs (A) through (D) of paragraph (1),
the trustee may recover any property transferred by the debtor
which, except for such transfer, would have been customer property
if and to the extent that such transfer is voidable or void under
the provisions of title 11. Such recovered property shall be treated
as customer property. For purposes of such recovery, the property so
transferred shall be deemed to have been the property of the debtor
and, if such transfer was made to a customer or for his benefit,
such customer shall be deemed to have been a creditor, the laws of
any State to the contrary notwithstanding.
(d) Purchase of securities
The trustee shall, to the extent that securities can be purchased in
a fair and orderly market, purchase securities as necessary for the
delivery of securities to customers in satisfaction of their claims for
net equities based on securities under section 78fff-1(b)(1) of this
title and for the transfer of customer accounts under subsection (f) of
this section, in order to restore the accounts of such customers as of
the filing date. To the extent consistent with subsection (c) of this
section, customer property and moneys advanced by SIPC may be used by
the trustee to pay for securities so purchased. Moneys advanced by SIPC
for each account of a separate customer may not be used to purchase
securities to the extent that the aggregate value of such securities on
the filing date exceeded the amount permitted to be advanced by SIPC
under the provisions of section 78fff-3(a) of this title.
(e) Closeouts
(1) In general
Any contract of the debtor for the purchase or sale of
securities in the ordinary course of its business with other brokers
or dealers which is wholly executory on the filing date shall not be
completed by the trustee, except to the extent permitted by SIPC
rule. Upon the adoption by SIPC of rules with respect to the
closeout of such a contract but prior to the adoption of rules with
respect to the completion of such a contract, the other broker or
dealer shall close out such contract, without unnecessary delay, in
the best available market and pursuant to such SIPC rules. Until
such time as SIPC adopts rules with respect to the completion or
closeout of such a contract, such a contract shall be closed out in
accordance with Commission Rule S6(d)-1 as in effect on May 21,
1978, or any comparable rule of the Commission subsequently adopted,
to the extent not inconsistent with the provisions of this
subsection.
(2) Net profit or loss
A broker or dealer shall net all profits and losses on all
contracts closed out under this subsection and--
(A) if such broker or dealer shows a net profit on such
contracts, he shall pay such net profit to the trustee; and
(B) if such broker or dealer sustains a net loss on such
contracts, he shall be entitled to file a claim against the
debtor with the trustee in the amount of such net loss.
To the extent that a net loss sustained by a broker or dealer arises
from contracts pursuant to which such broker or dealer was acting
for its own customer, such broker or dealer shall be entitled to
receive funds advanced by SIPC to the trustee in the amount of such
loss, except that such broker or dealer may not receive more than
$40,000 for each separate customer with respect to whom it sustained
a loss. With respect to a net loss which is not payable under the
preceding sentence from funds advanced by SIPC, the broker or dealer
shall be entitled to participate in the general estate as an
unsecured creditor.
(3) Registered clearing agencies
Neither a registered clearing agency which by its rules has an
established procedure for the closeout of open contracts between an
insolvent broker or dealer and its participants, nor its
participants to the extent such participants' claims are or may be
processed within the registered clearing agency, shall be entitled
to receive SIPC funds in payment of any losses on such contracts,
except as SIPC may otherwise provide by rule. If such registered
clearing agency or its participants sustain a net loss on the
closeout of such contracts with the debtor, they shall have the
right to participate in the general estate as unsecured creditors to
the extent of such loss. Any funds or other property owed to the
debtor, after the closeout of such contracts, shall be promptly paid
to the trustee. Rules adopted by SIPC under this paragraph shall
provide that in no case may a registered clearing agency or its
participants, to the extent such participants' claims are or may be
processed within the registered clearing agency, be entitled to
receive funds advanced by SIPC in an amount greater, in the
aggregate, than could be received by the participants if such
participants proceeded individually under paragraph (1) and (2).
(4) ``Customer'' defined
For purposes of this subsection, the term ``customer'' does not
include any person who--
(A) is a broker or dealer;
(B) had a claim for cash or securities which by contract,
agreement, or understanding, or by operation of law, was part of
the capital of the claiming broker or dealer or was subordinated
to the claims of any or all creditors of such broker or dealer;
or
(C) had a relationship of the kind specified in section
78fff-3(a)(5) of this title with the debtor.
A claiming broker or dealer shall be deemed to have been acting on
behalf of its customer if it acted as agent for such customer or if
it held such customer's order which was to be executed as a part of
its contract with the debtor.
(f) Transfer of customer accounts
In order to facilitate the prompt satisfaction of customer claims
and the orderly liquidation of the debtor, the trustee may, pursuant to
terms satisfactory to him and subject to the prior approval of SIPC,
sell or otherwise transfer to another member of SIPC, without consent of
any customer, all or any part of the account of a customer of the
debtor. In connection with any such sale or transfer to another member
of SIPC and subject to the prior approval of SIPC, the trustee may--
(1) waive or modify the need to file a written statement of
claim pursuant to subsection (a)(2) of this section; and
(2) enter into such agreements as the trustee considers
appropriate under the circumstances to indemnify any such member of
SIPC against shortages of cash or securities in the customer
accounts sold or transferred.
The funds of SIPC may be made available to guarantee or secure any
indemnification under paragraph (2). The prior approval of SIPC to such
indemnification shall be conditioned, among such other standards as SIPC
may determine, upon a determination by SIPC that the probable cost of
any such indemnification can reasonably be expected not to exceed the
cost to SIPC of proceeding under section 78fff-3(a) of this title and
section 78fff-3(b) of this title.
(Pub. L. 91-598, Sec. 8, as added Pub. L. 95-283, Sec. 9, May 21, 1978,
92 Stat. 261; amended Pub. L. 95-598, title III, Sec. 308(l), (m), Nov.
6, 1978, 92 Stat. 2675.)
Prior Provisions
A prior section 8 of Pub. L. 91-598 was renumbered section 12 and is
classified to section 78hhh of this title.
Amendments
1978--Subsecs. (a)(1), (c)(3). Pub. L. 95-598 substituted ``title
11'' for ``the Bankruptcy Act''.
Effective Date of 1978 Amendment
