§ 78fff-4. — Direct payment procedure.
[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-4]
TITLE 15--COMMERCE AND TRADE
CHAPTER 2B-1--SECURITIES INVESTOR PROTECTION
Sec. 78fff-4. Direct payment procedure
(a) Determination regarding direct payments
If SIPC determines that--
(1) any member of SIPC (including a 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;
(2) one or more of the conditions specified in section
78eee(b)(1) of this title exist with respect to such member;
(3) the claim of each customer of the member is within the
limits of protection provided in section 78fff-3(a) of this title;
(4) the claims of all customers of the member aggregate less
than $250,000;
(5) the cost to SIPC of satisfying customer claims under this
section will be less than the cost under a liquidation proceeding;
and
(6) such member's registration as a broker-dealer under section
78o(b) of this title has been terminated, or such member has
consented to the use of the direct payment procedure set forth in
this section,
SIPC may, in its discretion, use the direct payment procedure set forth
in this section in lieu of instituting a liquidation proceeding with
respect to such member.
(b) Notice
Promptly after a determination under subsection (a) of this section
that the direct payment procedure is to be used with respect to a
member, SIPC shall cause notice of such direct payment procedure to be
published in one or more newspapers of general circulation in a form and
manner determined by SIPC, and at the same time shall cause to be mailed
a copy of such notice to each person who appears, from the books and
records of such member, to have been a customer of the member with an
open account within the past twelve months, to the address of such
person as it appears from the books and records of such member. Such
notice shall state that SIPC will satisfy customer claims directly,
without a liquidation proceeding, and shall set forth the form and
manner in which claims may be presented. A direct payment procedure
shall be deemed to commence on the date of first publication under this
subsection and no claim by a customer shall be paid or otherwise
satisfied by SIPC unless received within the six-month period beginning
on such date, except that SIPC shall, 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.
(c) Payments to customers
SIPC shall promptly satisfy all obligations of the member to each of
its customers relating to, or net equity claims based upon, securities
or cash by the delivery of securities or the effecting of payments to
such customer (subject to the provisions of section 78fff-2(d) of this
title and section 78fff-3(a) of this title insofar as such obligations
are ascertainable from the books and records of the member or are
otherwise established to the satisfaction of SIPC. For purposes of
distributing securities to customers, all securities shall be valued as
of the close of business on the date of publication under subsection (b)
of this section. Any payment or delivery of securities pursuant to this
section may be conditioned upon the execution and delivery, in a form to
be determined by SIPC, of appropriate receipts, supporting affidavits,
releases, and assignments. To the extent moneys of SIPC are used to
satisfy the claims of customers, in addition to all other rights it may
have at law or in equity, SIPC shall be subrogated to the claims of such
customers against the member.
(d) Effect on claims
Except as otherwise provided in this section, nothing in this
section shall limit the right of any person, including any subrogee, to
establish by formal proof or otherwise such claims as such person may
have against the member, including claims for the payment of money and
the delivery of specific securities, without resort to moneys of SIPC.
(e) Jurisdiction of Bankruptcy Courts
After SIPC has published notice of the institution of a direct
payment procedure under this section, any person aggrieved by any
determination of SIPC with respect to his claim under subsection (c) of
this section may, within six months following mailing by SIPC of its
determination with respect to such claim, seek a final adjudication of
such claim. The courts of the United States having jurisdiction over
cases under title 11 shall have original and exclusive jurisdiction of
any civil action for the adjudication of such claim, without regard to
the citizenship of the parties or the amount in controversy. Any such
action shall be brought in the judicial district where the head office
of the debtor is located. Any determination of the rights of a customer
under subsection (c) of this section shall not prejudice any other right
or remedy of the customer against the member.
(f) Discontinuance of direct payment procedures
If, at any time after the institution of a direct payment procedure
with respect to a member, SIPC determines, in its discretion, that
continuation of such direct payment procedure is not appropriate, SIPC
may cease such direct payment procedure and, upon so doing, may seek a
protective decree pursuant to section 78eee of this title. To the extent
payments of cash, distributions of securities, or determinations with
respect to the validity of a customer's claim are made under this
section, such payments, distributions, and determinations shall be
recognized and given full effect in the event of any subsequent
liquidation proceeding. Any action brought under subsection (e) of this
section and pending at the time of the appointment of a trustee under
section 78eee(b)(3) of this title shall be permanently stayed by the
court at the time of such appointment, and the court shall enter an
order directing the transfer or removal to it of such suit. Upon such
removal or transfer the complaint in such action shall constitute the
plaintiff's claim in the liquidation proceeding, if appropriate, and
shall be deemed received by the trustee on the date of his appointment
regardless of the date of actual transfer or removal of such action.
(g) References
For purposes of this section, any reference to the trustee in
sections 78fff-1(b)(1), 78fff-2(d), 78fff-2(f), 78fff-3(a), 78lll(5) and
78lll(12) of this title shall be deemed a reference to SIPC, and any
reference to the date of publication of notice under section 78fff-2(a)
of this title shall be deemed a reference to the publication of notice
under this section.
(Pub. L. 91-598, Sec. 10, as added Pub. L. 95-283, Sec. 9, May 21, 1978,
92 Stat. 266; amended Pub. L. 95-598, title III, Sec. 308(n), Nov. 6,
1978, 92 Stat. 2675.)
Prior Provisions
A prior section 10 of Pub. L. 91-598 was renumbered section 14 and
is classified to section 78jjj of this title.
Amendments
1978--Subsec. (e). Pub. L. 95-598 substituted in heading
``Bankruptcy Courts'' for ``District Courts'' and in text ``courts of
the United States having jurisdiction over cases under title 11'' for
``district courts of the United States'' and struck out ``, without
regard to the citizenship of the parties or the amount in controversy''
after ``adjudication of such claim''.
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 section 78lll of this title.
