No.

_____ IN THE

Supreme Court of the United States

___________

IRVING H. PICARD, as Trustee for the substantively consolidated SIPA liquidation of Bernard L. Madoff Investment Securities LLC and the estate of Bernard L. Madoff, v. JPMORGAN CHASE & CO., et al.,
___________

Petitioner,

Respondents.

On Petition for a Writ of Certiorari to the United States Court of Appeals for the Second Circuit
___________ ___________

PETITION FOR WRIT OF CERTIORARI DAVID B. RIVKIN, JR. Counsel of Record LEE A. CASEY MARK W. DELAQUIL ANDREW M. GROSSMAN BAKERHOSTETLER LLP 1050 Connecticut Ave., N.W. Washington, D.C. 20036 (202) 861-1731 drivkin@bakerlaw.com

DAVID J. SHEEHAN OREN J. WARSHAVSKY BAKERHOSTETLER LLP 45 Rockefeller Plaza New York, N.Y. 10111 (212) 589-4200

Counsel for Petitioner

QUESTIONS PRESENTED When Bernard Madoffs Ponzi scheme collapsed, nearly $20 billion in funds invested by his customers had disappeared. Petitioner was appointed Trustee pursuant to the Securities Investor Protection Act, 15 U.S.C. 78aaa et seq., and charged with making them whole, or as nearly as possible. Also pursuant to SIPA, the Securities Investor Protection Corporation funded cash advances of over $800 million to Madoffs customers, assigning its resulting subrogation rights to the Trustee. The Trustee filed suit against the financial institutions, feeder funds, and individuals that facilitated or acquiesced in Madoffs fraud, asserting New York contribution and common law claims, such as aiding and abetting fraud, for conduct that deepened customers losses and thereby increased SIPC and the Trustees commensurate obligations. The Second Circuit affirmed dismissal of the Trustees claims. The questions presented are: 1. Whether, in conflict with decisions of the Third and Sixth Circuits, SIPCs right to subrogation is limited to customers SIPA claims against a failed brokerages estate and therefore does not reach claims against third parties that share responsibility for the brokerages collapse and customers losses; 2. Whether, in conflict with decisions of the Fourth and Eighth Circuits, federal statutory silence overrides any right to contribution under state law for liabilities arising under the federal statute re-

ii gardless of whether Congress intended to preempt the state law; and 3. Whether, in conflict with decisions of the First and Seventh Circuits, a trustee lacks standing under SIPA or the Bankruptcy Code to assert claims against parties that hastened or deepened the bankruptcy and are therefore general to all of an estates customers or creditors.

iii PARTIES TO THE PROCEEDING Petitioner is Irving H. Picard, plaintiff-appellant below, appointed pursuant to the Securities Investor Protection Act, 15 U.S.C. 78aaa et seq. (SIPA), as Trustee for the substantively consolidated liquidation of Bernard L. Madoff Investment Securities LLC (BLMIS) and the estate of Bernard L. Madoff. Respondent Securities Investor Protection Corporation (SIPC) is a nonprofit corporation established under 15 U.S.C. 78ccc, and intervened below as of right, 78eee(d). The other respondents were appellees below and defendants in three separate actions brought by the Trustee against parties that he alleged facilitated Madoffs fraud. The defendants in the first action (collectively, JPM) are JPMorgan Chase & Co. and its affiliates JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC, and J.P. Morgan Securities Ltd. The defendants in the second action (UBS and Access) are: (1) Swiss bank UBS AG (UBS) and related entities and individuals UBS (Luxembourg) S.A., UBS Fund Services (Luxembourg) S.A., UBS Third Party Management Company S.A., Roger Hartmann, Ralf Schroeter, Rene Egger, Bernard Stiehl, Alain Hondequin, and Hermann Kranz; (2) Access International Advisors LLC (Access) and related entities and individuals Access International Advisors Europe Limited, Access International Advisors Ltd.; Access Partners (Suisse) S.A., Access

iv Management Luxembourg S.A., as represented by its Liquidator Maitre Ferdinand Entringer, f/k/a Access International Advisors Luxembourg S.A.; Access Partners S.A., as represented by its Liquidator Maitre Ferdinand Entringer; Patrick Littaye; Claudine Magon de la Villehuchet, in her capacity as Executrix under the Will of Thierry Magon de la Villehuchet (a/k/a Rene Thierry de la Villehuchet), individually and as the sole beneficiary under the Will of Thierry Magon de la Villehuchet (a/k/a Rene Thierry de la Villehuchet), a/k/a Claudine de la Villehuchet; Pierre Delandmeter; and Theodore Dumbauld; (3) certain funds created by UBS and Access, and those funds liquidators: Luxalpha Sica V, as represented by its Liquidators Maitre Alain Rukavina and Paul Laplume; Groupement Financier Ltd., Maitre Alain Rukavina, in his capacity as liquidator and representative of Luxalpha Sica V; and Paul Laplume, in his capacity as liquidator and representative of Luxalpha Sica V. The HSBC defendants in the third action are HSBC Bank PLC and its affiliates HSBC Holdings PLC, HSBC Private Banking Holdings (Suisse) S.A., HSBC Private Bank (Suisse) S.A., HSBC Securities Services (Luxembourg) S.A., HSBC Fund Services (Luxembourg) S.A., HSBC Institutional Trust Services (Ireland) Limited, HSBC Securities Services (Ireland) Limited, HSBC Institutional Trust Services (Bermuda) Limited, HSBC Securities Services (Bermuda) Limited, HSBC Bank Bermuda Limited, HSBC Bank (Cayman) Limited, and HSBC Bank USA, N.A.

v The Unicredit defendants in the third action are Unicredit S.p.A. and its affiliates Unicredit Bank Austria AG, Pioneer Alternative Investment Management Limited, and Alpha Prime Fund Limited.

vi TABLE OF CONTENTS Page PETITION FOR WRIT OF CERTIORARI .............. 1 OPINIONS BELOW ................................................. 4 JURISDICTION ........................................................ 4 STATUTORY PROVISIONS INVOLVED ............... 4 STATEMENT OF THE CASE.................................. 5 A. The Securities Investor Protection Act ........... 5 B. Respondents Prolonged and Expanded Madoffs Ponzi Scheme .................................... 7 1. JPMorgan Chase & Co. .............................. 8 2. The Feeder Funds and Their Affiliates ... 11 C. The District Court Decisions ......................... 14 D. The Second Circuit Decision ......................... 16 REASONS FOR GRANTING THE PETITION..... 19 I. The Court Should Grant Certiorari To Resolve the Scope of SIPCs Subrogation Rights ........................................ 19 II. The Court Should Grant Certiorari To Resolve When Federal Law Preempts State Contribution Claims ............................ 25 III. The Court Should Grant Certiorari To Resolve a Bankruptcy Trustees Standing To Bring Claims General to All Creditors .... 32 CONCLUSION ........................................................ 36

vii TABLE OF APPENDICES Appendix A: Opinion, Picard v. JPMorgan Chase & Co. (In Re Bernard L. Madoff Investment Securities LLC), No. 11-5044 (lead) (2d Cir. June 20, 2013) ........................................ 1a Appendix B: Opinion, Picard v. HSBC Bank PLC (In Re Bernard L. Madoff Investment Securities LLC), No. 11-cv-763 (lead) (S.D.N.Y. July 28, 2011) ................................... 50a Appendix C: Rule 54(b) Judgment, Picard v. HSBC Bank PLC (In Re Bernard L. Madoff Investment Securities LLC), No. 11-cv-763 (lead) (S.D.N.Y. Dec. 12, 2011) ......................... 76a Appendix D: Opinion, Picard v. JPMorgan Chase & Co. (In Re Bernard L. Madoff Investment Securities LLC), No. 11-cv-913 (lead) (S.D.N.Y. Nov. 1, 2011) .......................... 78a Appendix E: Rule 54(b) Judgment, Picard v. JPMorgan Chase & Co. (In Re Bernard L. Madoff Investment Securities LLC), No. 11cv-913 (S.D.N.Y. Nov. 30, 2011) ..................... 122a Appendix F: Rule 54(b) Judgment, Picard v. UBS AG (In re Bernard L. Madoff Investment Securities LLC), No. 11-cv-4212 (S.D.N.Y. Dec. 7, 2011) .................................... 124a Appendix G: Statutory Provisions ..................... 126a

viii TABLE OF AUTHORITIES Cases American Electric Power Co. v. Connecticut, 131 S. Ct. 2527 (2011) ......................................... 29 Appleton v. First National Bank of Ohio, 62 F.3d 791 (6th Cir. 1995) ........................... 2022 Astoria Federal Savings & Loan Assn v. Solimino, 501 U.S. 104 (1991)............................. 22 Atherton v. FDIC, 519 U.S. 213 (1997) .................. 29 Baker, Watts & Co. v. Miles & Stockbridge, 876 F.2d 1101 (4th Cir. 1989) (en banc) ............. 27 Briscoe v. LaHue, 460 U.S. 325 (1983) ................... 22 Brown v. Armstrong, 949 F.2d 1007 (8th Cir. 1991) ...................................................... 35 Burks v. Lasker, 441 U.S. 471 (1979) ..................... 23 Calcutti v. SBU, Inc., 273 F. Supp. 2d 488 (S.D.N.Y. 2003) .................................................... 25 Caplin v. Marine Midland Grace Trust Co. of New York, 406 U.S. 416 (1972) ......... 1518, 3335 City Sanitation, LLC v. Allied Waste Services of Mass., LLC (In re American Cartage, Inc.), 656 F.3d 82 (1st Cir. 2011) .................................. 33 Donovan v. Robbins, 752 F.2d 1170 (7th Cir. 1985) ...................................................... 28 Fisher v. Apostolou, 155 F.3d 876 (7th Cir. 1998) ...................................................... 33

ix Fleming v. Lind-Waldock & Co., 922 F.2d 20 (1st Cir. 1990) ...................................................... 28 Holmes v. SIPC, 503 U.S. 258 (1992) ..................... 20 Isbrandtsen Co. v. Johnson, 343 U.S. 779 (1952) .................................................................... 22 Jones v. Rath Packing Co., 430 U.S. 519 (1977).... 30 Koch Refining v. Farmers Union Central Exchange, 831 F.2d 1339 (7th Cir. 1987) .......................................... 2333, 35 LNC Investments, Inc. v. First Fidelity Bank, 935 F. Supp. 1333 (S.D.N.Y. 1996) ..................... 26 McDannold v. Star Bank, N.A., 261 F.3d 478 (6th Cir. 2001) ...................................................... 28 Medtronic, Inc. v. Lohr, 518 U.S. 470 (1996) ......... 25 Mixon v. Anderson (In re Ozark Restaurant Equipment Co., Inc.), 816 F.2d 1222 (8th Cir. 1987) ...................................................... 35 Northwest Airlines, Inc. v. Transport Workers Union of America, AFL-CIO, 451 U.S. 77 (1981) .............................................................. 29, 31 OMelveny & Meyers v. FDIC, 512 U.S. 79 (1994) .............................................................. 2930 Pearlman v. Reliance Insurance Co., 371 U.S. 132 (1962).............................................. 23 Redington v. Touche Ross & Co., 592 F.2d 617 (2d Cir. 1978) ..................................... 17, 2021, 23

x SEC v. Albert & Maguire Securities Co., Inc., 560 F.2d 569 (3d Cir. 1977) ........................... 2123 SIPC v. Barbour, 421 U.S. 412 (1975) ..................... 6 St. Paul Fire & Marine Insurance Co. v. PepsiCo., Inc., 884 F.2d 688 (2d Cir. 1989) ........ 17 Texas Industries, Inc. v. Radcliff Materials, Inc., 451 U.S. 630 (1981) ..................................... 26 Touche Ross & Co. v. Redington, 442 U.S. 560 (1979) .......................................................... 6, 17, 20 Travelers Casualty & Surety Co. of America v. IADA Services, Inc., 497 F.3d 862 (8th Cir. 2007) ................................................ 2728 United States v. Bestfoods, 524 U.S. 51 (1998) ...... 22 United States v. Kimbell Foods, Inc., 440 U.S. 715 (1979).............................................. 29 Wallis v. Pan American Petroleum Corp., 384 U.S. 63 (1966)................................................ 29 Whitman v. American Trucking Assns, Inc., 531 U.S. 457 (2001).............................................. 18 Williams v. Cal. 1st Bank, 859 F.2d 664 (9th Cir. 1988) ...................................................... 35 Statutory Provisions 11 U.S.C. 544 ................................................ 2, 4, 32 15 U.S.C. 78ddd...................................................... 5 15 U.S.C. 78fff .................................................... 5, 6

xi 15 U.S.C. 78fff-1 ............................................. 4, 5, 6 15 U.S.C. 78fff-2 ................................................. 4, 6 15 U.S.C. 78fff-3 ................................. 2, 4, 5, 19, 23 28 U.S.C. 1254 ........................................................ 4 Securities Investor Protection Act of 1970, Pub. L. No. 91-598, 84 Stat. 1636 ............................ passim Securities Investor Protection Act Amendments of 1978, Pub. L. No. 95-283, 92 Stat. 249 ............... 23 N.Y. C.P.L.R. 1401 ..................................... 5, 2526 Other Authorities Primerus Defense Institute, A Survey of the Law of Non-Contractual Indemnity and Contribution (Apr. 2012) ........................................................... 30 SIPC, Open Filing Deadline Cases ........................ 24 S. Rep. No. 91-1218 (1970) ............................. 5, 6, 24 Steven Boyce, Koch Refining and In re Ozark, 64 Am. Bankr. L.J. 315 (1990) ............................ 34

PETITION FOR WRIT OF CERTIORARI Bernard L. Madoff did not act alone. The Ponzi scheme that he operated through Bernard L. Madoff Investment Securities (BLMIS) could not have persisted for so long, or defrauded so many of so much, without a network of financial institutions, feeder funds, and individuals who participated in his fraud or acquiesced in itjust like any large-scale financial fraud. Those parties, which include the respondents in this case, took millions in fees in exchange for facilitating the worlds largest-ever Ponzi scheme. They are as responsible as Madoff for the enormous magnitude of customer losses, which it is now the Trustees obligation to make good. The Trustee seeks, in this litigation, to hold those parties to account and recover funds that will be used to make whole BLMIS customers and satisfy the Securities Investor Protection Corporations (SIPC) right of subrogation for the more than $800 million that it provided for advances to customers on their claims. Yet the Second Circuit held that the Trustee, despite his obligation to compensate customers for their losses and repay SIPCs advances, is absolutely barred from bringing suit against the responsible parties. Its three central holdings make nonsense of the Securities Investor Protection Act (SIPA) and squarely conflict with the decisions of other circuits: First, despite Congresss decision to provide SIPC a right of subrogation to the claims of customers receiving advances and to ratify a line of cases recog-

2 nizing SIPCs equitable right of subrogation, see 15 U.S.C. 78fff-3(a), the Second Circuit held that SIPCs subrogation rights are limited to customers claims against the failed brokerages estate, inevitably insolvent. This evisceration of SIPCs subrogation rights conflicts with decisions of the Third and Sixth Circuits. Second, despite Congresss directive that SIPA trustees investigate the circumstances of a brokers failure and muster assets necessary to make customers whole, the Second Circuit held that SIPAs statutory silence on obtaining contribution from joint tortfeasors overrides any state law that provides trustees a right of contribution, even in the absence of any indication that Congress intended to preempt those laws. This decision rejects the Courts standard approach to preemption, leaves a SIPA trustee powerless to obtain compensation from the promoters and servicers that a Ponzi scheme depends upon to achieve any degree of scale, and conflicts with decisions of the Fourth and Eighth Circuits. Third, despite Congresss decision to empower trustees under SIPA or the Bankruptcy Code with all the rights and powers of a generalized creditor of a bankruptcy estate, 11 U.S.C. 544(a), the Second Circuit held that a trustee lacks standing to bring claims that are common to all customers or creditors by dint of their status as such. The courts denial of a trustees ability to bring suit against parties that wrongfully acted to hasten or deepen a bankruptcy, thereby injuring all customers or credi-

3 tors equally, breaks with decisions of the First and Seventh Circuit. Taken together, the Second Circuits errors of law undermine every single one of Congresss objectives in enacting SIPA. Congresss most immediate goal was to restore confidence in capital markets by protecting investors against the risk of loss due to broker failure. Yet the Second Circuits decision guarantees that, when third parties collaborate with a broker to defraud its customerssomething that is inevitable given a Ponzi schemes unquenchable thirst for more investors and more moneythere will never be enough funds available to compensate investors losses. Congress sought to make this protection cost-effective and self-sustaining by allowing SIPC to recover any funds that it advanced to customers. Yet the Second Circuits decision effectively bars it from doing so in every case. And Congress sought to prod financial intermediaries to address the risks that lead to customer loss. Yet the Second Circuit absolves those in the best position to uncover and expose broker fraud from any possible liability in a SIPA liquidationindeed, here it absolves those who could not help but know that Madoff was engaged in fraud. Congress thought that it was enacting broad protections for securities investors, but what remains after the Second Circuit put SIPA through the wringer is exceedingly narrow and entirely inadequate. If this aberrant decision is allowed to stand, the law governing SIPA liquidations will be in turmoil

4 and SIPA will be left unequal to the task of unraveling modern-day financial frauds, to the enormous detriment of those whom Congress sought to protect: securities investors. The Court should grant certiorari to give SIPA the force and effect that Congress intended and to correct the Second Circuits marked departure from ordinary principles of statutory interpretation. OPINIONS BELOW The Second Circuits opinion is reported at 721 F.3d 54 and reproduced at App. 1a. The opinions of the United States District Court for the Southern District of New York are reported at 454 B.R. 25 and 460 B.R. 84 and reproduced at App. 50a and 79a. JURISDICTION The Second Circuit rendered its decision on June 20, 2013. App. 1a. Justice Ginsburg extended the time in which to file a petition for certiorari to and including October 18, 2013. See No. 13A196. This Court has jurisdiction under 28 U.S.C. 1254(1). STATUTORY PROVISIONS INVOLVED The Bankruptcy Codes provision providing a trustee the rights and powers of the estates creditors as a whole, 11 U.S.C. 544, is reproduced at App. 126a. The liquidation-related provisions of the Securities Investor Protection Act, 15 U.S.C. 78fff-1, 78fff-2, and 78fff-3, are reproduced at App. 128a. New Yorks

5 statutory cause of action for contribution, N.Y. C.P.L.R. 1401, is reproduced at App. 147a. STATEMENT OF THE CASE A. The Securities Investor Protection Act Congress enacted the Securities Investor Protection Act of 1970, Pub. L. No. 91-598, 84 Stat. 1636, to restore confidence in the securities markets following the chaotic liquidations of numerous brokerdealers that collapsed due to fraud and mismanagement, taking their customers investments down with them. At the time, securities law provided no protection . . . for the investor whose broker goes bankrupt. S. Rep. No. 91-1218, at 3 (1970). Looking to the Federal Deposit Insurance Corporation as a model, Congress created the Securities Investor Protection Corporation to provide advances to customers of failed brokers and dealers up to a certain amounttoday, $500,000. Id. at 4; see 15 U.S.C. 78fff-3(a). That money would, in turn, come from a fund built up from regular assessments on the industry, 78ddd(c), and replenished through SIPCs right of subrogation to the claims of customers receiving advances, 78fff-3(a). No taxpayer dollars are involved. The Act also established a broker-specific liquidation proceeding, layered over the Bankruptcy Code, that is managed by a trustee with special powers in addition to those provided by the Code. See generally 78fff. A SIPA trustee is charged with investigating the circumstances of a brokers collapse, 78fff-1(d),

6 and, if the remaining assets are insufficient to reimburse customersfor example, if customer assets have been lootedrecovering the property necessary to do so. 78fff(a)(1)(B), 78fff-1(a). The trustee carries out this mandate through litigation against those responsible for customers lossestypically, in the case of a fraud, individuals and entities that received payments in connection with their participation in the fraud. E.g., Touche Ross & Co. v. Redington, 442 U.S. 560, 56566 (1979) (Exchange Act claim against accounting firm). Pursuant to SIPAs priority scheme, the proceeds of these efforts are distributed to customers, in satisfaction of their claims, on a pro rata basis. 78fff-2(c)(1). Once the customers have been satisfied, additional funds are allocated to SIPC as subrogee of customers claims and in repayment for its advances. Id. In this way, SIPA provides securities investors a first line of protection against brokerage misconduct through SIPC advances, while also providing for additional recoveries through litigation by the trustee. Such litigation also helps to make this system costeffective and sustainable because it allows SIPC to recover its out-of-pocket expenses. And by holding responsible parties to account, litigation works to achieve a general upgrading of financial responsibility requirements of brokers and dealers to eliminate, to the maximum extent possible, the risks which lead to customer loss, just as Congress anticipated. S. Rep. No. 91-1218, at 4 (1970); see also SIPC v. Barbour, 421 U.S. 412, 415 (1975). Thus, SIPA

7 would improve investor confidence both by establishing backstop protection against broker-related losses and by deterring the conduct (or passive acquiescence) that allows those losses to occur. B. Respondents Prolonged and Expanded Madoffs Ponzi Scheme

On December 11, 2008, Bernard L. Madoff was arrested and charged with securities fraud. That same day, the Securities and Exchange Commission filed a complaint against Madoff and BLMIS, alleging they were operating a massive Ponzi scheme. On December 15, 2008, the SEC and SIPC jointly filed for liquidation under SIPA. The petitioner was appointed Trustee and soon found that nearly $20 billion in actual investor principal (as opposed to fictitious returns) had been lost. To provide some relief to Madoffs victims, SIPC committed $808.7 million to the Trustee to make advances on customer claims. Through investigation, the Trustee confirmed what anyone could have guessed: Madoff did not sustain this unprecedented fraud for more than two decades by himself. Instead, he was aided by a network of financial institutions, feeder funds, and individuals who funneled investments into BLMIS, provided services essential to maintaining the fraud, hid Madoffs role as custodian of investors assets, and (of course) skimmed off substantial amounts for their efforts. They, as much as Madoff, are responsible for the extent of the losses when the scheme finally collapsed.

8 1. JPMorgan Chase & Co.

JPMorgan Chase & Co. (JPM) was foremost among these collaborators, standing at the very center of Madoffs fraud for over 20 years. App. 9a. Every single dollar that went into or out of BLMIS went through Madoffs 703 account, an ordinary retail checking account maintained by JPM. App. 10a. Madoff purported to employ a split strike conversion strategy that involved hedging purchases of S&P 100 stocks with options. App. 7a. In reality, he engaged in no securities transactions at all. Id. As JPM was well aware, billions of dollars flowed from customers into the 703 account, without being segregated in any fashion. App. 10a. Billions flowed out, some to customers and others to Madoffs friends in suspicious and repetitive round-trip transactions. Id. But in the 22 years that JPM maintained the 703 account, there was not a single check or wire to a clearing house, securities exchange, or anyone who might be connected with the purchase of securities. JPM Complaint, 2.1 All the while, JPM knew that Madoff was using the account to run an investment advisory business with thousands of customers and billions under management and knew that Madoff was using its name to lend legitimacy to his enterprise.

Amended Complaint, Picard v. JPMorgan Chase & Co., No. 11-cv-913 (S.D.N.Y. June 24, 2011), ECF No. 50.
1

9 JPM was well aware that others suspected Madoff of impropriety. Its Chief Risk Officer, John Hogan, warned his colleagues about 18 months prior to BLMISs collapse that he had learned that there is a well-known cloud over the head of Madoff and that his returns are speculated to be part of a ponzi scheme. App. 10a. The banks response? It tasked a junior employee to see what a Google search could turn up about Madoff. App. 10a11a. Of course, JPM had its own suspicions over the yearshow could it not? There were the unusual flows of money into and out of Madoffs checking account that were inconsistent with the investment business he claimed to run. There were the massive inconsistencies between BLMISs regulatory filings and its actual finances, between its reported cash on hand and the money in its account, between its spare disclosures and its obligations as a broker to its investment advisory accounts. There was Madoffs selection of a small, unknown auditor rather than one of the marquee firms employed by every other operation with billions under management. See generally JPM Complaint, 9, 96, 143, 147. And then there were Madoffs golden returns. Unsatisfied with the revenue it made from Madoff which amounted to a half billion dollars by the time of BLMISs collapseJPM initiated an internal campaign to become a major investor in Madoff by structuring derivative products directly tied to BLMIS feeder funds. As part of this process, JPM began an investigation of Madoffs strategies. Its an-

10 alysts were puzzled that Madoff managed to earn consistent returns even when the markets were down and acknowledged that his [r]eturn[s] seem[ed] a little too good to be true, suggesting some kind of fraud. JPM Complaint, 163. Indeed, JPM questioned whether BLMIS actually invested in any assets at all, noting that all of Madoffs investors, sub-Custodians, auditors etc [sic] rely solely on Madoff produced statements and have no real way of verifying positions at Madoff itself. Id. at 111. It concluded that given the significant reliance on [Madoff] for verification of assets held, and no real way to confirm those valuations, fraud presents a material risk. Id. Indeed, in the aftermath of BLMISs collapse, JPM conceded that it had never been able to reverse engineer how [Madoff] made money and that Madoff did not satisfy [JPMs] requirement for administrative oversight. Id. at 171. Nonetheless, JPM did invest with several Madoff feeder funds. But unlike other investors, it managed to escape BLMISs collapse virtually unscathed by redeeming over $276 million in the final weeks, as major withdrawals began to hit the 703 account. App. 11a. Finally, at that time, it sent a Suspicious Activity Report to the United Kingdoms Serious Organized Crime Agency, identifying the same red flags it had known about for years: that Madoffs consistent performance, no matter market conditions, appear[ed] too good to be truemeaning that it probably is; that Madoff maintained an unusual lack of transparency regarding all aspects of his

11 operation; and that Madoff was entirely unwilling[] to provide helpful information. JPM Complaint, 11, 155. But these revelations came too late to do anyone, save JPM, any good. 2. The Feeder Funds and Their Affiliates In addition to JPM, Madoff relied on a web of feeder funds to satisfy the Ponzi schemes insatiable thirst for new investors and their cash. A number of these funds and their affiliates, including those named as respondents here, had knowledge of Madoffs fraud even as they profited handsomely from their affiliation with him. a. The Swiss bank UBS held itself out as sponsor, manager, administrator, custodian, and prime banker for two funds created and promoted by Access International Advisors that, in reality, funneled all assets and delegated all authority to BLMIS. App. 11a12a. Accesss own officer testified that it was using [UBSs] balance sheet or its reputation in order to be compliant with regulations in Luxembourg so that Access could market them throughout the European Union. UBS Complaint, 183.2 UBSs representations were also essential to create the impression that the funds were safe investments. UBS was paid more than $80 million in fees for lending its reputation to this scheme. App. 11a.

2 Amended Complaint, Picard v. UBS AG, No. 11-cv-4212 (S.D.N.Y. Aug. 17, 2011), ECF No. 23.

12 Yet UBS was well aware that Madoff was a fraud. From 2000 on, it repeatedly refused to endorse Madoff to its clients, or to invest its own money with him, because of his lack of transparency and suspiciously consistent returns, which UBS itself identified as more or less impossible. UBS Complaint, 107, 111. The bank stated this conclusion plainly: If Madoff were to run the strategy totally independently from his [broker/dealer business], it would be IMPOSSIBLE to generate the returns that he has produced since 1990. Id. at 122. UBS knew that Madoffs claim that he traded options with UBSa representation brought to UBSs attention by the SEC in 2006was false, and it knew that Accesss Madoff feeder funds required it to accept backdated monthly investment recommendation[s], id. at 127, 178a blazing red flag. Yet UBS did nothing and said nothing, content to receive its fees. Even as it recruited investors for its funds, Access also noted serious red flags. It knew there was no way that Madoff could be executing the volumes of trades he claimed in account statements. In 2006, it hired an independent consultant to investigate, and he confirmed the point, finding in just four days of work that the purported trades for Accesss funds exceeded the entire volume of options on the market. App. 12a. On that basis, the consultant recommended that Access exit its BLMIS investments immediately. Id. Instead, Access kept these findings to itself, content to continue marketing its funds and taking fees. Id.

13 b. HSBC, one of the worlds largest banks, used its reputation to promote a network of Madoff feeder funds that brought BLMIS billions in fresh capital at a time when it was on the verge of collapse. App. 14a. HSBC marketed these funds to its private banking clients, identifying itself as the administrator and custodian of eighteen of them, and pitched them as safe, market-neutral investments. Id. But in its internal reports, HSBC identified BLMIS as the ultimate custodian of all assetssomething that it hid from its customersand flagged that as a serious risk. Id.; HSBC Complaint, 12, 169.3 So did HSBCs auditor, KPMG, which warned HSBC that BLMISs unusual role as custodian of assets posed a risk that its reported trades were a sham in order to divert client cash. App. 14a. HSBCs own due diligence team openly questioned the viability of Madoffs trading strategy, declaring themselves baffled by his performance. HSBC Complaint, 19, 186. Indeed, on numerous occasions, the volume of reported trades for HSBCs accounts exceeded more than ten times the actual volume of the entire options market. Id. at 155-60. And BLMIS reported over a thousand phony trades outside of market prices and claimed to trade more than the entire market volume of a particular S&P 100 stock nearly 500 times. Id. at 151, 164. Still, rather than confront Madoff, HSBC continued send3 Amended Complaint, Picard v. HSBC Bank PLC, No. 09-1364 (Bankr. S.D.N.Y. Dec. 5, 2010), ECF No. 170.

14 ing him investments and collecting fees for services that it left to Madoff. c. Unicredit and its associates managed funds that invested more than $2.8 billion with BLMIS despite knowing, like the others, that Madoffs reported trading volumes were impossible. App. 12a13a. Unicredits own analysts faulted Madoffs lack of transparency and Unicredits failure to conduct reasonable due diligence on BLMIS. App. 13a. Unicredit acquiesced in Madoffs insistence that his name be kept off all offering materials and accepted his refusal to identify counterparties in transactions, his bizarre fee structure, and the obviously phony reported trades outside of market prices. HSBC Complaint, 14647, 163, 19093, 209214. For simply sending investors money to Madoff, Unicredit and its associates received tens of millions in fees. App. 13a. Perhaps for that reason, it never confronted Madoff, reported him, or even stopped sending him money. C. The District Court Decisions Based on these facts and others uncovered through investigation, the Trustee brought suit against each of the respondents, asserting both avoidance claims and various New York common law claims, such as aiding and abetting fraud, aiding and abetting breach of fiduciary duty, knowing participation in a breach of trust, conversion, aiding and abetting conversion, fraud on the regulator, and unjust enrichment. The Trustee also asserted claims for contribution under New York law, on the basis that BLMIS

15 and the respondents jointly caused customers injuries and so should share in liability. In a July 28, 2011, decision, the District Court for the Southern District of New York (Rakoff, J.) held that the Trustee lacked standing to bring common law claims against HSBC and Unicredit on behalf of BLMIS customers. App. 50a et seq. This Courts decision in Caplin v. Marine Midland Grace Trust Co. of New York, 406 U.S. 416 (1972), it said, generally defeated the Trustees standing to bring such claims. App. 55a. And SIPCs assignment to the Trustee of its subrogation rights made no difference, because that right extends only to customer net equity claims against the estate, not to all customer claims against third parties. App. 64a. It also dismissed the Trustees contribution claims, on the basis that the availability of contribution in connection with a federal statutory scheme is a question governed solely by federal law. App. 74a (quotation marks omitted). The district courts November 1, 2011, decision (McMahon, J.) on the Trustees claims against JPM and UBS adopted largely the same reasoning and reached the same result. App. 78a et seq.4

4 Neither decision addressed the Trustees avoidance claims, which are limited to wrongful transfers from BLMIS and do not seek to redress the injuries that Madoffs joint tortfeasors inflicted on BLMIS customers.

16 D. The Second Circuit Decision The Second Circuit affirmed the district courts decisions. App. 1a et seq. It held, first, that the Trustees claims for contribution under New York state law are barred by SIPA. Rather than undertake any kind of preemption analysis, it reasoned that federal law automatically overrides state contribution law in every instance: there is no claim for contribution unless the operative federal statute provides one. App. 22a. Thus, because the Trustees payments to customers fulfilled an obligation created by SIPA, a federal statute that does not provide a right to contribution, App. 23a, the Trustee could press no claim under state law, even where BLMIS and the respondents jointly caused the losses for which SIPC advanced funds and which the Trustee is now obligated to make good. Second, the court held that a SIPA or bankruptcy trustee generally lacks standing to bring claims on behalf of customers or creditors. That result, it said, was compelled by Caplin, which it interpreted as holding flatly that federal bankruptcy law does not empower a trustee to collect money owed to creditors. App. 25a. Instead, a trustee may only assert claims held by the bankrupt [estate] itself. App. 26a (quotation marks omitted). On that basis, the court rejected the Trustees argument that its own precedent under Section 544 of the Bankruptcy Code established that a trustee may assert creditors claims that are generalized in nature, and not particular to any individual creditor. App. 32a35a (discussing

17 St. Paul Fire & Marine Ins. Co. v. PepsiCo, Inc., 884 F.2d 688 (2d Cir. 1989)).5 Third, the court denied that SIPC possesses any right of subrogation beyond that to customers claims against the fund of customer propertyi.e., against the failed brokerages estate. App. 43a. The court acknowledged that it had, in fact, found otherwise in Redington v. Touche Ross & Co., 592 F.2d 617, 62425 (2d Cir. 1978), revd on other grounds, 442 U.S. 560 (1979), which held that SIPC was subrogated to customers claims against third parties responsible for their losses and that a SIPA trustee could pursue such claims as an assignee. App. 27a. But Redington, the court said, was not binding, because it had been reversed and then vacated, and was distinguishable on several arbitrary basesfor example, it concerned only a cause of action under the Exchange Act. App. 28a32a. The court also rejected the Trustees argument that Congresss 1978 amendment to SIPA to provide that SIPCs statutory subrogation right should not be read to diminish all other rights [SIPC] may have at law or in equity, 78fff-3(a), confirms that SIPC also possesses an equitable right of subrogation, the same as any other insurer. Caplin, it said, was to the contrary, and if Congress had wished to
5 The court also held that the Trustee lacks standing to bring the common law claims on behalf of the estate due to the state law doctrine of in pari delicto, an issue not raised in this petition.

18 make clear its intention to overrule Caplin, it would have said so clearly, under the premise that it does not . . . hide elephants in mouseholes. App. 45a (quoting Whitman v. Am. Trucking Assns, Inc., 531 U.S. 457, 468 (2001)).6 Moreover, the courts preference was to avoid engrafting common law principles onto a statutory scheme unless Congresss intent is manifest, and here it was not. App. 46a. In the end, the Second Circuit recognized that there was merit to the Trustees concerns that, unless he is able to spearhead litigation against those malefactors responsible for customers losses and for SIPCs and the Trustees commensurate obligations, the victims will not be made whole, SIPC will be unable to recoup its advances, and third-party tortfeasors will reap windfalls. App. 46a. But rather than apply traditional equitable remedies like subrogation to avoid that resultparticularly where Congress sought to preserve and expand such remediesit concluded that Congress must legislate yet again in this area.

Caplin, it should be noted, had nothing to do with subrogation, and recognizing or granting SIPC even the broadest right of subrogation would not overrule Caplin, even in part.
6

19 REASONS FOR GRANTING THE PETITION The Second Circuits conclusion that a SIPA trustee is barred from bringing claims against parties responsible for a brokerages collapse, its customers losses, and SIPC and the trustees commensurate obligations to those customers has no basis in law or logic. All three of its major holdingsconcerning SIPCs right of subrogation, a trustees ability to seek contribution from joint tortfeasors, and a trustees standing to assert claims common to all customers or creditorscreated or deepened splits in authority with other courts of appeals. This Courts review is essential to bring consistency to the law and achieve SIPAs objectives of protecting securities investors and maintaining confidence in U.S. securities markets by holding financial institutions to account for their conduct. I. The Court Should Grant Certiorari To Resolve the Scope of SIPCs Subrogation Rights

When SIPC provided more than $800 million for advances to BLMIS customers, it obtained a right of subrogation to their claims by operation of statute and equity. 15 U.S.C. 78fff-3(a). The Second Circuits decision disregards that right, compromising the SIPA regime, while allowing parties that profited from the looting of investors assets to pass the buck to SIPC and SIPA trustees. This Courts guidance is necessary to correct this error and resolve the split in authority that the Second Circuits decision created with decisions of the Third and Sixth Circuits.

20 A. The Second Circuits decision squarely conflicts with the Sixth Circuits holding in Appleton v. First National Bank of Ohio, 62 F.3d 791, 800 (6th Cir. 1995), that SIPA establishes a right of subrogation . . . on behalf of customers whose claims have been paid by the SIPC against third parties responsible for customer losses. That case concerned another Ponzi scheme run by a brokerage. Its owner diverted customers checks to a separate account under his control, and two banks credited those deposits, despite the checks restrictive endorsements. As here, following the brokerages collapse, SIPC advanced funds to the SIPA trustee to satisfy those customers claims and then assigned its right of subrogation to the trustee, who brought suit against the banks to recover the wrongfully deposited funds. Reversing the district court, the Sixth Circuit rejected the argument that SIPC (and, by extension, the trustee) lacked standing to assert the customers claims against the banks. The court agreed with the Second Circuits view in Redington v. Touche Ross & Co., 592 F.2d 617 (2d Cir. 1978), revd on other grounds, 442 U.S. 560 (1979),7 that it is more in keeping with the intent of Congress that wrongdoers not receive a windfall benefit from the existence of
Repudiated by the Second Circuit in the instant case. App. 27a, 30a. While this Court reversed Redington on other grounds, it express[ed] no opinion on whether SIPC can assert state-law subrogation rights against third parties. Holmes v. SIPC, 503 U.S. 258, 271 n.18 (1992).
7

21 SIPC, and that SIPC be able to recoup its losses from solvent wrongdoers. 62 F.3d at 799 (quoting 592 F.2d at 624). SIPC, it reasoned, operates in the nature of an insurer, and so its subrogation rights should be understood to have the same scope as those of an insurer, which is entitled to be subrogated to any right of action which the insured may have against a third party whose wrongful act caused the loss. Id. And the amendment of 78fff3(a) after Redington to provide that SIPCs statutory subrogation right is in addition to all other rights it may have at law or in equity only confirmed that Congress did not intend to limit SIPCs rights in any fashion. Id. (emphasis added). The Third Circuit also recognized SIPCs right to subrogation of customers claims against third parties responsible for their losses in SEC v. Albert & Maguire Securities Co., Inc., 560 F.2d 569 (3d Cir. 1977). That case too concerned fraud by a broker, which forged signatures to sell a customers stock to a third party in a transaction guaranteed by a bank. Id. at 570. The bank ultimately purchased new shares for the customer, and then filed a claim in the brokers SIPA liquidation, asserting it had priority customer status. Id. The bank was due no such priority, the Third Circuit held. Had SIPC advanced the shares to the customer and then filed suit, it would stand not in the shoes of the debtor . . . but, rather, in those of the customer, because, upon payment to a customer, SIPC becomes subrogated to the customers rights against third parties. Id. at 574. As

22 such, any recovery would flow, in the first instance, to the customer fund to satisfy customers claims and, only then, to SIPC itself and other creditors. Id. Thus, the bank could not leapfrog this place in line by settling the customers claim rather than by allowing itself to be sued and then filing a general creditor claim, on its own behalf, on the estate. The decision below denied that SIPCs right of subrogation extends beyond customers claims on the estate itself, App. 42a43a, and so cannot be squared with Appleton and Albert & Maguires recognition of a more meaningful right of subrogation to customers claims against third parties responsible for their losses. The Courts guidance is necessary to resolve this conflict. B. In addition, the decision below ignores the fundamental principle that, in determining the application of a common law principle to a federal statutory scheme, a court may take it as given that Congress has legislated with an expectation that the principle will apply except when a statutory purpose to the contrary is evident. Astoria Fed. Sav. & Loan Assn v. Solimino, 501 U.S. 104, 108 (1991) (quoting Isbrandtsen Co. v. Johnson, 343 U.S. 779, 783 (1952)); see also Briscoe v. LaHue, 460 U.S. 325, 330 (1983) (42 U.S.C. 1983 does not abrogate the common law immunity afforded to witnesses); United States v. Bestfoods, 524 U.S. 51, 63 (1998) (CERCLA does not alter fundamental principles of corporate law).

23 The Second Circuits apparent error was confusing the situation where Congress legislates against the backdrop of the common law with that where a court is asked to create federal common law. See, e.g., Burks v. Lasker, 441 U.S. 471, 47779 (1979) (recognizing the distinction). The scope of SIPCs right of subrogation is plainly in the former camp: as several courts of appeals recognized in the 1970s, SIPC is a classic subrogee under common law. See Redington, 592 F.2d at 62425; Albert & Maguire, 560 F.2d at 574. And Congress ratified that view when it amended SIPA to expressly provide a statutory subrogation right while specifically preserving all other rights [SIPC] may have at law or in equity. 15 U.S.C. 78fff-3(a); see Pub. L. No. 95-283, 9, 92 Stat. 249, 266 (1978). There can be no question, then, that SIPCs right of subrogation extends to the claims here. Subrogation simply establishes that a surety who pays the debt of another is entitled to all the rights of the person he paid to enforce his right to be reimbursed. Pearlman v. Reliance Ins. Co., 371 U.S. 132, 137 (1962). SIPC became subrogated to customers claims against Madoffs enablers and abettors when it provided advances for losses that they helped to bring about. Accordingly, the Trustee, to whom SIPC assigned its claims, is entitled to step into the shoes of BLMISs customers and attempt to recover the funds that it advanced to compensate for others malfeasance. There is no basis in law to deny it that right.

24 C. This question is important, for the very reasons identified by the Second Circuit. App. 46a. Its decision denies BLMIS customers, in their protected status as customers in a SIPA liquidation, essential compensation for their losses. It precludes SIPC from recouping the funds that it advanced to remedy injuries caused, in part, by others, undermining the sustainability and cost effectiveness of the SIPA regime.8 And it defeats entirely SIPAs purpose of holding financial institutions to account for customer loss and thereby incentivizing them to eliminate . . . the risks which lead to customer loss. S. Rep. No. 911218, at 4 (1970). In short, the Second Circuits evisceration of SIPCs subrogation rights undermines Congresss objectives in enacting SIPA, while throwing the law into a state of confusion. Because broker failures are a common occurrence, particularly within the footprint of the Second Circuit,9 the Court should act to correct the decision below before it can injure more investors.

Indeed, the perverse result of the decision below is that SIPC alone, despite its congressionally conferred role as insurer of securities investors and special powers, lacks the traditional equitable rights that any other corporation providing similar services would have.
8

See SIPC, Open Filing Deadline Cases, http://www.sipc.org/Cases/CasesOpen.aspx (visited September 30, 2013) (listing two failures since May 2013, both of firms located in New York).
9

25 II. The Court Should Grant Certiorari To Resolve When Federal Law Preempts State Contribution Claims

The decision below rejects the bedrock rule underlying our federalist system that federal law does not preempt state law except where Congress so intended. See Medtronic, Inc. v. Lohr, 518 U.S. 470, 485 (1996) (Given the presum[ption] that Congress does not cavalierly pre-empt state-law causes of action, [t]he purpose of Congress is the ultimate touchstone in every pre-emption case.) (quotation marks omitted). The State of New York has created a cause of action that allows the Trustee, on BLMISs behalf, to sue joint tortfeasors for payments made to BLMIS customers under SIPA. See N.Y. C.P.L.R. 1401 (McKinney 2011).10 That cause of action may be asserted whether or not the culpable parties are allegedly liable for the injury under the same or different theories and may be invoked against concurrent, successive, independent, alternative and even intentional tortfeasors. Calcutti v. SBU, Inc., 273 F. Supp. 2d 488, 493 (S.D.N.Y. 2003) (quotation marks omitted). Adoption of that right represents New
10 That statute provides, [T]wo or more persons who are subject to liability for damages for the same personal injury, injury to property or wrongful death, may claim contribution among them whether or not an action has been brought or a judgment has been rendered against the person from whom contribution is sought.

26 Yorks considered public policy choice and should be respected by the federal courts unless it has actually been preempted by federal law. See Texas Indus., Inc. v. Radcliff Materials, Inc., 451 U.S. 630, 647 (1981) (providing for contribution is a matter of high policy for resolution within the legislative process.) (quotation marks omitted). The Second Circuits blithe dismissal of New York law, without any consideration of whether it actually conflicts with federal law, conflicts with the decisions of other circuits that have correctly treated the application of state contribution claims to liabilities arising under federal law as a preemption question and thereby accorded state contribution laws the respect to which they are entitled. A. Rather than undertake a standard preemption analysis, the Second Circuit broke with decisions of the Fourth and Eighth Circuits by holding that the availability of state contribution claims, where the underlying liability arises under federal law, is governed entirely by that federal law. In other words, even where there is no apparent conflict between federal law and a state law providing for contribution, the state law is nonetheless always preempted, and a right of contribution therefore unavailable, unless the operative federal statute provides one. App. 22a. The Second Circuits sole rationale for this unusual rule was the assertion that [t]he source of a right to contribution under state law must be an obligation imposed by state law. App. 23a (quoting LNC Invs., Inc. v. First Fid. Bank, 935 F. Supp.

27 1333, 1349 (S.D.N.Y. 1996)). Applying that rule, it rejected the Trustees contribution claims as unauthorized by SIPA, given that SIPA is silent on the matter. App. 23a24a. Other circuits to consider whether state contribution claims may be premised on liability under federal law have correctly applied preemption analysis. In Baker, Watts & Co. v. Miles & Stockbridge, 876 F.2d 1101, 110708 (4th Cir. 1989) (en banc), the Fourth Circuit found that there was no federal contribution right for a claim under Section 12(2) of the Securities Act, but nonetheless allowed a contribution claim under Maryland law. As it explained, [t]he lack of a federal cause of action, however, does not necessarily preclude the existence of state-law remedies. Unless preempted, plaintiff may be entitled to recover based on Maryland statutory or common law. Id. at 1106. Because there was no indication that Congress intended to preempt state contribution claims, they remained available for liabilities arising under Section 12(2). In Travelers Casualty & Surety Co. of America v. IADA Services, Inc., 497 F.3d 862, 86768 (8th Cir. 2007), the Eighth Circuit applied identical reasoning to determine whether a right to contribution exists for liabilities arising under the Employee Retirement Income Security Act (ERISA). After finding that there was no right of contribution between shared fiduciaries under ERISA, it went on to consider whether a state law contribution claim was preempted. Reasoning that such a right would un-

28 dermine the comprehensive federal scheme, and thereby pose an obstacle to the purposes and objectives of Congress, the court held it preempted. Id. (quotation marks omitted). By contrast, the First, Sixth, and now the Second Circuits have eschewed any standard preemption analysis for matters of contribution, concluding instead that, where federal law provides for liability, only federal law may provide for contribution. See Fleming v. Lind-Waldock & Co., 922 F.2d 20, 27 (1st Cir. 1990) ([A] right to contribution for liability arising from a violation of a federal statute is a matter of federal law.); McDannold v. Star Bank, N.A., 261 F.3d 478 (6th Cir. 2001) (remanding with instructions for the district court to look solely to federal law to determine whether a right to contribution exists). Reflecting the confusion in the lower courts is the Seventh Circuits opinion in Donovan v. Robbins, 752 F.2d 1170, 1179 (7th Cir. 1985). Even though it stated that the scope and limitations of the right of contribution are invariably treated as questions of federal rather than state law when liability arises under federal law, it nonetheless undertook a thorough preemption analysis and rejected contribution under state law solely on that basis. Id. at 117980. The Second Circuits decision therefore deepens a Circuit split on a matter that has thrown the lower courts into substantial confusion. This Courts review is necessary to bring clarity and uniformity to the law.

29 B. In addition to splitting with other circuits mode of analysis, the Second Circuits rejection of preemption analysis is incorrect under this Courts decisions requiring that state law be respected except where in conflict with federal law. Congress, of course, is presumed to legislate against the background of pre-existing federal and state law. Atherton v. FDIC, 519 U.S. 213, 218 (1997) (Congress acts . . . against the background of the total corpus juris of the states . . . .) (quoting Wallis v. Pan Am. Petroleum Corp., 384 U.S. 63, 68 (1966)). Moreover, [a]bsent a demonstrated need for a federal rule of decision, the Court has taken the prudent course of adopt[ing] the readymade body of state law as the federal rule of decision until Congress strikes a different accommodation. Am. Elec. Power Co. v. Connecticut, 131 S. Ct. 2527, 2536 (2011) (quoting United States v. Kimbell Foods, Inc., 440 U.S. 715, 740 (1979)). On that basis, in OMelveny & Meyers v. FDIC, 512 U.S. 79 (1994), this Court explained that matters left unaddressed in [a comprehensive and detailed federal statutory] scheme are presumably left subject to the disposition provided by state law. Id. at 85 (citing Nw. Airlines, Inc. v. Transp. Workers Union of Am., AFL-CIO, 451 U.S. 77, 97 (1981)). At issue was what rule of decision should apply to whether a failed banks knowledge of attorney malpractice could be imputed to the banks FDIC receiver under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA). Yes, the

30 Court acknowledged, federal law governs, but that left open the question of whether the California rule of decision is to be applied to the issue of imputation or displaced through preemption. Id. Indeed, the Court forcefully rejected the FDICs argument that the Court should apply anything other than a standard preemption analysis: To create additional federal common-law exceptions is not to supplement this scheme, but to alter it. Id. at 87. Finding no significant conflict with an identifiable federal policy or interest, the Court held that California law applied. Id. at 88. By rejecting that approach out of hand, the decision below simply cannot be reconciled with this Courts decisions that, consistent with our federalist system, recognize the vitality of state laws except for in the narrow circumstance that displacing them was the clear and manifest purpose of Congress. Jones v. Rath Packing Co., 430 U.S. 519, 525 (1977) (quotation marks omitted). C. The availability of a right to contribution under state law for liabilities arising under federal law is a question of the foremost importance deserving this Courts resolution. Contribution was unavailable at common law. As a result, the contribution rights now provided for by more than three-quarters of the States11 represent the considered policy deThe number may now be as high as 44. See generally Primerus Defense Institute, A Survey of the Law of Non-Contractual Indemnity and Contribution (Apr. 2012).
11

31 terminations of their legislatures. See Nw. Airlines, 451 U.S. at 8788 & n.17. Those determinations should not be swept aside by adoption of a rule that denies contribution whenever liability arises under a federal statute. Respect for the states demands at least some indication that Congress actually intended to displace their laws. If this case raised the issue of contribution only in the context of SIPA, it would present an important and frequently recurring question, meriting the Courts review, because rarely is a single tortfeasor responsible for the collapse of a brokerage and loss of customer funds, here amounting to billions. But this issue arises under a host of federal statutes, from the Federal Commodity Exchange Act to ERISA and many morepotentially any federal scheme where more than one party may be responsible for the plaintiffs injury. Application of federal or state rules to the apportionment of damages in such cases should not turn, as it does today, on which circuit the plaintiff has chosen for his suit. This Courts review is necessary to adopt a uniform, national approach that provides greater predictability to litigants and consistency of results.

32 III. The Court Should Grant Certiorari To Resolve a Bankruptcy Trustees Standing To Bring Claims General to All Creditors

Section 544(a) of the Bankruptcy Code provides that a trustee possesses all of the rights and powers of a hypothetical creditor that held a judicial lien on all property of the estate prior to the debtors bankruptcy filing. On that basis, the Seventh and First Circuits have recognized that a trustee may bring claims against third parties that are general to all creditorstypically, alter ego claims or claims that a third party conspired with the debtor to defraud its creditors as a class. Nonetheless, the Second Circuit held that the Trustee lacks prudential standing to assert BLMIS customers common claims against the financial intermediaries that facilitated and participated in Madoffs fraud. App. 6a, 24a. As a result, while the Trustee may bring fraudulent transfer claims against those defendants, he is barred from asserting fraud-related claims against those same parties, premised on much of the same conduct, involving many of the same transactions, and causing injury to the same class of BLMIS customersa bizarre result that should not be allowed to stand. A. In a case materially identical to this one, the Seventh Circuit held that the bankruptcy trustee was the proper party to assert alter ego claims against the debtors shareholders, who had allegedly misappropriated its assets and otherwise contributed to its failure. Koch Ref. v. Farmers Union Cent.

33 Exch., 831 F.2d 1339, 1341 (7th Cir. 1987). The court reasoned that, because a bankruptcy trustee has creditor status under section 544 to bring suits for the benefit of the estate and ultimately of the creditors . . . . [,] allegations that could be asserted by any creditor could be brought by the trustee as a representative of all creditors. Id. at 134849. The key is that a trustee may maintain only a general claim, one where the liability is to all creditors of the corporation without regard to the personal dealings between such officers and such creditors. Id. at 1349. By contrast, a trustee may not maintain a claim that is personal to one or more creditors because it does not accrue to the entire class of creditors on an equal basis. Id. at 134849. See also Fisher v. Apostolou, 155 F.3d 876, 881 (7th Cir. 1998) (enjoining action by defrauded commodities investors against clearinghouse through which debtor illegally traded investor funds so that bankruptcy trustee could pursue claims on behalf of entire class of investors). This pragmatic distinction has also been adopted by the First Circuit. City Sanitation, LLC v. Allied Waste Servs. of Mass., LLC (In re Am. Cartage, Inc.), 656 F.3d 82, 90 (1st Cir. 2011) (holding that commercial tort claims against debtors former employee were general and therefore exclusive to the trustee). B. The Second Circuit, however, held that the Trustees standing to bring such general claims was barred by this Courts decision in Caplin v. Marine Midland Grace Trust Co., 406 U.S. 416 (1972). Cap-

34 lin ruled that a reorganization trustee under Chapter X of the old Bankruptcy Act lacked standing to assert, on behalf of a small group of creditors holding the debtors debentures, claims of misconduct against the debenture trustee. The Court reasoned that, while Congress has established an elaborate system of controls with respect to indenture trustees and reorganization proceedings, that statutory scheme gave no suggestion that the trustee in reorganization is to assume the responsibility of suing third parties on behalf of debenture holders. Id. at 428. The Second Circuit took this rather specific holding to express a general prudential policy that a bankruptcy trustee lacks standing to pursue claims against third parties on behalf of the estates creditors, but for fraudulent transfer and other avoidance actions. App. 6a, 25a26a. But Caplin says no such thing, does not purport to address a trustees standing to bring claims that are common to all creditors, and even suggests, with respect to suits on behalf of debenture holders, that Congress would not be unwise to confer such standing on trustees in reorganization. 406 U.S. at 454.12 There is simply no reason
Indeed, Caplin actually did not address Bankruptcy Act Section 70c, which was the forerunner of Section 544 of todays Bankruptcy Code. Instead, it construed Bankruptcy Act Section 70a, which corresponds to Bankruptcy Code Section 541. See Steven Boyce, Koch Refining and In Re Ozark, 64 Am. Bankr. L.J. 315, 324 (1990).
12

35 to expand Caplins holding beyond its terms, particularly when Section 544 of the Bankruptcy Code (enacted shortly after Caplin) gives a trustee all the rights and powers of a general creditor of the estate. Yet the Second Circuits misapprehension is one that is shared by the Eighth and the Ninth Circuits. See Mixon v. Anderson (In re Ozark Rest. Equip. Co., Inc.), 816 F.2d 1222, 1228 (8th Cir. 1987) (trustee lacks standing to bring alter ego claim on behalf of creditors); Williams v. Cal. 1st Bank, 859 F.2d 664 (9th Cir. 1988) (following Ozark). C. Worse still is that the Second Circuits approach makes a hash of the law. The chief advantage of allowing a trustee to bring all claims general to the estates creditors is that [t]he trustees single effort eliminates the many wasteful and competitive suits of individual creditors. Koch, 831 F.2d at 134243. That is, of course the rationale for the bankruptcy process generally and the appointment of a trustee in the first place: to prevent creditors from stealing a march on each other. Brown v. Armstrong, 949 F.2d 1007, 1010 (8th Cir. 1991) (quotation marks omitted). Yet, according to the Second Circuit, that rationale holds only when the trustee seeks to bring fraudulent transfer and other avoidance actions that otherwise would belong generally to the estates creditors, and has no bearing at all on related fraud, conversion, and other common law claims that also are general to the estates creditors, concern much the same conduct, and would be subject to much the

36 same proof and many of the same defenses. App. 25a26a. There is no logical reason why Congress would have required that these closely-related actions be brought and tried in separate lawsuits, one by the trustee for the benefit of all creditors and the other by the same creditors for their own benefit. The Court should reject this absurd result and give Section 544 its more natural meaning of conferring standing on the trustee to bring all claims that are general to the estates creditors. CONCLUSION The Court should grant the petition. Respectfully submitted, DAVID B. RIVKIN, JR. Counsel of Record LEE A. CASEY MARK W. DELAQUIL ANDREW M. GROSSMAN BAKERHOSTETLER LLP 1050 Connecticut Ave., N.W. Washington, D.C. 20036 (202) 861-1731 drivkin@bakerlaw.com

DAVID J. SHEEHAN OREN J. WARSHAVSKY BAKERHOSTETLER LLP 45 Rockefeller Plaza New York, N.Y. 10111 (212) 589-4200

Counsel for the Petitioner OCTOBER 2013

1a APPENDIX A UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT ________ (Argued: November 21, 2012 Decided: June 20, 2013) Docket Nos. 11-5044 11-5051 11-5175 11-5207 ________ In re BERNARD L. MADOFF INVESTMENT SECURITIES LLC. ________ Irving H. Picard, PlaintiffAppellant, v. JPMorgan Chase & Co., JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC, J.P. Morgan Securities Ltd., DefendantsAppellees, and Securities Investor Protection Corporation, Intervenor. ________

2a Irving H. Picard, PlaintiffAppellant, and Securities Investor Protection Corporation, Intervenor, v. UBS Fund Services (Luxembourg) SA, Access International Advisors LLC, Access International Advisors Europe Limited, Access International Advisors Ltd., Access Partners (Suisse) SA, Access Management Luxembourg SA, as represented by its Liquidator Maitre Ferdinand Entringer, fka Access International Advisors Luxembourg SA, Access Partners SA, as represented by its Liquidator Maitre Ferdinand Entringer, Patrick Littaye, Claudine Magon De La Villehuchet, in her capacity as Executrix under the Will of Thierry Magon De La Villehuchet (aka Rene Thierry de la Villehuchet), individually and as the sole beneficiary under the Will Of Thierry Magon De La Villehuchet (aka Rene Thierry de la Villehuchet), aka Claudine De La Villehuchet, Pierre Delandmeter, Theodore Dumbauld, Luxalpha Sica V, as represented by its Liquidators Maitre Alain Rukavina and Paul Laplume, Roger Hartmann, Ralf Schroeter, Rene Egger, Alain Hondequin, Hermann Kranz, Bernard Stiehl, Groupement Financier Ltd., UBS AG, UBS (Luxembourg) SA, Maitre Alain Rukavina, in his capacity as liquidator and representative of Luxalpha Sica V, Paul Laplume, in his capacity as liquidator and representative of Luxalpha Sica V,

3a UBS Third Party Management Company SA, DefendantsAppellees. ________ Irving H. Picard, PlaintiffAppellant, v. HSBC Bank PLC, HSBC Securities Services (Luxembourg) S.A., HSBC Bank Bermuda Limited, HSBC Fund Services (Luxembourg) S.A., HSBC Private Bank (Suisse) S.A., HSBC Private Banking Holdings (Suisse) S.A., HSBC Bank (Cayman) Limited, HSBC Securities Services (Bermuda) Limited, HSBC Bank USA, N.A., HSBC Institutional Trust Services (Bermuda) Limited, HSBC Securities Services (Ireland) Limited, HSBC Institutional Trust Services (Ireland) Limited, HSBC Holdings PLC, Unicredit S.p.A., Pioneer Alternative Investment Management Limited, Unicredit Bank Austria AG, Alpha Prime Fund Limited, DefendantsAppellees, and Securities Investor Protection Corporation, Intervenor. ________

4a Irving H. Picard, PlaintiffAppellant, v. HSBC Bank PLC, HSBC Securities Services (Luxembourg) S.A., HSBC Bank Bermuda Limited, HSBC Private Bank (Suisse) S.A., HSBC Private Banking Holdings (Suisse) S.A., HSBC Bank (Cayman) Limited, HSBC Securities Services (Bermuda) Limited, HSBC Bank USA, N.A., HSBC Institutional Trust Services (Bermuda) Limited, HSBC Securities Services (Ireland) Limited, HSBC Institutional Trust Services (Ireland) Limited, HSBC Holdings PLC, HSBC Fund Services (Luxembourg) S.A., DefendantsAppellees, Securities Investor Protection Corporation, Intervenor. ________ Before: JACOBS, Chief CARNEY, Circuit Judges. Judge, WINTER and

A trustee appointed pursuant to the Securities Investor Protection Act appeals from the dismissal of his claims brought on behalf of the debtor and the debtors customers, asserting that various financial institutions and other defendants aided and abetted the debtors fraud. The United States District Court for the Southern District of New York (McMahon and Rakoff, JJ.) held that the claims were barred by the doctrine of in pari delicto and that the trustee lacked standing to pursue claims on behalf of customers. We affirm.

5a OPINION DENNIS JACOBS, Chief Judge: Irving Picard (Picard or the Trustee) sues in his capacity as Trustee under the Securities Investor Protection Act (SIPA) on behalf of victims in the multi-billion-dollar Ponzi scheme worked by Bernard Madoff. The four actions presently before this Court allege that numerous major financial institutions aided and abetted the fraud, collecting steep fees while ignoring blatant warning signs. In summary, the complaints allege that, when the Defendants were confronted with evidence of Madoffs illegitimate scheme, their banking fees gave incentive to look away, or at least caused a failure to perform due diligence that would have revealed the fraud. The Trustee asserts claims for unjust enrichment, breach of fiduciary duty, aiding and abetting fraud, and negligence, among others. The Trustees position is supported by the Securities Investor Protection Corporation (SIPC), a statutorily created nonprofit corporation consisting of registered broker-dealers and members of national securities exchanges, which intervened to recover some or all of the approximately $800 million it advanced to victims. As we will explain, the doctrine of in pari delicto bars the Trustee (who stands in Madoffs shoes) from asserting claims directly against the Defendants on behalf of the estate for wrongdoing in which Madoff (to say the least) participated. The claim for contribution is likewise unfounded, as SIPA provides no such right. The decisive issue, then, is whether

6a the Trustee has standing to pursue the common law claims on behalf of Madoffs customers. Two thorough well-reasoned opinions by the district courts held that he does not. See Picard v. HSBC Bank PLC, 454 B.R. 25 (S.D.N.Y. 2011) (Rakoff, J.); Picard v. JPMorgan Chase & Co., 460 B.R. 84 50(S.D.N.Y. 2011) (McMahon, J.). Our holding relies on a rooted principle of standing: A party must assert his own legal rights and interests, and cannot rest his claim to relief on the legal rights or interests of third parties. Warth v. Seldin, 422 U.S. 490, 499 (1975). This prudential limitation has been consistently applied in the bankruptcy context to bar suits brought by trustees on behalf of creditors. See, e.g., Caplin v. Marine Midland Grace Trust Co., 406 U.S. 416 (1972); Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114, 118 (2d Cir.1991). Picard offers two theories for why a SIPA liquidation is a different creature entirely, and why therefore a SIPA trustee enjoys third-party standing: (1) He is acting as a bailee of customer property and therefore can pursue actions on customers behalf to recover such property; and (2) he is enforcing SIPCs rights of equitable and statutory subrogation to recoup funds advanced to Madoffs customers. Neither is compelling. Although a SIPA liquidation is not a traditional bankruptcy, a SIPA trustee is vested with the same powers and title with respect to the debtor and the property of the debtor . . . as a trustee in a case under Title 11. 15 U.S.C. 78fff 1(a). At best, SIPA is silent as to the questions presented here. And analogies to the law of bailment

7a and the law unconvincing.1 of subrogation are inapt and

BACKGROUND In December 2008, federal agents arrested Bernard L. Madoff, who had conducted the largest Ponzi scheme yet uncovered. Madoff purported to employ a split-strike conversion strategy that involved buying S & P 100 stocks and hedging through the use of options. In reality, he engaged in no securities transactions at all.2 In March 2009, Madoff pleaded guilty to securities fraud and admitted that he had used his brokerage firm, Bernard L. Madoff Investment Securities LLC (BLMIS), as a vast Ponzi scheme. The details of Madoffs fraud have been recounted many times. See, e.g., In re Bernard L. Madoff Inv. Sec. LLC, 654 F.3d 229, 23132 (2d Cir. 2011), cert.
The Defendants also argue that the Trustee has not met constitutional standing requirements, violates the Securities Litigation Uniform Standards Act, and fails to plead with particularity SIPCs purported subrogation claims. Given our holding, we decline to address these arguments.
1 2 Although Madoff simply appropriated his clients money without ever purchasing securities on their behalf, we have held that Madoffs victims are nonetheless customers under the Act. See In re Bernard L. Madoff Inv. Sec. LLC, 654 F.3d 229, 236 (2d Cir. 2011) (SIPA . . . ensur[es] that claimants who deposited cash with a broker for the purpose of purchasing securities, are treated as customers with claims for securities. This is so because the critical aspect of the customer definition is the entrustment of cash or securities to the broker-dealer for the purposes of trading securities.) (internal citations and quotation marks omitted), cert. denied, 133 S. Ct. 25 (2012).

8a denied, 133 S. Ct. 25; In re Bernard L. Madoff Inv. Sec. LLC, 424 B.R. 122, 12632 (Bankr. S.D.N.Y. 2010). Following Madoffs arrest, SIPC filed an application under SIPA, 15 U.S.C. 78eee(a)(4)(B), asserting that BLMIS required protection. The district court appointed Picard as the firms Trustee and referred the case to the bankruptcy court. SIPA was enacted in 1970 to speed the distribution of customer property back to investors following a firms collapse.3 Customer property is cash and securities held separately from the general estate of the failed brokerage firm. SIPA serves dual purposes: to protect investors, and to protect the securities market as a whole. In re Bernard L. Madoff Inv. Sec. LLC, 654 F.3d at 235. A SIPA liquidation confers priority on customer claims by an expeditious alternative to a traditional bankruptcy proceeding. Under SIPA, each customer shares ratably in the fund of customer property according to the customers net equity. If (as is often the case) the assets are not enough to satisfy all net equity claims, SIPC advances money (up to $500,000 per customer) to the SIPA trustee, who is charged with assessing customer claims and making the ratable distributions. At the time of this appeal, SIPC had advanced approximately $800 million.
For a succinct overview of the statutes history, see Securities Investor Protection Corp. v. BDO Seidman, LLP, 49 F. Supp. 2d 644, 649 (S.D.N.Y. 1999).
3

9a A trustee also has authority to investigate the circumstances surrounding the insolvency and to recover and distribute any remaining funds to creditors. Picard alleges that his investigation has uncovered evidence of wrongdoing by third parties who aided and abetted Madoff, and seeks to replenish the fund of customer property by taking action against various financial institutions that serviced BLMIS. Picard presses claims against JPMorgan Chase & Co., UBS AG, UniCredit Bank Austria AG, HSBC Bank plc, and affiliated persons and entities. The allegations against each are summarized one by one. We distill the detailed allegations from the consolidated complaints, and recount only the background needed to understand our analysis. At this stage of the litigation, the allegations are assumed to be true. See Selevan v. N.Y. Thruway Auth., 584 F.3d 82, 88 (2d Cir. 2009). JPMorgan. Madoff maintained a checking account at JPMorgan Chase & Co. (JPMorgan)4 for more than twenty years, beginning in 1986. In the years prior to BLMISs bankruptcy, JPMorgan collected an estimated half billion dollars in fees, interest payments, and revenue from BLMIS. The Trustee alleges that JPMorgan was at the very center of Madoffs fraud and was thoroughly complicit in it.

Throughout this brief, JPMorgan refers to the four JPMorgan defendants: JPMorgan Chase & Co., JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC, and J.P. Morgan Securities Ltd.
4

10a A 662 1.5 Madoffs primary account with JPMorgan, the 703 Account, was where hundreds of billions of dollars of customer money were commingled and ultimately washed. A 663 2. The customer funds deposited into the 703 Account for split-strike securities transactions were instead funneled to other customers to sustain the illusion of large and reliable returns on investment. The 703 Account was a retail checking account, not a commercial account. Billions of dollars from thousands of investors were deposited without being segregated or transferred to separate sub-accounts. These accounts exhibited, on their face, a glaring absence of securities activity. A 714 190. At the same time, numerous multi-million-dollar checks and wire transfers having no apparent business purpose were exchanged between Madoff and his close friend, Norman Levy (now dead). In 2006, due diligence conducted by JPMorgan revealed strong and steady yields by Madoffs feeder funds during a time when the S & P 100 dropped thirty percent. As one money manager later acknowledged, that was too good to be true. In June 2007, JPMorgans Chief Risk Officer John Hogan learned at a lunch with JPMorgan money manager Matt Zames that there is a well-known cloud over the head of Madoff and that his returns are speculated to be part of a [P]onzi scheme. A 695 119. Hogan asked a junior analyst to run a Google
Record citations refer to the joint appendix filed in the action under discussion.
5

11a search on Madoff, and made no further inquiries when the search yielded no hard evidence. Faced with numerous indications of Madoffs fraud, in the fall of 2008 JPMorgan redeemed $276 million of its investments in Madoffs feeder funds. A 705 15660; A 710 178. But the company failed to tip off regulators or other investors. Though JPMorgan was uniquely positioned to put an end to Madoffs fraud, it quietly continued collecting its large fees. UBS and Access. Defendants UBS AG6 (UBS) and Access International Advisors LLC7 (Access) are sued for aiding and abetting Madoffs fraud by creating feeder funds and collecting investments from abroad. UBS acted as sponsor, manager, administrator, custodian, and primary banker of the funds. UBS reaped at least $80 million in fees as it facilitated investments in BLMIS, despite clear indicia of fraud. The prestigious name of UBS was used to legitimize and attract money to Madoffs
UBS includes UBS AG, UBS (Luxembourg) S.A., UBS Fund Services (Luxembourg) S.A., UBS Third Party Management Company S.A., Roger Hartmann, Ralf Schroeter, Rene Egger, Bernard Stiehl, Alain Hondequin, and Hermann Kranz.
6 7 Access includes Access International Advisors LLC, Access International Advisors Europe Limited, Access International Advisors Ltd., Access Partners (Suisse) S.A., Access Management Luxembourg S.A., Access Partners S.A., Patrick Littaye, Claudine Magon de la Villehuchet (in her capacities as Executrix and sole beneficiary of the Will of Thierry Magon de la Villehuchet), Pierre Delandmeter, and Theodore Dumbauld. The Trustee also sues feeder funds created by UBS and Access such as Defendants Luxalpha SICA V and Groupement.

12a fraud, but UBS agreed to look the other way and to pretend that they were truly ensuring the existence of assets and trades when in fact they were not and never did. A 916 5. UBS observed but ignored Madoffs lack of transparency and his uncanny ability to generate consistently high returns, except insofar as UBS declined to invest its own money in BLMIS or endorse Madoffs funds to its clients. In 2009, the Luxembourg regulator, the Commission de Surveillance du Secteur Financier, indicated that the failure of UBS to identify Madoff as a possible fraud was a violation of Luxembourg law. Access was also alerted to Madoffs suspicious investment activities. In 2006, internal managers at Access became worried about the volume of options trades being reported by Madoff, and hired an independent consultant to investigate. The consultant concluded that Madoff could not possibly have executed the volume of options or equities trades he reported, and that his trading revealed either extremely sloppy errors or serious omissions that suggest he doesnt really understand the costs of the option strategy. A 977 218 (emphasis removed). Access concealed the consultants findings and continued active recruitment of investors for Madoffs feeder funds in order to keep churning its fees. Unicredit. Madoffs fraud drew billions from abroad. With the help of UniCredit Bank Austria AG (Bank Austria) and 20:20 Medici AG (Bank Medici), one Sonja Kohn established several Madoff

13a feeder funds (the Medici Funds). Together, they funneled nearly $3 billion into BLMIS. UniCredit S.p.A. and its two subsidiaries, Pioneer Alternative Investment Management Limited (Pioneer) and Bank Austria (collectively, the UniCredit entities), helped to promote the Medici Funds and thereby facilitated the fraud. The UniCredit entities and their affiliates made a lot of money servicing the Medici funds: Bank Medici took more than $15 million in fees; and BA Worldwide, more than $68 million. The UniCredit entities were well aware that Madoffs returns were highly suspicious, and that the extent of BLMISs trading activities was facially impossible. Yet they continued to aggressively market the Madoff feeder funds to new customers while purporting to provide oversight. Among the signs overlooked by the UniCredit entities were Madoffs failure to identify counterparties to BLMISs options transactions, BLMISs atypical fee structure, and Madoffs impossibly high volume of transactions. Shortly after Madoffs arrest, a senior research analyst at Pioneer wrote, [w]e should be the professionals protecting investors from this fraud . . . [but] there is not one [due diligence] report in the files except for one in May 2005. A 136 314 (brackets in original). HSBC. HSBC Bank plc (HSBC)8 established Madoff feeder funds (at least eighteen in seven
The HSBC Defendants include HSBC Bank plc, HSBC Holdings plc, HSBC Securities Services (Luxembourg) S.A., HSBC Institutional Trust Services (Ireland) Limited, HSBC Securities Services (Ireland) Limited, HSBC Institutional Trust
8

14a different countries) that injected capital into the Ponzi scheme while ignoring obvious warning signs. As custodian and administrator of the funds, HSBC was required to hold the fund assets and handle dayto-day operations. HSBC also created derivative products, such as notes and swaps, to increase the flow of investment. These funds fed at least $8.9 billion into Madoffs scheme, a sum representing nearly forty percent of BLMISs capital under management. HSBC represented to customers that it exercised supervision and control over fund assets, whereas BLMIS itself took the role of custodian. Had HSBC performed oversight diligently, it would have seen thousands of instances in which Madoffs purported trades exceeded the total market volume of such trades on the given day. Repeatedly, industry analysts and HSBCs own due diligence team openly questioned Madoffs extraordinary success, lack of transparency, and incredible trading volume. In September 2005, HSBC commissioned KPMG LLP to detect potential fraud in BLMISs operations. Resulting reports in 2006 and 2008 warned that BLMISs role as custodian of its own funds posed a risk that the trades were a sham in order to divert client cash. A 89 168. Nonetheless, HSBC continued to enable[ ] Madoff in order to reap a
Services (Bermuda) Limited, HSBC Bank USA, N.A., HSBC Securities Services (Bermuda) Limited, HSBC Bank (Cayman) Limited, HSBC Private Banking Holdings (Suisse) S.A., HSBC Private Bank (Suisse) S.A., HSBC Fund Services (Luxembourg) S.A., and HSBC Bank Bermuda Limited.

15a windfall. A 35 1. In sum, HSBC engineered a labyrinth of hedge funds, management companies, and service providers that, to unsuspecting outsiders, seemed to compose a formidable system of checks and balances, yet, in reality, it provided different modes for directing money to Madoff while avoiding scrutiny and maximizing fees. A 36 4. Procedural History. On July 15, 2009, the Trustee commenced an adversary proceeding in the United States Bankruptcy Court for the Southern District of New York against HSBC and thirty-six others, including UniCredit and Pioneer.9 The Amended Complaint sought recovery of $2 billion in preferential or fraudulent transfers (Counts 1 through 19), and asserted four common law causes of action: aiding and abetting fraud, aiding and abetting breach of fiduciary duty, unjust enrichment, and money had and received (collectively, the common law claims). These common law claims sought $6.6 billion from HSBC and $2 billion from the remaining defendants. A contribution claim was asserted under New York law. On a motion by the UniCredit entities, the district court withdrew the reference to the bankruptcy court, for the limited purpose of deciding two threshold issues: (1) the Trustees standing to assert the common law claims, and (2) preemption of these claims by the Securities Litigation Uniform Standards Act (SLUSA).
This proceeding consolidated two actions, one against HSBC and one against UniCredit and Pioneer.
9

16a The common law claims and the contribution claim were dismissed by Judge Rakoff in July 2011, on the grounds that the Trustee was in pari delicto with the defendants, lacked standing to assert the common law claims on customers behalf, and could not demonstrate a right to contribution. See Picard v. HSBC Bank PLC, 454 B.R. 25, 37 (S.D.N.Y. 2011). The court did not reach the question whether SLUSA bars the Trustees claims. Id. The Trustees adversary proceeding against JPMorgan was commenced in December 2010. As in the proceedings against HSBC and UniCredit, the Trustee asserted common law claims seeking $19 billion for, inter alia, aiding and abetting fraud, aiding and abetting breach of fiduciary duty, unjust enrichment, and conversion. The adversary proceeding against UBS followed. Also named were Access, several of its affiliates, and two feeder funds. Again, the Trustee asserted common law claims for aiding and abetting fraud, aiding and abetting breach of fiduciary duty, unjust enrichment, and conversion, among others. Damages of approximately $2 billion were sought on behalf of the customers of BLMIS (rather than BLMIS itself). All Defendants (except Luxalpha and two individual Defendants) moved to dismiss the common law claims and the contribution claim. In November 2011, Judge McMahon granted the motions. See Picard v. JPMorgan Chase & Co., 460 B.R. 84 (S.D.N.Y. 2011). Judge McMahon concluded (as did Judge Rakoff) that the Trustee lacks

17a standing to bring an action on behalf of third parties and has no valid claim for contribution. Id. at 106. DISCUSSION We review de novo a district courts dismissal of causes of action for failure to state a claim for relief or lack of standing. See Fulton v. Goord, 591 F.3d 37, 41 (2d Cir. 2009). Point I considers the Trustees claims as asserted by him on behalf of BLMIS itself; Point II considers claims asserted by the Trustee on behalf of BLMISs customers. I We agree with the district courts that the Trustees common law claims asserted on behalf of BLMIS are barred by the doctrine of in pari delicto. A Under New York law,10 one wrongdoer may not recover against another. See Kirschner v. KPMG LLP, 938 N.E.2d 941, 950 (N.Y. 2010). The principle that a wrongdoer should not profit from his own misconduct is . . . strong in New York. Id. at 964. The New York Appellate Division, First Department, has long applied the doctrine of in pari delicto to bar a debtor from suing third parties for a fraud in which he participated. See Barnes v. Hirsch, 212
In a bankruptcy proceeding, state law . . . determines whether a right to sue belongs to the debtor or to the individual creditors. Wight v. BankAmerica Corp., 219 F.3d 79, 86 (2d Cir. 2000) (citation and internal quotation marks omitted). New York law governs here.
10

18a N.Y.S. 536, 539 (App. Div. 1st Dept 1925) (The bankrupts could not recover against these defendants for bucketing orders because they were responsible for the illegal transaction and parties to the fraud.), affd, 152 N.E. 424 (N.Y. 1926). A claim against a third party for defrauding a corporation with the cooperation of management accrues to creditors, not to the guilty corporation. Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114, 120 (2d Cir. 1991) (citing Barnes, 212 N.Y.S. at 537). The debtors misconduct is imputed to the trustee because, innocent as he may be, he acts as the debtors representative. See Wight v. BankAmerica Corp., 219 F.3d 79, 87 (2d Cir. 2000) ([B]ecause a trustee stands in the shoes of the corporation, the Wagoner rule bars a trustee from suing to recover for a wrong that he himself essentially took part in.); accord Breeden v. Kirkpatrick & Lockhart LLP (In re Bennett Funding Grp., Inc.), 336 F.3d 94, 99100 (2d Cir. 2003) (applying Wagoner rule in the context of the greatest Ponzi scheme [then] on record and holding that the defrauded investors and not the bankruptcy trustee were entitled to pursue malpractice claims against attorneys and 11 accountants arising from the fraud).
See also Kirschner v. Grant Thornton LLP, No. 07 Civ. 11604 (GEL), 2009 WL 1286326, at *10 (S.D.N.Y. Apr. 14, 2009) (applying Wagoner rule to dismiss fraud and breach of fiduciary claims where the debtor participated in, and benefitted from, the very wrong for which it seeks to recover), affd, 626 F.3d 673 (2d Cir. 2010); Hirsch v. Arthur Andersen & Co., 72 F.3d 1085, 109495 (2d Cir. 1995) (holding that even though there
11

19a Picard alleges that the Defendants were complicit in Madoffs fraud and facilitated his Ponzi scheme by providing (well-paid) financial services while ignoring obvious warning signs. These claims fall squarely within the rule of Wagoner and the ensuing cases: Picard stands in the shoes of BLMIS and may not assert claims against third parties for participating in a fraud that BLMIS orchestrated. Picards scattershot responses are resourceful, but they all miss the mark. He contends that a SIPA trustee is exempt from the Wagoner rule, but adduces no authority. He argues that the rationale of the in pari delicto doctrine is not served here because he himself is not a wrongdoer; but neither were the trustees in the cases cited above.12 He contends that in pari delicto should not impede the enforcement of securities laws, citing Bateman
[was] at least a theoretical possibility that some independent financial injury to the Debtors might be established, the Wagoner rule precluded standing because of the Debtors collaboration with the defendants-appellees in promulgating and promoting the Colonial Ponzi schemes).
12 Relatedly, he argues that in a typical bankruptcy in pari delicto is designed to bar corporate malefactors, including shareholders, from recovering, whereas in a SIPA liquidation the trustee marshals assets for the benefit of the customer property estate. Accordingly, there is no similar concern here that funds collected by the trustee would be distributed to wrongdoers. But, in Kirschner v. KPMG LLP, the New York Court of Appeals declined to make an exception to the in pari delicto doctrine despite the trustees urging that proceeds would benefit blameless unsecured creditors . . . and shareholders. Kirschner v. KPMG LLP, 938 N.E.2d 941, 958 (N.Y. 2010).

20a Eichler, Hill Richards, Inc. v. Berner, 472 U.S. 299 (1985); but Bateman Eichler is inapposite. See id. at 31516 (holding that in pari delicto would not prevent defrauded tippee from bringing suit against defrauding tipper, at least absent further inquiry into relative culpabilities of tippee and tipper).13 He invokes the adverse interest exception, which directs a court not to impute to a corporation the bad acts of its agent when the fraud was committed for personal benefit. See The Mediators, Inc. v. Manney (In re Mediators, Inc.), 105 F.3d 822, 827 (2d Cir. 1997). However, this most narrow of exceptions is reserved for cases of outright theft or looting or embezzlement . . . where the fraud is committed against a corporation rather than on its behalf.14
Like the Supreme Court in Bateman Eichler, we recently declined to apply in pari delicto to bar suit in a private civil antitrust action, where private actions play a significant role in the enforcement scheme. Gatt Commcns, Inc. v. PMC Assocs., L.L.C., 711 F.3d 68, 80 (2d Cir. 2013) (dismissing action on threshold question of antitrust standing). Here, in contrast, barring claims brought by Madoffs successor-ininterest would not preclude his victims from bringing suit individually. See infra p. 58 n.29 [infra 48a n.29]. In pari delicto does not apply to all wrongdoers; the doctrine targets those who actively participate in the illegal scheme and who are substantially at fault. Gatt Commcns, 711 F.3d at 84 (Wesley, J., concurring). The pleadings here leave us with no doubt that BLMISin whose shoes the Trustee standsbore at least substantially equal responsibility for the injuries the Trustee now seeks to redress. See Bateman Eichler, 472 U.S. at 31011. Accordingly, application of the rule in this context is well established. See, e.g., Wagoner, 944 F.2d at 120; Wight, 219 F.3d at 87.
13

When, as here, principal and agent are one and the same . . . the adverse interest exception is itself subject to an exception
14

21a Kirschner v. KPMG LLP, 938 N.E.2d 941, 952 (N.Y. 2010). It is not possible thus to separate BLMIS from Madoff himself and his scheme. Finally, Picard argues that the district courts should not have applied the in pari delicto doctrine at the pleadings stage; but the New York Court of Appeals has held otherwise. See id. at 947 n.3; see also Wagoner, 944 F.2d at 120. Early resolution is appropriate where (as here) the outcome is plain on the face of the pleadings. B The Trustees claim for contribution is the only one that may escape the bar of in pari delicto. See Barrett v. United States, 853 F.2d 124, 127 n.3 (2d Cir. 1988) (explaining that parties seeking contribution are necessarily in pari delicto).15 The Trustee seeks contribution for payments made to BLMIS customers under SIPA, on the theory that the Defendants are joint tortfeasors with BLMIS under New York law.

styled the sole actor rule, which imputes the agents knowledge to the principal notwithstanding the agents selfdealing. In re Mediators, Inc., 105 F.3d at 827.
15 Some courts have suggested that Wagoner nevertheless bars a contribution claim. See, e.g., Devon Mobile Commcns Liquidating Trust v. Adelphia Commcns Corp. (In re Adelphia Commcns Corp.), 322 B.R. 509, 529 (Bankr. S.D.N.Y. 2005); Silverman v. Meister Seelig & Fein, LLP (In re Agape World, Inc.), 467 B.R. 556, 58081 (Bankr. E.D.N.Y. 2012). We need not decide whether such a claim would survive a Wagoner challenge because, as explained in text, there is no contribution right under SIPA.

22a The New York statute provides that two or more persons who are subject to liability for damages for the same personal injury, injury to property or wrongful death, may claim contribution among them whether or not an action has been brought or a judgment has been rendered against the person from whom contribution is sought. N.Y. C.P.L.R. 1401 (McKinney). Section 1401 requires some form of compulsion; that is, the party seeking contribution must have been compelled in some way, such as through the entry of a judgment, to make the payment against which contribution is sought. N.Y. State Elec. & Gas Corp. v. FirstEnergy Corp., No. 3:03CV0438 (DEP), 2007 WL 1434901, at *7 (N.D.N.Y. May 11, 2007) (emphasis added). However, the SIPA payments for which Picard seeks contribution were not compelled by BLMISs state law fraud liability to its customers; his obligation to pay customers their ratable share of customer property is an obligation of federal law: SIPA. SIPA provides no right to contribution, and it is settled in this Circuit that there is no claim for contribution unless the operative federal statute provides one. See Nw. Airlines, Inc. v. Transp. Workers Union of Am., AFLCIO, 451 U.S. 77, 97 n.38, 9799 (1981); see also Herman v. RSR Sec. Servs. Ltd., 172 F.3d 132, 144 (2d Cir. 1999) (affirming dismissal of New York state law contribution claims for liability under the Fair Labor Standards Act); KBL Corp. v. Arnouts, 646 F. Supp. 2d 335, 341 (S.D.N.Y. 2009) ([A] plaintiff cannot use New York State common law as an end-around to make a claim for contribution that it could not make

23a under the federal statutory scheme.); Lehman Bros., Inc. v. Wu, 294 F. Supp. 2d 504, 505 n.1 (S.D.N.Y. 2003) ([W]hether contribution is available in connection with a federal statutory scheme is a question governed solely by federal law.) (citation and quotation marks omitted). Picard emphasizes that he is not seeking contribution for violations of SIPA or any other federal statute, but that is beside the point. The source of a right of contribution under state law must be an obligation imposed by state law. LNC Invs., Inc. v. First Fid. Bank, 935 F. Supp. 1333, 1349 (S.D.N.Y. 1996) (emphasis added). The issue is therefore whether the payments made by the Trustee, for which he is seeking contribution, are required by state or federal lawan easy question. The $800 million paid out to customers fulfilled an obligation created by SIPA, a federal statute that does not provide a right to contribution either expressly or by clear implication, Texas Industries, Inc. v. Radcliff Materials, Inc., 451 U.S. 630, 638 (1981). Unlike the Bankruptcy Act, SIPA does not require customers to establish a basis of liability as a prerequisite for the Trustees disbursement obligation. The loss itself is enough. See 15 U.S.C. 78fff2(c) (the Trustee shall allocate customer property of the debtor . . . 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); cf. Hill v. Day (In re Todays Destiny, Inc.), 388 B.R. 737, 75356 (Bankr. S.D. Tex. 2008) (holding that Texas law governed contribution claim where debtor sought contribution

24a for obligations set forth in proofs of claim alleging fraud under state law). Because the Trustees payment obligations were imposed by a federal law that does not provide a right to contribution, the district courts properly dismissed these claims. II Having rejected the Trustees claims asserted on behalf of BLMIS, we consider next whether the Trustee may assert such claims on behalf of BLMISs customers. To proceed with these claims, the Trustee must first establish his standing. This he cannot do. Standing is a threshold question in every federal case, determining the power of the court to entertain the suit. Warth v. Seldin, 422 U.S. 490, 498 (1975). Standing depends, first, on whether the plaintiff has identified a case or controversy between the plaintiff and the defendants within the meaning of Article III of the Constitution. Assn of Data Processing Serv. Orgs., Inc. v. Camp, 397 U.S. 150, 152 (1970). To have standing, [a] plaintiff must [1] allege personal injury [2] fairly traceable to the defendants allegedly unlawful conduct and [3] likely to be redressed by the requested relief. Hirsch v. Arthur Andersen & Co., 72 F.3d 1085, 1091 (2d Cir. 1995) (alterations in original) (quoting Allen v. Wright, 468 U.S. 737, 751 (1984)). In addition, the plaintiff must comply with prudential limitations on standing, of which the salient one here is that a party must assert his own legal rights and interests and cannot rest his claim to relief on the legal rights or interests of third parties. Warth, 422 U.S. at 499.

25a We consider below Picards arguments that: (A) existing Second Circuit precedent allows for thirdparty standing in a SIPA liquidation; and (B) SIPA itself confers standing, both by creating a bailment relationship between the Trustee and the debtors customers, and by authorizing SIPC to pursue subrogation claims on customers behalf.16 A The implied prohibition in Article III against third-party standing applies to actions brought by bankruptcy trustees. In Caplin v. Marine Midland Grace Trust Co. of N.Y., 406 U.S. 416 (1972), the Supreme Court ruled that federal bankruptcy law does not empower a trustee to collect money owed to creditors. That is because a bankruptcy trustee is not empowered to collect money not owed to the estate; the trustees proper task is simply to collect and reduce to money the property of the estates for which (he is trustee). Id. at 42829 (citation and internal quotation marks omitted). [N]owhere in the statutory scheme is there any suggestion that the trustee in reorganization is to assume the responsibility of suing third parties on behalf of creditors. Id. at 428. This way, creditors can make their own assessment of the respective advantages
16 In proceedings before one of the district courts, the Trustee grounded his standing argument in large part on Section 544(a) of the Bankruptcy Code, which gives a trustee the rights of a hypothetical lien creditor. The court considered this argument at length and ultimately rejected it, see Picard v. JPMorgan Chase & Co., 460 B.R. 84, 9297 (S.D.N.Y. 2011) (McMahon, J.), and the Trustee has abandoned it on appeal.

26a and disadvantages, not only of litigation, but of various theories of litigation, id. at 431; no consensus is needed as to the amount of damages to seek, or even on the theory on which to sue, id. at 432; and disputes over inconsistent judgments and the scope of settlements can be avoided, id. at 431 32. Our Court has hewed to this principle. In Wagoner, the misappropriation of funds by the owner and president of the debtor company was facilitated by stock transactions effected through a third-party brokerage firm. Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114, 117 (2d Cir. 1991). The trustees claim that the brokerage aided and abetted the fraud was dismissed on summary judgment, and we affirmed, observing that [i]t is well settled that a bankruptcy trustee has no standing generally to sue third parties on behalf of the estates creditors, but may only assert claims held by the bankrupt corporation itself. Id. at 118 (citing Caplin, 406 U.S. at 434); see also Hirsch v. Arthur Andersen & Co., 72 F.3d 1085, 1094 (2d Cir. 1995) (holding that Chapter 11 trustee had no standing to bring creditor claims against accountants and law firms that had provided services to the debtor, a real estate partnership operated as a Ponzi scheme); The Mediators, Inc. v. Manney (In re Mediators, Inc.), 105 F.3d 822, 826 (2d Cir. 1997) (affirming dismissal of breach of fiduciary duty claim brought by creditors committee functioning as bankruptcy trustee, against bank and law firm for allegedly aiding and abetting debtors fraud).

27a The Trustee makes little effort to explain why Caplin and its progeny do not control. Instead, he relies on a single Second Circuit case that was overruled by the Supreme Court, and on dicta in another. Apart from lacking precedential force, both cases are readily distinguishable. 1 In Redington v. Touche Ross & Co., 592 F.2d 617 (2d Cir. 1978), revd, 442 U.S. 560 (1979), a SIPA trustee sued the accountant of an insolvent brokerage for violations of record-keeping provisions of Section 17(a) of the Securities Exchange Act, as well as violations of state common law. The district court dismissed the Section 17(a) claim for lack of an implied private right of action, and concluded that it lacked jurisdiction over the common law claims. See Redington v. Touche Ross & Co., 428 F. Supp. 483, 49293 (S.D.N.Y. 1977). In reversing, we held that Section 17(a) did create an implied private right of action. See Redington v. Touche Ross & Co., 592 F.2d 617 (2d Cir. 1978), revd, 442 U.S. 560 (1979). We then considered the trustees claim that [h]e is responsible for marshalling and returning [customer] property; to the extent that he is unable to do so, he argues, he may sue on behalf of the customer/bailors any wrongdoer whom they could sue themselves. Id. at 625. Relying on the Federal Rules of Civil Procedure, Redington concluded that the Trustee, as bailee, is an appropriate real party in interest, id., and that SIPC is subrogated to the right of action implied in section 17 in favor of

28a brokers customers against third parties such as accountants. Id. at 624. Redington would favor Picards case, except that Redington is no longer good law. The Supreme Court granted certiorari in Redington to decide whether Section 17(a) created an implied right of action and whether a SIPA trustee and SIPC had standing to assert that claim. See Touche Ross & Co. v. Redington, 442 U.S. 560 (1979). The Court held that no private right of action existed under Section 17(a), id. at 579, and therefore considered it unnecessary to reach the standing issue, id. at 567 n.9. The case was remanded to consider whether an alternative basis for jurisdiction existed, but none was found. See Redington v. Touche Ross & Co., 612 F.2d 68, 70 (2d Cir. 1979). Picard argues that the Supreme Court left the standing question untouched because the opinion was limited to a merits-based reversal on the issue of whether a private right of action existed under section 17(a). Appellant Br. 31 (115044). However, the question of who may assert a right of action is presented ordinarily only if a right of action has been found to exist. See Nat. R.R. Passenger Corp. v. Nat. Assoc. of R.R. Passengers, 414 U.S. 453, 456 (1974) ([T]he threshold question clearly is whether the Amtrak Act . . . creates a [private] cause of action . . . for it is only if such a right of action exists that we need consider whether the respondent had standing to bring the action[.]).17 The Supreme Courts
The Trustee attempts to distinguish National Railroad on the ground that that case involved a single federal statute
17

29a reversal on the threshold question drained the Second Circuit Redington opinion of force on other questions. See Newdow v. Rio Linda Union Sch. Dist., 597 F.3d 1007, 1041 (9th Cir. 2010) ([W]hen the Supreme Court reverses a lower courts decision on a threshold question, the Court effectively holds the lower court erred by reaching [other issues].). Following the Supreme Courts reversal, this Court vacated its original judgment on the ground that subject matter jurisdiction was lacking. See Order, Redington v. Touche Ross, Nos. 777183, 77 7186 (2d Cir. Aug. 8, 1979); Appellee Br. Addendum A (115207). As the Trustee concedes, vacatur dissipates precedential force. See Appellant Br. 30 (115044). See also OConnor v. Donaldson, 422 U.S. 563, 577 n.12 (1975) (observing that vacatur deprives [the] courts opinion of precedential effect); Brown v. Kelly, 609 F.3d 467, 47677 (2d Cir. 2010).

without additional claims, so a determination that the Amtrak Act did not create a private right of action ended the case. Because Redington also involved state law claims over which the Court exercised pendent jurisdiction, Picard reasons, a determination on the existence of a private right of action tied to a federal statute does not end the courts inquiry into a trustees standing to assert state common law claims. Appellant Br. 36 (115044). In Redington, however, we did not consider specifically whether the trustee had standing to bring claims under common law. As explained in text, Redingtons standing analysis was entirely dependent on the Courts antecedent ruling that the statute created an implied private right of actiona ruling that was later overturned.

30a Since Redington, at least six judges in this Circuit have questioned or rejected third-party claims brought by SIPA trustees, beginning with Judge Pollack in Mishkin v. Peat, Marwick, Mitchell & Co., 744 F. Supp. 531, 55658 (S.D.N.Y. 1990).18 See also Picard v. JPMorgan Chase & Co., 460 B.R. 84, 100101 (S.D.N.Y. 2011) (McMahon, J.); Picard v. HSBC Bank PLC, 454 B.R. 25, 3334 (S.D.N.Y. 2011) (Rakoff, J.); Picard v. Taylor (In re Park South Sec., LLC), 326 B.R. 505, 516 (Bankr. S.D.N.Y. 2005) (Drain, J.); Giddens v. D.H. Blair & Co. (In re A.R. Baron & Co., Inc.), 280 B.R. 794, 804 (Bankr. S.D.N.Y. 2002) (Beatty, J.); SIPC v. BDO Seidman, LLP, 49 F. Supp. 2d 644, 653 (S.D.N.Y. 1999) (Preska, J.), revd on other grounds, 222 F.3d 63 (2d Cir. 2000). Yet Redington has enjoyed something of a halflife, with several courts (including this one) assuming without deciding that Redington retains residual force.19 Redington should be put to rest; it has no precedential effect.

In a hearing in the Mishkin case, Judge Pollack concluded, as we do, that Redington was reversed in all respects not on other grounds and does not stand as the law of this circuit. SPA 17 (115175).
18

Assuming that Redington was still good law, Judges Drain and Beatty instead rejected SIPA trustees standing arguments on the ground that only SIPC, not a SIPA trustee, could enforce its rights of subrogation. See In re Park South Sec., LLC, 326 B.R. at 516; In re A.R. Baron & Co., Inc., 280 B.R. at 804. In BDO Seidman, LLP, Judge Preska held that although Mishkins interpretation of SIPCs subrogation power was more faithful to the letter and purpose of the Act, she was
19

31a Even if Redington retained some persuasive value, it would not decide this case. First, Redington considered chiefly whether the trustee and SIPC had standing to bring a cause of action under Section 17 of the Exchange Act; the opinion said nothing about a SIPA trustees ability to orchestrate mass tort actions against third parties. See Redington v. Touche Ross & Co., 592 F.2d 617, 618 (2d Cir. 1978), revd, 442 U.S. 560 (1979) ([W]e are presented with the question whether a private cause of action exists under section 17 of the Securities Exchange Act of 1934 against accountants who prepare misleading statements of a brokers financial affairs, and if so, who may maintain such an action.). Second, our holding in Redington turned, in part, on an analysis of Fed. R. Civ. P. 17(a), which sets forth rules concerning real parties in interest, and which has no application here. See id. at 625; see also infra p. 51 n.25 [infra 41a n.25]. Third, Redington involved claims against a single accounting firm for a few discrete instances of alleged misconduct (the preparation of misleading financial statements). As a result, the policy concerns we express below (see infra p. 5969) [infra 49a51a] would have been considerably diminishedand, indeed, were not even addressed by the Court. Fourth, and finally, in Redington the brokerage firm was not complicit in the wrongdoing, but rather an entity distinct from
nonetheless bound by Redington to find that SIPC has standing to bring suit. 49 F. Supp. 2d at 653. On appeal, this Court assume[d], without deciding, that . . . SIPC has standing as the customers subrogee, SIPC v. BDO Seidman, LLP, 222 F.3d 63, 69 (2d Cir. 2000), and ultimately dismissed its claims on substantive grounds, id. at 7176.

32a its conniving officers [that] was directly damaged by Touche Ross unsatisfactory audit. 592 F.2d at 620. The Redington Court therefore did not have occasion to consider whether the doctrine of in pari delicto barred all or part of the suit. In sum, Redington is both non-binding and inapposite. 2 The Trustee relies on St. Paul Fire & Marine Insurance Co. v. PepsiCo, Inc., 884 F.2d 688 (2d Cir. 1989), for the proposition that a trustee may assert creditors claims if they are generalized in nature, and not particular to any individual creditor. However, the holding of that case has no application here. PepsiCo had been guarantor of bonds issued by a subsidiary that later was acquired by a subsidiary of Banner Industries. When the (later) merged entity defaulted on the bonds, PepsiCo sued Banner, alleging diversion of assets and alter ego. The merged entity went bankrupt, and the trustee sued Banner for misappropriation. We ruled that the trusteeand not PepsiCocould pursue Banner because Ohio law allowed a subsidiary to assert an alter ego claim against its parent, so that [t]he cause of action therefore becomes property of the estate of a bankrupt subsidiary, and is properly asserted by the trustee in bankruptcy. Id. at 703 04. Picard directs us to a passage in St. Paul stating that a trustee may bring a claim if the claim is a general one, with no particularized injury

33a arising from it, and if that claim could be brought by any creditor of the debtor, id. at 701and contends that the third-party claims here are common to all customers because all customers were similarly injured by Madoffs fraud and the Defendants facilitation. This argument is flawed on many levels: St. Paul decided the specific question whether a creditor may bring an alter ego claim against the debtors parent when the debtor itself also possesses such a claim. Id. at 699. But Picard seeks to assert claims that are property only of the creditors, not of the debtor. The Trustees broad reading of St. Paul would bring the Courts holding into conflict with a line of cases that came before and after it. As discussed supra pp. 3234 [supra 27a29a], it is settled that a trustee may not assert creditors claims against third parties. See, e.g., Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114 (2d Cir. 1991). And, of course, St. Paul could not alter the Supreme Courts ruling in Caplin. Picards argument thus conflicts with Supreme Court and Second Circuit precedent. See generally In re Stanwich Fin. Servs. Corp., 317 B.R. 224, 228 n.4 (Bankr. D. Conn. 2004) (highlighting this tension). The language cited by Picard from St. Paul is not a pronouncement about third-party standing; it voices the maxim that only a trustee, not creditors, may assert claims that belong to the bankrupt estate. As St. Paul elsewhere states: [T]he Trustee in bankruptcy has standing to represent only the interests of the debtor corporation. Our decision

34a today goes no further than to say that causes of action that could be asserted by the debtor are property of the estate and should be asserted by the trustee. St. Paul, 884 F.2d at 702 n.3 (internal citation omitted) (quoting Bloor v. Carro, Spanbock, Londin, Rodman & Fass, 754 F.2d 57, 62 n.4 (2d Cir. 1985)). As illustrated by St. Paul, when a creditor seeks relief against third parties that pushed the debtor into bankruptcy, the creditor is asserting a derivative claim that arises from harm done to the estate. Judge Posner described this distinction: The point is simply that the trustee is confined to enforcing entitlements of the corporation. He has no right to enforce entitlements of a creditor. He represents the unsecured creditors of the corporation; and in that sense when he is suing on behalf of the corporation he is really suing on behalf of the creditors of the corporation. But there is a difference between a creditors interest in the claims of the corporation against a third party, which are enforced by the trustee, and the creditors own directnot derivative claim against the third party, which only the creditor himself can enforce. Steinberg v. Buczynski, 40 F.3d 890, 893 (7th Cir. 1994). See generally Prod. Res. Grp., L.L.C. v. NCT Grp., Inc., 863 A.2d 772, 792 (Del. Ch. 2004). The customers claims against the Defendants are not common or general. A debtors claim against a third party is general if it seeks to augment the fund of customer property and thus affects all

35a creditors in the same way. Picard, however, seeks to assert claims on behalf of thousands of customers against third-party financial institutions for their handling of individual investments made on various dates in varying amounts. The Defendants alleged wrongful acts, then, could not have harmed all customers in the same way.20 B The Trustee attempts to blunt the force of Caplin and its progeny by arguing that a SIPA liquidation is unique and is therefore not controlled by precedent under the bankruptcy code. He advances two theories for why a SIPA trustee enjoys standing to assert third-party claims. 1 Picard contends that, for SIPA purposes, the customers of a failed brokerage are bailors, and that heacting as baileehas a sufficient possessory interest to permit him to recover for the wrongful
20 A recent case arising out of the BLMIS bankruptcy provides a useful contrast. In Fox v. Picard (In re Madoff), 848 F. Supp. 2d 469 (S.D.N.Y. 2012), the district court relied on St. Paul in holding that certain Madoff customers could not pursue fraudulent transfer claims that were the property of the BLMIS estate. Id. at 478. The customer claims were duplicative and derivative of the Trustees fraudulent transfer claim. Id. at 479 n.2. Accordingly, the court found the claims to be general in the sense articulated in St. Paul, in that they arose from a single set of actions that harmed BLMIS and all BLMIS customers in the same way. Id. at 480. Here, however, the customers claims are not derivative of claims held by the BLMIS estate.

36a act of a third party resulting in the loss of, or injury to, the subject of the bailment. United States v. Perea, 986 F.2d 633, 640 (2d Cir. 1993) (quoting Rogers v. Atl., Gulf & Pac. Co., 107 N.E. 661, 664 (N.Y. 1915)). We disagree. First, the statute is not written or cast in terms of bailment. To the extent consistent with the provisions of this chapter, a liquidation proceeding shall be conducted in accordance with, and as though it were being conducted under [the Bankruptcy Code]. 15 U.S.C. 78fff(b). As a general rule, SIPA vests trustees with the same powers and title with respect to the debtor and the property of the debtor . . . as a trustee in a case under Title 11. 15 U.S.C. 78fff1(a). True, a SIPA trustee has some powers not conferred on a trustee under Title 11. Most notably, SIPA creates a fund of customer property that is separate from the debtor estate and that has priority over other creditors claims, and authorizes the trustee to ratably distribute those funds based on customers net equity. See 15 U.S.C. 78fff 2(c)(1)(B); In re Bernard L. Madoff Investment Secs., 654 F.3d 229, 231 (2d Cir. 2011), cert. denied, 133 S. Ct. 25 (2012). But the statute does not confer upon SIPA trustees a power, denied all other bankruptcy trustees, to sue third parties on claims that belong to persons other than the estate. Nowhere does the statute reference bailment, or characterize customers as bailors or trustees as bailees, or in any way indicate that the trustee is acting as bailee of customer property. Picard alternatively invokes the principle of bailment under the common law. This is dubious:

37a courts are careful to avoid overlaying common law principles onto a statutory framework, even when (unlike here) the statute makes clear reference to common law. See Moore v. PaineWebber, Inc., 189 F.3d 165, 17980 (2d Cir. 1999) (That the statute . . . borrow[s] in part from the common law should not mislead us: it remains the statute and its purpose that governs.). This caution is especially apt here because the statute creates a ramified scheme that makes no mention of common law. In any event, the analogy to the common law of bailment is flawed from start to finish. A bailment is a delivery of personalty for some particular purpose, or on mere deposit, upon a contract express or implied, that after the purpose has been fulfilled it will be redelivered to the person who delivered it, or otherwise dealt with according to that persons directions, or kept until it is reclaimed. 9 N.Y. Jur. 2d Bailments and Chattel Leases 1 (West 2013). Even assuming that the customers investments could be deemed bailed property, the only delivery that took place was when customers made their investments, either in BLMIS directly, or through the feeder funds. See Pattison v. Hammerstein, 39 N.Y.S. 1039, 1040 (App. Div. 1st Dept 1896); see also United States v. $79,000 in Account No. 2168050/6749900 at Bank of N.Y., 96 CIV. 3493(MBM), 1996 WL 648934, at *6 (S.D.N.Y. Nov. 7, 1996) (Delivery to the bailee is required to create a bailment.). So: any supposed bailment pre-dated Picards appointment; he was not entrusted with any customer property until after it had been impaired; and he never had control over the missing funds that

38a he now seeks to recoup. He therefore is not the proper party to bring such an action. See 9 N.Y. Jur. 2d Bailments and Chattel Leases 115 (West 2013) (explaining that bailee may only bring an action to recover for the loss of or injury to the bailed property while in his or her possession).21 Moreover, Picard is not seeking to recover specific bailments for return to individual bailors. See 9 N.Y. Jur. 2d Bailments and Chattel Leases 82 (West 2013) (One of the most important rights of the bailor is that, on the termination of the bailment, the bailor will return to him or her the identical thing bailed . . . .). Unlike customer name securities, which are separately held and returned to individual customers outside the normal distribution scheme,22
21 Judge McMahon likened the Trustees position to that of a parking garage attendant who is handed the keys to a car that was recently in an accident and decides to sue the culpable party on the owners behalf. See Picard v. JPMorgan Chase & Co., 460 B.R. 84, 10405 (S.D.N.Y. 2011).

See 15 U.S.C. 78lll(4) (excluding customer name securities delivered to the customer from definition of customer property); see also In re New Times Sec. Servs., Inc., 371 F.3d 68, 7273 (2d Cir. 2004). This contrast, and its ramifications, are illuminated by SIPCs own statements to Congress regarding the passage of the 1978 amendments to SIPA. SIPCs then-Chairman, Hugh F. Owens, explained that customer name securities will be treated, in short, as though they are not part of the debtors estate, but merely held by the debtor as baileeimplying that most other commingled property, such as cash, would simply become part of the debtors estate. SIPA Amendments: Hearings on H.R. 8331 Before the Subcomm. on Sec., Comm. on Banking, Hous. and Urban Affairs, 95th Cong. 4142 (1978) (Statement by Hugh F. Owens, Chairman of SIPC).
22

39a Picards claims are intended to augment the general fund of customer property so that it can be distributed ratably based on customers net equity. This arrangement is not an analog to a bailment, in which the bailee is entrusted with an item that is to be recovered by the bailor at some later time. SIPC urges that we view the transaction as though BLMIS, not the Trustee, acted as the bailee of customer property, and that the Trustee is simply acting on BLMISs behalf to recover the bailed property. The short answer is that Madoff (and, by extension, BLMIS) took the investment money from the customers in order to defraud themand a thief is not a bailee of stolen property. See Pivar v. Graduate Sch. of Figurative Art of the N.Y. Acad. of Art, 735 N.Y.S.2d 522, 522 (App. Div. 1st Dept 2002) (holding that a bailment relationship arises if the bailee takes lawful possession of property without present intent to appropriate). Madoffs commingling of customer funds also defeats any analogy to bailment. Notwithstanding Madoffs pretense, he failed to maintain customers investments in separate named accounts. He deposited all customer funds into a general account (the 703 Account) and distributed those new investments to earlier customers in lieu of actual returns. This arrangement, which enabled the fraud, made a bailment impossible. See Peoples Westchester Sav. Bank v. F.D.I.C., 961 F.2d 327, 330 (2d Cir. 1992) (distinguishing special accounts from general accounts); see also United States v. Khan, No. 97 6083, 1997 WL 701366, at *2 (2d Cir. 1997) (holding

40a that a deposit into a general bank account destroys a potential bailment under New York law).23 SIPC attempts to obviate these difficulties by relying on SEC Rule 15c, which establishes bookkeeping segregation requirements for brokers. 17 C.F.R. 240.15c33. Judge Rakoff was mystified by this argument, Picard v. HSBC Bank PLC, 454 B.R. 25, 32 (S.D.N.Y. 2011), as are we. Rule 15c requires brokers to maintain a minimum cash balance in a reserve account and segregate all such cash for customers benefit. See 17 C.F.R. 240.15c33. It also specifically contemplates the commingling of customer monies and the lending of customer securities. Levitin v. PaineWebber, Inc., 159 F.3d 698, 706 (2d Cir. 1998). Whatever Rule 15c may do, it does not confer power on a SIPA trustee to sue on behalf of customers. First, the Rule is not a part of SIPA. Second, such a rule would exceed the scope of agency rule-making. See generally Alexander v. Sandoval, 532 U.S. 275, 291 (2001) (Language in a regulation may invoke a private right of action that Congress through
With a few exceptions, such as commingled fungible goods in a warehouse, the general rule is that the bailee can only discharge his or her liability to the bailor by returning the identical thing received, in its original or an altered form, according to the terms of the bailment. 9 N.Y. Jur. 2d Bailments and Chattel Leases 84 (West 2013). Rahilly v. Wilson, a case relied on by SIPC, is not to the contrary. See Rahilly v. Wilson, 20 F. Cas. 179, 182 (Cir. Ct. D. Minn. 1873) (comparing commingled bales of wheat to an ordinary general deposit of money in a bank and holding that no bailment had taken place).
23

41a statutory text created, but it may not create a right that Congress has not.). In any event, the Rule does not suggest that the broker (or the Trustee) serves as a bailee of customer property, or that the Trustee may assert claims on behalf of customers. Finally, SIPC and the Trustee infer a bailment relationship from federal common law and the Federal Rules of Civil Procedure. The inferences are strained at best. Federal common law, which does not speak to the powers of a SIPA trustee, offers no useful insight.24 Nor do the Federal Rules of Civil Procedure.25

SIPC suggests that it is appropriate to resort to federal common law where a significant conflict exists between state and federal law and where the need for uniformity in the treatment of brokerage customers is paramount. But no legal authority is offered to support the application of federal common law here. And there is no evident conflict between New York bailment law (on the one hand) and (on the other) SIPA, Rule 15c, or some broader federal policy.
24 25 The Trustee invokes Rule 17, which allows a bailee to sue in [his] own name[ ] without joining the person for whose benefit the action is brought. Fed. R. Civ. P. 17(a)(1). But, as discussed in text, the trustee is not a bailee. Additionally, Rule 17(a), like all rules prescribed by the Supreme Court, may not abridge, enlarge, or otherwise modify substantive rights. See 28 U.S.C. 2072(b); Stichting Ter Behartiging Van de Belangen Van Oudaandeelhouders In Het Kapitaal Van Saybolt Intl B.V. v. Schreiber, 407 F.3d 34, 49 (2d Cir. 2005) (The procedural mechanisms set forth in Rule 17(a) for ameliorating real party in interest problems may not . . . be employed to expand substantive rights.). It therefore cannot provide an independent basis for standing. See generally Natural Res. Def. Council, Inc. v. EPA, 481 F.2d 116, 121 (10th Cir. 1973).

42a 2 The Trustee argues that, because SIPC advanced funds to customers at the outset of the liquidation, SIPC is subrogated to those customers claims against the Defendants; SIPC therefore may assert those claims as subrogee; and Picard is authorized to enforce that right on SIPCs behalf. But SIPC is a creature of statute, and neither the plain language of the statute, nor its legislative history, supports the Trustees position. True, a SIPA trustee (unlike a trustee in bankruptcy), advances money to pay claims. The statute takes this fact into account by subrogating SIPC to customers net equity claims to the extent of the advances they received. But it goes no further. The Trustees subrogation theory is premised in 78fff3 (a): To the extent moneys are advanced by SIPC to the trustee to pay or otherwise 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 with the rights and priorities provided in this chapter, except that SIPC as subrogee may assert no claim against customer property until after the allocation thereof to customers as provided in section 78fff2(c) of this title. 15 U.S.C. 78fff3(a). It is undisputed that the phrase claims of customers refers (as throughout

43a the statute) to customers net equity claims against the estate. See generally In re Bernard L. Madoff Inv. Sec. LLC, 654 F.3d 229, 233 (2d Cir. 2011), cert. denied, 133 S. Ct. 25. SIPA thus allows only a narrow right of subrogationfor SIPC to assert claims against the fund of customer property and thereby recoup any funds advanced to customers once the SIPA trustee has satisfied those customers net equity claims. The Trustee urges us to conclude that 78fff3(a) does moremuch moreby creating a right of subrogation that allows SIPC (and, by extension, the Trustee) to step into customers shoes and to initiate and control litigation on their behalf, against any number of defendants, until SIPC has been repaid in full. As we emphasized earlier, SIPA grants trustees the same powers and title with respect to the debtor and the property of the debtor as a Title 11 trustee, 15 U.S.C. 78fff1(a), and the Supreme Court has squarely rejected attempts by Title 11 trustees to capture such litigation, see Caplin v. Marine Midland Grace Trust Co., 406 U.S. 416, 428 (1972). As a final resort, the Trustee relies on a catch-all provision included in the 1978 amendments to SIPA, which states that the subrogation rights afforded by 78fff3(a) should not be read to diminish all other rights [SIPC] may have at law or in equity. 15 U.S.C. 78fff3(a). From here, the Trustee claims an implied right of equitable subrogation, the principle by which an insurer, having paid losses of its insured, is placed in the position of its insured so that it may recover from the third party legally responsible for the loss. Winkelmann v. Excelsior

44a Ins. Co., 650 N.E.2d 841, 843 (N.Y. 1995). He thus claims a wide grant of authority to initiate classaction lawsuits and assert any number of tort claims against third parties on customers behalf.26 This is a long, long reach. There is no sign that Congress intended an expansive increment of power to SIPA trustees. In 1973, the SIPC chairman appointed a Special Task Force to consider possible amendments to the 1970 Act. The resulting July 1974 report separately listed its major policy recommendations and its proposed technical refinements. See Report to the Board of Directors of SIPC of the Special Task Force to Consider Possible Amendments to SIPA, Letter of Transmittal (July 31, 1974). Recommendation II.A.9, deemed a Major Policy Recommendation, states that claims of SIPC as subrogee (except as otherwise provided), should be allowable only as claims against the general estate. Id. at 12 (emphasis added); see also SIPA Amendments of 1975: Hearings on H.R. 8064 Before the Subcomm. on Consumer Protection and Fin. of the H. Comm. on Interstate and Foreign Commerce, 94th Cong. 64 (1976) (hereinafter Hearings on H.R. 8064 ). Notably, Caplin was decided in 1972, before the Task Force report and six years before Congress amended 78fff3(a) to include all other rights [SIPC] may have at law or in equity. If Congress sought to exempt SIPA trustees from Caplins rule
We use the term class-action lawsuits loosely here, without taking a position on the SLUSA question.
26

45a and expand SIPCs subrogation rights to tort actions against third parties, we would expect such intent to be manifested in the statutory wording and in the record.27 The wording cited by Picard was proposed by SIPC itself as a Minor Substantive or Technical Amendment[ ] in order to make clear that SIPCs subrogation rights under the 1970 Act are cumulative with whatever rights it may have under other State or Federal laws. Hearings on H.R. 8064, 94th Cong. 197, 199 (1976) (Memorandum of the Securities Investor Protection Corporation in Regard to Certain Comments Concerning H.R. 8064). Congress does not alter the fundamental details of a regulatory scheme in vague terms or ancillary provisionsit does not . . . hide elephants in mouseholes. Whitman v. Am. Trucking Assocs., Inc., 531 U.S. 457, 468 (2001). The Trustee adduces rules of insurance law to justify his claim, an analogy with some intuitive appeal: Principles of equity generally permit subrogees wide scope to sue third-party tortfeasors, a claim that arises most commonly with insurance. See, e.g., Winkelmann, 650 N.E.2d at 843.

Caplin was undoubtedly on the radar of legislators at the time, as an earlier version of Section 544 of the Bankruptcy Code introduced with the 1978 amendments contained a provision intended to overrule Caplin. See In re Ozark Rest. Equip. Co., Inc., 816 F.2d 1222, 1227 n.9 (8th Cir. 1987). Significantly, this provision was deleted prior to enactment. Id.
27

46a But this argument succumbs to the same critique as Picards bailment theory: We avoid engrafting common law principles onto a statutory scheme unless Congresss intent is manifest. See supra p. 46 [supra 38a]. The clearest Congressional intent here is that we should treat SIPA as a bankruptcy statute, not as an insurance scheme. SIPA and FDIA are independent statutory schemes, enacted to serve the unique needs of the banking and securities industries, respectively.28 SIPC v. Morgan, Kennedy & Co., 533 F.2d 1314, 1318 (2d Cir. 1976). We have since warned against oversimplified comparisons between insurance law and federal statutory law: While this Court has referred to SIPC as providing a form of public insurance, it is clear that the obligations imposed on an insurance provider under state law do not apply to this congressionally-created nonprofit membership corporation. In re Bernard L. Madoff Inv. Sec. LLC, 654 F.3d 229, 239 (2d Cir. 2011), cert. denied, 133 S. Ct. 25 (2012) (internal citations and quotation marks omitted). Relatedly, Picard argues under principles of equity that unless he can spearhead the litigation on behalf of defrauded customers, the victims will not be made whole, SIPC will be unable to recoup its advances, and third-party tortfeasors will reap windfalls.29 No doubt, there are advantages to the
Congress rejected some early versions of the SIPA bill which were patterned on FDIA and which extended insurance coverage to certain beneficial interests represented by customer accounts. Morgan, Kennedy & Co., 533 F.2d at 1318.
28

Picard and SIPC contend that, absent his exclusive authority to bring these customer claims, the Defendants would in effect
29

47a course Picard wants to follow. But equity has its limits; it may fill certain gaps in a statute, but it should not be used to enlarge substantive rights and powers. Cf. In re Ozark, 816 F.2d at 1230 (observing that while Bankruptcy Code allows a court to apply equitable principles when necessary, [t]hese powers . . . do not include the ability to award equitable relief where the party asserting the cause of action for such relief does not have standing under any other section of the Code). As the Supreme Court observed, SIPCs theory of subrogation is fraught with unanswered questions. Holmes v. SIPC, 503 U.S. 258, 270 (1992) (ultimately declining to decide subrogation issue and instead holding that link between stock manipulation and harm to customers was too remote to support SIPCs RICO claim). As in Holmes, SIPC has left courts to guess at the nature of the common law rights of subrogation that it claims. Id. at 271. The practical skepticism voiced in Caplin in a traditional bankruptcy context is justified here as well. Would such suits prevent customers from
be immunized from suit. But it is not obvious why customers cannot bring their own suits against the Defendants. In fact, the Defendants make clear that customers have already filed such actions. See, e.g., MLSMK Inv. Co. v. JP Morgan Chase & Co., 431 Fed. Appx 17 (2d Cir. 2011) (summary order); Shapiro v. JP Morgan Chase & Co., No. 11CV8331 (S.D.N.Y.); Hill v. JPMorgan Chase & Co., No. 11CV7961 (S.D.N.Y.). As in Redington, the customers on whose behalf the Trustee seeks to maintain suit are not only entitled to bring, but have already initiated their own action. Redington v. Touche Ross & Co., 592 F.2d 617, 635 (2d Cir. 1978) (Mulligan, J., dissenting).

48a mak[ing] their own assessment of the respective advantages and disadvantages, not only of litigation, but of various theories of litigation? Caplin, 406 U.S. at 431. Can a SIPA trustee control customers claims against third parties if SIPC has not fully satisfied the customers claims against the estate? How would inconsistent judgments be avoided, given that independent actions are still likely because it is extremely doubtful that [the parties] would agree on the amount of damages to seek, or even on the theory on which to sue? Id. at 432. Who would be bound by a settlement entered into by either the Trustee or by each customer who brings suit? Id. The size and scope of the litigation here only amplify these concerns. As Caplin advises, it is better to leave these intractable policy judgments to Congress: Congress might well decide that reorganizations have not fared badly in the 34 years since Chapter X was enacted and that the status quo is preferable to inviting new problems by making changes in the system. Or, Congress could determine that the trustee . . . was so well situated for bringing suits . . . that he should be permitted to do so. In this event, Congress might also determine that the trustees action was exclusive, or that it should be brought as a class action on behalf of all [creditors], or perhaps even that the [creditors] should have the option of suing on their own or having the trustee sue on their behalf. Any number of alternatives are available. Congress would also be able to

49a answer questions regarding subrogation or timing of law suits before these questions arise in the context of litigation. Whatever the decision, it is one that only Congress can make. Caplin, 406 U.S. at 43435. *** For the foregoing reasons, the judgments are affirmed.

50a APPENDIX B UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ________ Irving H. Picard, Plaintiff, v. HSBC Bank PLC, Alpha Prime Fund Limited, HSBC Securities Services (Luxembourg) S.A., HSBC Bank Bermuda Limited, HSBC Fund Services (Luxembourg) S.A., HSBC Private Bank (Suisse) S.A., HSBC Private Banking Holdings (Suisse) S.A., HSBC Bank (Cayman) Limited, HSBC Securities Services (Bermuda) Limited, HSBC Bank USA, N.A., HSBC Institutional Trust Services (Bermuda) Limited, HSBC Securities Services (Ireland) Limited, HSBC Institutional Trust Services (Ireland) Limited, HSBC Holdings PLC, Defendants. ________ Irving H. Picard, Plaintiff, v. Alpha Prime Fund Limited, HSBC Bank PLC, HSBC Securities Services (Luxembourg) S.A., HSBC Bank Bermuda Limited, HSBC Fund Services (Luxembourg) S.A., HSBC Private Bank (Suisse) S.A., HSBC Private Banking Holdings (Suisse) S.A., HSBC Bank (Cayman) Limited, HSBC Securities Services (Bermuda) Limited, HSBC Bank USA, N.A.,

51a HSBC Institutional Trust Services (Bermuda) Limited, HSBC Securities Services (Ireland) Limited, HSBC Institutional Trust Services (Ireland) Limited, HSBC Holdings PLC, UniCredit S.p.A., Pioneer Alternative Investment Management Limited, Defendants. ________ Nos. 11 Civ. 763 (JSR), 11 Civ. 836 (JSR). ________ July 28, 2011. ________ OPINION AND ORDER JED S. RAKOFF, District Judge. Though it sometimes seems otherwise, not every litigant has the right to appear in federal court. A would-be litigant must first establish standing to pursue his or her claims, by demonstrating, among other things, the existence of a case or controversy and a personal stake in the outcome of the case. In this particular case, the Court is called upon to determine whether Irving Picard (the Trustee), the trustee appointed pursuant to the Securities Investor Protection Act for the consolidated liquidation of Bernard L. Madoff Investment Securities (Madoff Securities), has standing to pursue common law claims against third parties who allegedly violated a duty to Madoff Securities customers by failing to detect Madoffs fraud. For the reasons stated herein, the Court answers this

52a question in the negative and thus dismisses the Trustees common law claims against the HSBC Defendants1 and the UCG/PAI Defendants.2 By way of background, after it was revealed in December 2008 that Madoff Securities was a giant Ponzi scheme, SEC v. Madoff, 08 Civ. 7891 (S.D.N.Y. Dec. 11, 2008), the company went into bankruptcy. See Securities Investor Protection Corporation v. Bernard L. Madoff Investment Securities, LLC, Adv. Pro. No. 0801789 (S.D.N.Y. Bankr. Dec. 11, 2008). Shortly thereafter, on December 15, 2008, the Trustee was appointed to manage the consolidated liquidation of Madoff Securities. On July 15, 2009, the Trustee commenced adversary proceeding No. 091364A (BRL) (the Trustees Action) in the Bankruptcy Court. The 165page Amended Complaint in that action, filed on December 5, 2010, in addition to seeking to recover some $2 billion in preferential or fraudulent transfers (Counts 119), seeks to recover under various common law theories such as unjust enrichment, aiding and abetting fraud, and aiding
The HSBC Defendants consist of HSBC Bank PLC, HSBC Holdings PLC, HSBC Securities Services (Luxembourg) S.A., HSBC Institutional Trust Services (Ireland) Limited, HSBC Securities Services (Ireland) Limited, HSBC Institutional Trust Services (Bermuda) Limited, HSBC Bank USA, N.A., HSBC Securities Services (Bermuda) Limited, HSBC Bank (Cayman) Limited, HSBC Private Banking Holdings (Suisse) S.A., HSBC Private Bank (Suisse) S.A., HSBC Fund Services (Luxembourg) S.A., and HSBC Bank Bermuda Limited.
1

The UCG/PAI Defendants consist of UniCredit S.p.A. and Pioneer Alternative Investment Management Ltd.
2

53a and abetting breach of fiduciary duty (Counts 20 24), no less than $6.6 billion in damages from the HSBC Defendants and approximately $2 billion in damages from a group of thirty-six other defendants, including the UCG/PAI Defendantsall premised on their alleged failure to adequately investigate Madoff Securities despite being confronted with myriad red flags and indicia of fraud. Am. Compl. 1, 318, 332, 557. The question of whether the Trustee can pursue such common law claims, either on behalf of customers or on behalf of the estate, raises substantial, unresolved issues of federal nonbankruptcy law.3 Accordingly, on April 12, 2011, the Court withdrew the reference of this action to the Bankruptcy Court for the limited purpose of addressing two threshold issues of non-bankruptcy federal law: (1) whether the Trustee has standing to bring his common law claims against the HSBC Defendants and the UCG/PAI Defendants, and (2) whether the common law claims against these defendants are preempted by the Securities Litigation Uniform Standards Act (SLUSA). See Order, April 13, 2011 (confirming April 12 ruling from the bench); Picard v. HSBC Bank PLC, 450

3 The Trustee asserts that his common law claims are brought under the common law of New York State. See Am. Compl. 537, 542, 547, 554. However, the question of standing to bring such claims in federal court is a matter of federal law. See, e.g., Coyne v. American Tobacco Co., 183 F.3d 488 (6th Cir. 1999) ([S]tanding is a matter of federal law not state . . . law.).

54a B.R. 406 (S.D.N.Y. 2011) (elaborating the reasons for the withdrawal of the reference). Both the HSBC Defendants and the UCG/PAI Defendants subsequently moved to dismiss the common law claims, contending that the Trustee lacks standing to bring these claims and that these claims are barred by SLUSA. Because the Court concludes that the Trustee lacks standing to assert the common law claims, the Court need not address whether these claims are preempted by SLUSA. Standing under Article III of the United States Constitution is a threshold issue in all cases, since putative plaintiffs lacking standing are not entitled to have their claims litigated in federal court. Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114, 117 (2d Cir. 1991). To meet Article III requirements, the Trustee must demonstrate: (i) a concrete and particularized injury in fact, (ii) that can be fairly traced to the defendants conduct, and (iii) that can be redressed by a favorable decision. Bogart v. Israel Aerospace Indus. Ltd., No. 09 Civ. 4783 (LAP), 2010 WL 517582, at *34 (S.D.N.Y. Feb. 5, 2010) (citing Denney v. Deutsche Bank AG, 443 F.3d 253, 263 (2d Cir. 2006)). Moreover, to satisfy prudential limitations on standing, a party must assert his own legal rights and interests, and cannot rest his claim to relief on the legal rights or interests of third parties. Wight v. BankAmerica Corp., 219 F.3d 79, 86 (2d Cir. 2000) (quoting Warth v. Seldin, 422 U.S. 490, 499 (1975)). Accordingly, even though a bankruptcy trustee can seek to recover monies on behalf of the debtors

55a estate that will ultimately be used to help satisfy creditors claims, it is settled law that the federal Bankruptcy Code (Title 11, United States Code) does not itself confer standing on a bankruptcy trustee to assert claims against third parties on behalf of the estates creditors themselves, because the trustee stands in the shoes of the debtor, not the creditors. See Caplin v. Marine Midland Grace Trust Co. of New York, 406 U.S. 416, 434 (1972). When it comes to common law claims, moreover, a bankruptcy trustee is often barred from bringing claims on behalf of the debtors estate because of the common law doctrine of in pari delicto, which generally precludes a wrongdoer like Madoff Securities from recovering from another wrongdoer. Although, under New York State law, in pari delicto is an affirmative defense, see Kirschner v. KPMG LLP, 938 N.E.2d 941, 960 (N.Y. 2010), in federal court prudential considerations deprive a bankruptcy trustee of standing to even bring a claim that would be barred by in pari delicto. Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114, 118 (2d Cir. 1991). The Trustee, seeking to overcome these two obstacles, asserts of number of convoluted theories, none of which is ultimately persuasive. The Trustee first asserts that he has standing to bring common law claims against third parties as bailee of the property of Madoff Securities customers. On its face, this theory encounters the objection that, because the Trustee is seeking to recover on behalf of customers and the fund of customer property, rather than the estate itself, he is thus not asserting his

56a own legal rights and interests, Warth, 422 U.S. at 499, because, as noted, Title 11 does not confer standing on the Trustee to bring claims on behalf of the bankrupt estates creditors, see id. at 42834. The Trustee, however, contends that his power to bring these claims is derived from laws other than Title 11. In particular, he argues that he derives such authority from the statute pursuant to which he was appointed, the Securities Investor Protection Act (SIPA), 15 U.S.C. 78aaa et seq. See Am. Compl. 48, 50. Yet SIPA generally provides that a SIPA trustee is only vested with the same powers . . . as a trustee in a case under title 11, see 15 U.S.C. 78fff1(a), and further prescribes that [t]o the extent consistent with the provisions of this chapter a liquidation proceeding shall be conducted in accordance with, and as though it were being conducted under . . . title 11. 15 U.S.C. 78fff(b). Nevertheless, the Trustee argues that other provisions of SIPA somehow implicitly afford the Trustee authority, beyond that afforded to a bankruptcy trustee, to bring common law claims against third parties on behalf of Madoff Securities customers. Neither the language nor the structure of SIPA supports this conjecture. To be sure, the focus of SIPA is on protecting securities customers. Specifically, the purpose of a SIPA liquidation proceeding is to deliver customer name securities to or on behalf of the customers of the debtor entitled thereto and to distribute customer property and (in advance thereof or concurrently therewith)

57a otherwise satisfy net equity claims of customers. 15 U.S.C. 78fff(a)(1).4 But the powers of a SIPA trustee are still, as indicated, cabined by Title 11. Thus, for example, SIPA permits the trustee to 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. 15 U.S.C. 78fff2(c)(3) (emphasis supplied). Nevertheless, the Trustee contends that SIPA allows him to bring common law claims on behalf of customers that a Title 11 Trustee could not bring, and that this power, while not expressly granted, is implied by several provisions of SIPA, principally a provision that gives a SIPA trustee authority to investigate and report to the court any facts ascertained by the trustee with respect to fraud, misconduct, mismanagement, and irregularities, and any causes of action available to the estate. 15 U.S.C. 78fff1(d)(3). The Trustee argues that this investigative authority would be academic if he could not use the information discovered in such investigations to commence law suits against third parties on behalf of defrauded customers.

Under SIPA, customer property means cash and securities . . . at any time received, acquired, or held by or for the account of a debtor from or for the securities accounts of a customer, and the proceeds of any such property transferred by the debtor, including property unlawfully converted. 15 U.S.C. 78lll(4).
4

58a To say this argument is a stretch would be to give it more credence than it deserves. That Congress would want a SIPA trustee to publicly report to a court, and hence to the public, any fraud the trustee uncovers is hardly an academic exercise. Conversely, to suggest that this duty to report implicitly confers a vast power on such a trustee to commence lawsuits he could not otherwise bring goes far beyond any accepted legal principle defining implied rights of action, see generally Cort v. Ash, 422 U.S. 66 (1975), or for that matter, any ordinary use of the English language. Indeed, a very similar argument was expressly rejected by the Supreme Court in Caplin v. Marine Midland Grace Trust Co. of New York, 406 U.S. 416 (1972). There, a bankruptcy trustee argued that he had standing to bring claims on behalf of debenture holders because 11 U.S.C. 567(3) gives the trustee the right, and indeed imposes the duty, to investigate fraud and misconduct and to report to the judge the potential causes of action available to the estate. Caplin, 406 U.S. at 428. The Supreme Court disagreed, noting that there is nothing in the section that enables [the trustee] to collect money not owed to the estate. Id. The Trustee also argues that since customer property is defined in SIPA to include securities, cash, and any other property of the debtor which, upon compliance with applicable laws, rules and regulations, would have been set aside or held for the benefit of customers, the Trustee has the authority to bring common law claims on behalf of customers, either because they are claims seeking

59a the recovery of customer property or because the rights to bring such claims (so-called choses in action) are themselves customer property. The first alternative is a classic example of bootstrapping: the fact that if the Trustee could bring these claims any recovery might be treated as customer property does not provide him with standing to bring the claims in the first instance. The second alternative not only suffers from the same defect but also involves a far too expansive reading of customer property. In accordance with the familiar canon of construction known as ejusdem generiswhich instructs courts to interpret a general term in a statute that follows a list of more specific terms to embrace only objects of the same kind or class as the specific ones, City of New York v. Permanent Mission of India to United Nations, 618 F.3d 172, 183 (2d Cir. 2010) (quoting United States v. Amato, 540 F.3d 153, 160 (2d Cir. 2008))the other property of the debtor must refer to assets similar to cash and securities, rather than something as amorphous and contingent as a putative lawsuit. Moreover, even if the definition of customer property could be so stretched as to include rights in putative lawsuits, this would not of itself convey standing on the Trustee to bring such a lawsuit. Indeed, if that were the case, then there would be no need for SIPA to expressly authorize the Trustee to recover customer property by bringing avoidance actions. Yet the only provision in SIPA that actually discusses how the Trustee is permitted to go about recovering customer property provides

60a the Trustee with the authority to bring avoidance claims, not common law claims.5 In addition to arguing that SIPA itself authorizes a SIPA trustee to bring common law claims as a bailee of customer property, the Trustee and the Securities Investor Protection Corporation (SIPC) suggest that such authority is supplied by implication from Rule 15c33 of the Securities Exchange Act of 1934 (the Exchange Act). See 17 C.F.R. 240.15c33. Rule 15c33 protects customers by segregating customer property from a brokerdealers own assets in order to facilitate the liquidations of insolvent broker-dealers and to protect customer assets in the event of a SIPA liquidation through a clear delineation in Rule 15c3 3 of specifically identifiable property of customers. Exchange Act Release No. 9856, Adoption of Rule 15c33, 37 Fed. Reg. 25224, 25225 (Nov. 29, 1972). As an initial matter, the Court is mystified by the suggestion that Rule 15c33a rule that is undisputedly not a part of SIPAmay somehow confer upon a SIPA trustee broad authority that is
The Trustee also suggests that a SIPA trustees powers must be broadly construed because, according to the Congressional record, a SIPA trustee has rights to reclaim specifically identified property . . . and shall have additional rights, see 116 Cong. Rec. S90969101 at 9099 (June 16, 1970) (emphasis supplied). However, it is now well settled that the unambiguous language of a statute cannot be broadened or changed by reference to the legislative history. Moreover, there is no warrant to imply broad standing authority that is not otherwise available to a bankruptcy trustee based on language found in the congressional record that is this vague.
5

61a neither available to an ordinary bankruptcy trustee nor provided by SIPA. Indeed, since SIPA sets forth the powers and duties of a SIPA trustee and expressly states that a SIPA trustee is vested with the same powers as an ordinary bankruptcy trustee, see 15 U.S.C. 78fff1, any additional rights would necessarily have to be provided by SIPA itself; and, as discussed above, SIPA conveys no authority to a SIPA trustee to bring the common law claims here in issue. In any event, Rule 15c33 cannot be read to grant the Trustee additional standing, because the rule, which requires broker-dealers to segregate all cash in their possession for the benefit of customers, says nothing about a SIPA trustees standing to bring common law claims against third parties. See 17 C.F.R. 240.15c33 (2011). And the single case cited by the Trustee in support of this argument similarly says nothing about a SIPA trustees standing to pursue common law claims on behalf of the fund of customer property. See In re MJK Clearing. Inc., 286 B.R. 109, 132 (Bankr. D. Minn. 2002) (holding simply that all cash reserves held by the debtor at the time of the trustees appointment, including the debtors other, non-customer accounts such as banking accounts containing funds related to the debtors stock loan/stock borrow business, constitute customer property). Finally, the Trustee and SIPC argue that the Trustees standing to bring common law claims as bailee of customer property derives from the common law. As explained above with respect to Rule 15c33, the Court sees no warrant for inferring that some

62a law other than SIPA, such as the common law, can vest a SIPA trustee with powers that are broader than the powers afforded an ordinary bankruptcy trustee under Title 11 or otherwise expressly provided for in SIPA itself. In any case, however, the Court is not persuaded by the argument that the common law of bailment permits the Trustee to bring the common law claims in this case. To begin with, the Trustee is not a bailee in the common law sense, because he is not seeking to return any recovered bailments to the individual bailors, as a bailee would, but instead is seeking to distribute customer property pro rata pursuant to the SIPA distribution scheme. Moreover, while bailees may generally bring claims against third parties for the loss or destruction of bailed property in their possession, here the Trustees claim is that the HSBC Defendants and UCG/PAI knowingly or recklessly funneled money into Madoffs Ponzi scheme, see Am. Compl. 8, 14, 21 22, 97, 213, 545, and thus the actionable conduct is alleged to have occurred prior to the bailment. A further complication is that the immediate effect of the moving defendants alleged misconduct caused a gain in the value of the bailed property rather than a loss. Finally, under New York law,6 no bailment can
SIPC argues that the federal common law, rather than New York common law, should be used to determine whether the Trustee has the authority to pursue claims under a bailment theory. In so arguing, SIPC contends that through Rule 15c3 3 and SIPA . . . the SEC and Congress consciously adapted general principles of bailment law to custodial practices in the securities industry, see Memorandum of Law of the Securities Investor Protection Corporation in Opposition to the Motions to
6

63a exist where the would-be bailee is a thief and, here, Madoff acquired investments with the intent to further his Ponzi scheme. See, e.g., Pivar v. Graduate Sch. of Figurative Art, 290 A.D.2d 212, 213 (1st Dept 2002) (explaining that a bailment arises only where the bailee obtains lawful possession of the bailed property without present intent to appropriate it). In short, the Court rejects in its entirety the claim by the Trustee that he has standing to bring his common law claims as bailee of customer property. The Trustees second asserted basis for standing to bring these claims is as enforcer of SIPCs subrogation rights. The Trustee argues that since he has distributed approximately $800 million to customers from funds advanced by SIPC, and since SIPC has assigned to the Trustee its subrogation rights for amounts advanced to Madoff Securities
Dismiss of HSBC and UCG/PAI at 26. Of course, SIPC cannot dispute that the words bailment, bailee, and/or bailor appear nowhere in SIPA or in Rule 15c33. The mere fact that SIPA and Rule 15c33 mandate that customer property be maintained in a separate fund so as to elevate customers claims above those of general creditors does not imply a bailment relationship whereby the Trustee is permitted to pursue common law claims against third parties on behalf of customers. In any case, whether the Trustee asserts bailee standing under the New York common law or the federal common law, the Court finds that, given the profound differences between the instant case and the typical baileebailor scenario envisioned by the common law, common law bailment principles, whether state or federal, cannot be extended to confer the Trustee with standing to assert common law fraud claims on behalf of customers.

64a customers, he has standing to assert SIPCs subrogation rights for at least that amount against all defendants in this action. SIPA directs SIPC to advance to the trustee such moneys . . . as may be required to pay or otherwise satisfy claims for the amount by which the net equity of each customer exceeds his ratable share of customer property. 15 U.S.C. 78fff3(a) (emphasis supplied). To the extent moneys are advanced by SIPC to the trustee to pay or otherwise 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. Id. SIPA also provides that [t]o 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 [broker-dealer]. 15 U.S.C. 78fff4(c). Finally, SIPA provides that SIPC as subrogee may assert no claim against customer property until after the allocation thereof to customers as provided in section 78ff2(c). 15 U.S.C. 78fff3(a). The plain language of SIPA thus makes clear that SIPC is only subrogated to customer net equity claims against the estate, not to all customer claims against third parties. Furthermore, any implied right of subrogation against third parties would subvert SIPAs provision detailing the priority of customer property distribution. Under this priority scheme, SIPC cannot recover as subrogee until the customers are made whole. 15 U.S.C. 78fff2(c)(1). Permitting the Trustee to assert SIPCs subrogation

65a rights against third parties would permit SIPC to recover from third parties before customers net equity claims had been fully satisfied. The Trustee and SIPC also argue that, since SIPA grants SIPC all other rights it may have at law or in equity, common law subrogation rights provide another basis for standing. The Court concludes, however, that this catch-all phrase appearing in SIPAs text cannot be read to contradict a more specific provision of SIPA; otherwise, as noted, SIPC would be permitted to recover before customers net equity claims had been paid in full. In response, the Trustee argues that the priority scheme will not be violated in this case because SIPC has agreed to defer receipt of any subrogation amounts. See Trustees Memorandum of Law in Opposition to the Motions to Dismiss Filed by Defendants HSBC and UniCredit (Trustee Mem.) at 22 n.10. However, the fact that SIPC has agreed not to exercise its purported common law right in this particular case does not change the fact that the general theory of subrogee standing that is being asserted here, which permits the Trustee as enforcer of SIPCs subrogation rights to pursue common law claims of customers against third parties before all customer claims are satisfied, would violate SIPAs priority scheme. The Court therefore concludes that the Trustees subrogation enforcer theory, like his bailee theory, fails to provide a basis for his standing to pursue common law claims on behalf of Madoff Securities customers against third parties. But no discussion of either of these theories would be complete without

66a adverting to the decision that the Trustee and SIPC vociferously claim supports both of these theories, namely, Redington v. Touche Ross & Co., 592 F.2d 617 (2d Cir. 1978), revd on other grounds, 442 U.S. 560 (1979). In Redington, the Second Circuit held, first, that 17(a) of the Exchange Act created a private right of action on the basis of which customers of a failed brokerage firm could bring suit against the brokers accountants for preparing misleading financial statements. Id. at 621. On that basis, the Second Circuit further held that SIPC (as subrogee of the customers whose claims it had paid) and the SIPA trustee (as bailee of customer property) had standing to pursue claims on behalf of the brokers customers against the accountant. Id. at 624. The Supreme Court, however, promptly reversed Redingtons primary holding that 17(a) of the Exchange Act created a private right of action, see Touche Ross & Co. v. Redington, 442 U.S. 560, 571 72 (1979). As explained below, this also means, in context, that the secondary holding of Redington is no longer good law; but, even assuming arguendo that it is still good law, the secondary holding in Redington does not support the Trustees arguments for standing to bring the common law claims in this case. As to whether Redingtons secondary holding is still good law, note that when the Supreme Court reversed the Second Circuits primary determination that a private right of action existed under 17(a) of the Exchange Act, the case was remanded for a determination as to whether there were other bases

67a for exercising subject matter jurisdiction. Finding none, the Second Circuit affirmed the district courts dismissal of the case. Redington v. Touche Ross & Co., 612 F.2d 68, 73 (1979). Thus, while the Supreme Court did not actually reach the standing issue in Redington, a reversal based on want of subject matter jurisdiction deprives Redington of any precedential value. See, e.g., Labarbera v. Clestra Hauserman, Inc., 369 F.3d 224, 226 n.2 (2d Cir. 2004) (observing that when the district court is reversed for lack of subject matter jurisdiction, the district courts authority is of no precedential value); Gutierrez v. Fox, 141 F.3d 425, 426 (2d Cir. 1998) (Without jurisdiction, any decision or ruling by the court would be a nullity.).7 Accordingly, a few years after Redington, Judge Milton Pollack of this Courtan acknowledged expert on securities lawfelt empowered to reject the secondary holding of Redington in Mishkin v. Peat, Marwick, Mitchell & Co., 744 F. Supp. 531, 55758 (S.D.N.Y. 1990), in which he held that a
7 The Trustee contends that the Supreme Court reversed on a merits issue rather than a threshold issue, citing Morrison v. Natl Austl. Bank Ltd., 130 S. Ct. 2869, 2877 (2010) ([T]o ask what conduct 10(b) reaches is to ask what conduct 10(b) prohibits, which is a merits question.). However, Morrison can be distinguished from Redington in that it concerned whether an accepted cause of action brought under 10(b) was properly pled, not whether a right of action existed at all. See, e.g., National R.R. Passenger Corp. v. National Assn of R.R. Passengers, 414 U.S. 453, 456 (1974) ([I]t is only if such a [private] right of action exists that we need consider whether the respondent had standing to bring the action and whether the District Court had jurisdiction to entertain it.).

68a liquidating trustee is not granted the power to bring fraud claims against third parties on behalf of customers. Relatedly, in Holmes v. Securities Investor Protection Corp., 503 U.S. 258 (1992), the Supreme Court itself, without reaching whether SIPC could sue third parties based on state law subrogation principles, observed that SIPA itself makes no reference to such rights and noted that SIPCs theory of subrogation is fraught with unanswered questions, citing Judge Pollacks decision in Mishkin. Holmes, 503 U.S. at 270, 274 75. Moreover, while the Trustee argues that subsequent decisions have reinforced the precedential value of Redington, this is incorrect. In Holmes, the Supreme Court expressed no opinion as to the standing decision in Redington, 503 U.S. at 271 n.17, and in Securities Investor Protection Corp. v. BDO Seidman, LLP, 222 F.3d 63, 71 (2d Cir. 2000), the Second Circuit was able to assume without deciding that a SIPA trustee could sue as bailee because it then dismissed the claims at issue under Fed. R. Civ. P. 12(b)(6). But even assuming arguendo that Redingtons holding with respect to subrogee standing and bailee standing remains good law, Redington does not mandate the conclusion that the Trustee has standing, either as bailee or subrogee, to bring the common law claims it brings here. To begin with, Redington does not anywhere hold that a SIPA trustee has standing to pursue common law claims against third parties as bailee of customer property. The precise holding of Redington is limited to standing to bring an implied private right of action

69a under Section 17(a) of the Exchange Acta private right of action that the Supreme Court found did not exist. See Touche Ross & Co. v. Redington, 442 U.S. 560, 579 (1979). This is an important distinction because, unlike the implied private right of action for failure to discharge a regulatory duty that was at issue in Redington, common law claims (such as those asserted here) generally require proof of individual reliance and causation, which may pose justiciability concerns in the context of a mass tort action by a SIPA trustee. Moreover, while in Redington the SIPA trustee sought damages against the bankrupt broker-dealers own accountant, in this case the Trustee seeks damages against entities that provided no direct services to Madoff Securities or to customers of Madoff Securities. Thus, the Court concludes that Redington cannot be read to confer to the Trustee the standing he seeks in the instant case. Put differently, the situation in Redington was more analogous to a traditional bailor-bailee scenario than anything at issue here. In Redington, the defendant-accountant was alleged to have breached a regulatory duty owed to all of the bailors, causing loss to the bailed property while in the broker-dealers possession. In this case, the defendants are not alleged to have breached a regulatory duty owed to all Madoff Securities customers. Rather, the purported breach is alleged to have occurred prior to the bailment, since the HSBC Defendants and UCG/PAI Defendants are alleged to have poured money into Madoff Securities. And while the defendants conduct purportedly

70a prolonged Madoffs Ponzi scheme, resulting in losses to Madoff Securities customers, the immediate consequence of defendants alleged breach was to cause a gain in the value of the bailment, rather than a loss. Finally, unlike in the instant case, there was no suggestion that the broker-dealer in Redington participated in a fraud whereby it intended to appropriate customer property. See Pivar, 290 A.D.2d at 213. As for Redingtons holding that SIPC had standing to assert common law claims as subrogee, this was in the context of SIPA as it stood at that time. But, subsequently, in May of 1978, SIPA was amended to include the priority scheme that explicitly states that SIPC cannot recover as subrogee until the broker-dealers customers are made whole. Compare SIPA of 1970, Pub. L. 91598 6(c)(2)(B), 6(f), 84 Stat. 1636 (1970), with SIPA of 1978, Pub. L. 95283, 1, 92 Stat. 249 (1978). Thus, while at the time Redington was decided, the Trustees common law theory of subrogation did not directly conflict with a provision in SIPA, the priority scheme enacted post-Redington forecloses the possibility that SIPC can be subrogated to customer claims against third parties. In short, Redington is no longer controlling in this case, if it ever was. The Trustees third theorymentioned only in a footnote in his briefis that he also has standing to bring common law claims as an assignee of customer claims. While SIPA does authorize a SIPA trustee to obtain assignments from customers whose claims he satisfies, see 15 U.S.C. 78fff2(b), [t]he subsection

71a of SIPA authorizing assignments . . . is titled Payments to customers and concerns SIPC payments for net equity claims to customers, not customer claims against third parties. Mishkin v. Peat, Marwick, Mitchell & Co., 744 F. Supp. 531, 554 (S.D.N.Y. 1990). In addition to Judge Pollacks decision in Mishkin, at least three other courts have similarly concluded that a SIPA trustee lacks standing as assignee to bring customer claims against third parties, because the assignments authorized by section 78fff2(b) of SIPA do not extend to all claims of customers against third parties but, rather, only to a customers net equity claim against the estate. In re Park S. Sec., LLC, 326 B.R. 505, 514 (Bankr. S.D.N.Y. 2005). Accord Giddens v. D.H. Blair & Co., 280 B.R. 794, 80304 (Bankr. S.D.N.Y. 2002); Securities Investor Protection Corp. v. BDO Seidman, LLP, 49 F. Supp. 2d 644, 654 n.7 (S.D.N.Y. 1999). Moreover, while the Trustee has purportedly received assignments from customers who have received SIPC advances for their losses of customer property, the Trustee appears to admit that he has received no assignments of customer claims against third parties. See Trustee Mem. at 22 n.11 (The Trustee is further authorized to receive assignments from customers and creditors of the estate, however, to date he has not received such assignments.). Having determined that the Trustee does not have standing to bring his common law claims either on behalf of customers directly or as bailee of customer property, enforcer of SIPCs subrogation rights, or assignee of customer claims, it remains

72a only to amplify why, as mentioned at the outset, the Trustee cannot bring his common law claims on behalf of the estate. This is because such claims are negatived by the common law doctrine of in pari delicto, which bars a trustee from suing to recover for a wrong that [the debtor whose the estate he represents] essentially took part in. Wight v. BankAmerica Corp., 219 F.3d 79, 87 (2d Cir. 2000). To be sure, under New York law, which substantively governs the common law claims here asserted, the in pari delicto doctrine is an affirmative defense (albeit one strictly enforced), rather than a bar to standing. But, as already noted, standing to bring any claim in a federal court is controlled by federal law, and in Wagoner, supra, the Second Circuit held that prudential considerations deprived a trustee from even having standing to bring in federal court a common law claim that is clearly defeated by the doctrine of in pari delicto. See Wagoner, 944 F.2d at 118. Here, given that the Trustees own complaint is replete with allegations of Madoffs role as the mastermind[ ] of the fraud, see, e.g., Am. Compl. 1, the Wagoner rule bars the Trustee as successor in interest to Madoff and Madoff Securities, from bringing common law fraud claims. Thus, the Trustee has no standing to pursue on behalf of the estate his common law claims against the HSBC Defendants and the UCG/PAI Defendants. For completeness, it may be added that, even assuming arguendo that the in pari delicto doctrine is simply an affirmative defense in federal court rather than a prudential bar to standing, the

73a doctrine would still bar all of the Trustees common law claims except perhaps for his contribution claimwhich would fall for other reasons. New York law defines the in pari delicto defense extremely broadly, Kirschner v. KPMG LLP, 938 N.E.2d 941, 95859 (N.Y. 2010), and the New York Court of Appeals has held that even though it is an affirmative defense, in pari delicto may be resolved on the pleadings in a state court action in an appropriate case, id. at 946 n.3. Under New York law, the exceptions to the application of the bar of in pari delicto are few and narrow and the Trustee concedes that he has not presently asserted any of the very few exceptions to its application. Cf. In re CBI Holding Co., Inc., 529 F.3d 432, 443 (2d Cir. 2008) (innocent insider exception); In re Refco Securities Litigation, 779 F. Supp. 2d 372, 37475 (S.D.N.Y. 2011) (adverse interest exception). While he goes on to vaguely suggest that one or more of these exceptions might apply depending on the complete factual record, the Court concludes that this issue can be properly resolved at the pleading stage, since the overwhelming wrongdoing of Madoff and his now-defunct company, Madoff Securities, is abundantly clear from the face of the Trustees own complaint. See, e.g., Am. Compl. 1, 2, 13, 39. The only common law claim asserted in the pleadings that, on the face of the pleadings, might conceivably escape the bar of in pari delicto is the claim for contribution (Count 24), since parties seeking contribution are necessarily in pari delicto. See Barrett v. United States, 853 F.2d 124, 128 n.3 (2d Cir. 1988); Rotter v. Leahy, 93 F. Supp. 2d 487,

74a 496 (S.D.N.Y. 2000). The Trustee asserts a claim for contribution based on the fact that he has to pay customer claims pursuant to SIPA. Given that these payments are being made pursuant to a comprehensive statutory scheme, however, the Court concludes that the Trustee cannot rely on state law to seek contribution where a right to contribution is not expressly provided by a federal statute. See, e.g., Lehman Brothers, Inc. v. Wu, 294 F. Supp. 2d 504 (S.D.N.Y. 2003) ([W]hether contribution is available in connection with a federal statutory scheme is a question governed solely by federal law.). If Congress had intended to confer upon the Trustee authority to seek contribution for payments of customer claims, it would have said so in SIPA. Even as a matter of state law, moreover, the Court concludes that the New York contribution statute is itself inapplicable to the instant case. New Yorks contribution statute provides that two or more persons who are subject to liability for damages for the same personal injury, injury to property or wrongful death, may claim contribution among them whether or not an action has been brought or a judgment has been rendered against the person from whom contribution is sought. See N.Y. C.P.L.R. 1401. Here, while the Trustee is obligated to pay customer claims pursuant to a statutory scheme, he is not subject to liability for damages in the sense contemplated by New Yorks contribution statute. In sum, the Court concludes that all of the common law claims in the Amended Complaint (i.e., Counts 2024) must be dismissed. It follows that the

75a Court need not address whether these claims are preempted by SLUSA. Accordingly, the Court grants the motions to dismiss the common law claims against the HSBC Defendants and the UCG/PAI Defendants.8 The Clerk of the Court is hereby directed to close the two cases captioned as 11 Civ. 763 (JSR) and 11 Civ. 836 (JSR). The Court further directs that what remains of adversary proceeding No. 091364A (BRL) be returned to the Bankruptcy Court for further proceedings consistent with this Opinion and Order. SO ORDERED.

Although it seems clear that these claims would also have to be dismissed against any other defendant who appeared and so moved, no other such defendant has so moved.
8

76a APPENDIX C UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ________ IRVING H. PICARD, Trustee for the Liquidation of Bernard L. Madoff Investment Securities, LLC, Plaintiff, -againstHSBC BANK PLC, et al., Defendants. ________ IRVING H. PICARD, Trustee for the Liquidation of Bernard L. Madoff Investment Securities LLC, Plaintiff, -againstHSBC BANK PLC, et al., Defendants. ________ 11 Civil 0763 (JSR), 11 Civil 0836 (JSR) ________ RULE 54(B) JUDGMENT ________ Whereas the parties having stipulated for entry of a final judgment on the Dismissed Claims pursuant to Fed. R. Civ. P. 54(b), and the matter having come before the Honorable Jed S. Rakoff,

77a United States District Judge, and the Court, on December 8, 2011, having rendered its Stipulated Order that there is no just reason for delay of entry of a final judgment on the Dismissed Claims, directing the Clerk of the Court to enter a final judgment dismissing causes of action twenty through twenty-four of the Amended Complaint pursuant to Rule 54(b), it is, ORDERED, ADJUDGED AND DECREED: That for the reasons stated in the Courts Stipulated Order dated December 8, 2011, there is no just reason for delay of entry of a final judgment on the Dismissed Claims; a final judgment is entered dismissing causes of action twenty through twentyfour of the Amended Complaint pursuant to Rule 54(b). Dated: New York, New York December 12, 2011 RUBY J. KRAJICK Clerk of Court By: Deputy Clerk

78a APPENDIX D UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ________ Irving H. Picard, Trustee for the Liquidation of Bernard L. Madoff Investment Securities LLC, Plaintiff, v. JPMorgan Chase & Co., JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC, and J.P. Morgan Securities Ltd., Defendants. ________ Irving H. Picard, Trustee for the Liquidation of Bernard L. Madoff Investment Securities LLC, Plaintiff, v. UBS AG, et al., Defendants. ________ Nos. 11 civ. 913 (CM), 11 civ. 4212 (CM). ________ November 1, 2011. ________

79a DECISION AND ORDER GRANTING DEFENDANTS MOTION TO DISMISS CERTAIN COMMON LAW CLAIMS COLLEEN McMAHON, District Judge. I. BACKGROUND Bernard Madoff conducted a massive Ponzi scheme through his investment firm, Bernard L. Madoff Investment Securities, LLC (BMIS). After it was uncovered in December 2008, Madoff was arrested, BMIS went into bankruptcy, and the Securities Investor Protection Corporation (SIPC) applied to this Court (Stanton, J.) to commence a liquidation proceeding under the Securities Investor Protection Act (SIPA).1 The application was granted, the Court appointed a trustee, and the case was removed to Bankruptcy Court pursuant to SIPA. (Am. Compl. 5357.) See 15 U.S.C. 78eee(a), (b)(3), (b)(4). SIPA was enacted in 1970 to restore confidence to the securities market by providing additional protections for the customers of failed securities brokers. See Sec. Investor Protection Corp. v. Barbour, 421 U.S. 412 (1975). In essence, SIPA authorizes a trustee to create and fund a pool of
1 The interested reader is directed to the following cases for further factual context: In re Bernard L. Madoff Inv. Sec. LLC, 424 B.R. 122, 12532 (Bankr. S.D.N.Y. 2010); In re Beacon Assocs. Litig., 745 F. Supp. 2d 386, 39394 (S.D.N.Y. 2010); Anwar v. Fairfield Greenwich Ltd., 728 F. Supp. 2d 372, 387, 38990 (S.D.N.Y. 2010); In re Tremont Sec. Law, State Law & Ins. Litig., 703 F. Supp. 2d 362, 36768 (S.D.N.Y. 2010).

80a assets within the failed brokers bankruptcy estate that is intended solely to compensate the customers for their net equity held by the broker. The funds collected by the trustee are then paid ratably (or, where possible, in full) to the customers before any distribution is made to other creditors. The effect is to prioritize those customers and to provide them a speedier alternative to a traditional bankruptcy claim. See 15 U.S.C. 78fff, 78fff1 and 78fff2. The SIPA trustee appointed to administer the customer fund for the BMIS customers is Irving Picard (the Trustee). He has worked relentlessly over nearly three years to bring assets that passed through BMIS back into the customer fund, in order to restore nearly $20 billion in customer losses. See generally Trustees Fifth Interim Report (May 16, 2011). The efforts with which we are concerned are directed at several banks and investment funds that the Trustee alleges facilitated or willfully failed to uncover Madoffs scheme. In Picard v. JPMorgan Chase & Co., No. 11 civ. 913commenced as an adversary proceeding in the BMIS liquidationthe Trustee seeks billions of dollars in avoidance and common law damages claims against JPMorgan Chase & Co., JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC, and J.P. Morgan Securities Ltd. (together, the JPMorgan Defendants). Madoff maintained a bank account with JPMorgan, referred to as the 703 Account, through which he funneled the money coming into and going out of BMIS over the life of his scheme. See In re BLMIS, 424 B.R. at 12829.

81a The Amended Complaint asserts common law damages claims for aiding and abetting fraud and breach of fiduciary duty, fraud on the regulator, unjust enrichment, conversion, aiding and abetting conversion, knowing participation in a breach of trust, and contribution. (JPM Am. Compl. 490 589 (Counts 2128).) These common law claims are premised on the Trustees allegation that the JPMorgan Defendants, as Madoff and BMISs primary banker, knew, should have known, or consciously avoided discovering, that BMIS was not engaged in lawful securities trading, but was illegally misappropriating customer funds. (Id.) The Trustee alleges that by this failure the JPMorgan Defendants substantially assisted, or knowingly participated in the scheme, breaching duties they owed to BMISs customers, and aiding and abetting BMISs breach of such duties. The Trustee seeks damages on those customers behalf, in the amount of approximately $19 billion. (Id. (Prayer for Relief).) Importantly, the Trustees claim for contribution (Count 28) is the only one that seeks redress for an injury to BMIS itself, rather than BMISs thousands of customers. (Id. 58489.) In Picard v. UBS AG, No. 11 civ. 4212likewise commenced as an adversary proceeding in the BMIS liquidationthe Trustee seeks, in addition to avoidance claims, billions of dollars in damages against UBS AG and several of its affiliates (together, the UBS Defendants),2 two so-called
The affiliates are UBS (Luxembourg) SA, UBS Fund Services (Luxembourg) SA, and UBS Third Party Management Company SA.
2

82a feeder funds for BMIS that were allegedly sponsored and serviced by the UBS Defendants,3 and Access International Advisers LLC and several of its affiliates (the Access Defendants).4 I refer to these Defendants together as the UBS and Feeder Fund Defendants, and refer to the JP Morgan and UBS and Feeder Fund Defendants collectively as Defendants. The Trustee alleges that the UBS and Feeder Fund Defendants were aware that BMIS was likely engaged in fraud, but despite that knowledge sponsored two feeder funds that invested heavily BMIS. UBS thereby lent the prestige of its name to the funds, and created the appearance of overseeing them. In reality, however, UBS delegated custodial and supervision functions to Madoff himself, ultimately helping Madoff attract additional European investors in BMIS, and willfully turning a blind eye in order to collect lucrative fees for servicing the funds. The Access Defendants are alleged to have joined in this scheme by marketing
These Defendants are Luxalpha, one of the funds, now in liquidation, and its Directors, Roger Hartmann, Ralf Schroeter, Rene Egger, Alain Hondequin, Hermann Kranz, Bernard Stiehl, Patrick Littaye, and Pierre Delandmeter; and Groupement Financier, the other fund, and its Directors, Defendant Littaye and Claudine Magon de la Villehuchet.
3

The affiliated persons and entities are Access International Advisors Europe Limited, Access International Adviser Ltd., Access Partners (Suisse) S.A., Access Management Luxembourg S.A., Access Partners S.A. (Luxembourg), and several individuals who ran or worked for the Access group of companies, Defendants Littaye, Villehuchet, Delandmeter and Theodore Dumbauld.
4

83a the feeder funds to investors, despite knowing, or consciously avoiding knowing, that BMIS was a fraud, and misrepresenting to investors that Access performed rigorous due diligence. The Amended Complaint asserts common law causes of action for aiding and abetting BMISs fraud, breach of fiduciary duty, and conversion; knowing participation in a breach of trust; conversion; unjust enrichment; money had and received; and contribution. (UBS Am. Compl. 349 466 (Counts 1228).) The Trustee seeks approximately $2 billion. (Id. (Prayer for Relief).) As in the JPMorgan action, with respect to all causes of action except contribution, the Trustee seeks damages on behalf of BMISs customers, rather than BMIS itself. The JPMorgan Defendants moved to withdraw the bankruptcy reference; I granted that motion this May. Sec. Investor Protection Corp. v. Bernard L. Madoff Inv. Sec. LLC, 454 B.R. 307 (S.D.N.Y. 2011). The non-bankruptcy claims in the UBS case have likewise been withdrawn. (See Case No. 11 civ. 4212, Docket No. 14.) The basis for withdrawal was to consider substantial issues of non-bankruptcy federal law, in particular whether: (1) the Trustee has standing to pursue common law claims against third parties, like the Banks, on behalf of BMISs customers; and, (2) if so, whether the Securities Litigation Uniform Standards Act (SLUSA) nevertheless precludes those claims. Id.; see also Picard v. HSBC Bank PLC, 450 B.R. 406 (S.D.N.Y. 2011).

84a On June 1, 2011, the JPMorgan Defendants moved to dismiss the Trustees original complaint. In lieu of responding, the Trustee filed the Amended Complaint, the allegations of which are set out above. The JPMorgan Defendants moved to dismiss again on August 1, 2011. The UBS and Feeder Fund Defendants moved as well, joining the JPMorgan Defendants arguments. The Trustee filed an Amended Complaint in the UBS case on August 17, 2011, and the UBS Defendants arguments are deemed directed to that, rather than the original complaint. (See Case No. 11 civ. 4212, Docket No. 28.) Defendants argue that the Trustee lacks standing to bring common law claims on behalf of BMISs customers because he is limited under Chapter 11 of the Bankruptcy Code and SIPA to vindicating the interests of BMIS only. They therefore seek dismissal of all common law claims.5 While these motions were being briefed, substantially identical arguments persuaded Judge Rakoff to dismiss the Trustees common law claims against HSBC and several of its affiliates for lack of standing. Picard v. HSBC Bank PLC, 454 B.R. 25 (S.D.N.Y. 2011). For the reasons discussed below, I am persuaded as well. The motions to dismiss the Trustees common law claims are therefore GRANTED in the JPMorgan and UBS cases.

Although the Court is only interested in the standing and SLUSA issues that necessitated withdrawal of the bankruptcy reference, the JPMorgan Defendants have briefed several additional ones. Their arguments, and the Trustees responses thereto, are not considered in deciding this motion.
5

85a II. DISCUSSION The standing requirement assures that an Article III case or controversy exists by allowing only those with actual legal injury to bring suit in federal court; moreover, judge-made prudential limitations on standing foster appropriate judicial restraint. Foremost among the prudential requirements is the rule that a party must assert his own legal rights and interests, and cannot rest his claim to relief on the legal rights or interests of third parties. Wight v. BankAmerica Corp., 219 F.3d 79, 86 (2d Cir. 2000) (quoting Warth v. Seldin, 422 U.S. 490, 499 (1975)). Because standing is jurisdictional under Article III of the United States Constitution, it is a threshold issue in all cases since putative plaintiffs lacking standing are not entitled to have their claims litigated in federal court. Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114, 117 (2d Cir. 1991) (Wagoner); see also Breeden v. Kirkpatrick & Lockhart, LLP, 268 B.R. 704, 70809 (S.D.N.Y. 2001), affd, 336 F.3d 94 (2d Cir. 2003). Three propositions, convincingly established in Judge Rakoffs recent opinion and equally applicable here, demonstrate that the Trustee lacks standing to pursue his common law claims against Defendants. First, the Trustee lacks standing under the Bankruptcy Code, as incorporated into SIPA, to pursue claims that properly belong to creditors here, BMISs customers. Instead, he is empowered to pursue only those claims that properly belonged to the debtor before it entered bankruptcy. It is well settled that a bankruptcy trustee has no standing

86a generally to sue third parties on behalf of the estates creditors, but may only assert claims held by the bankrupt corporation itself. Wagoner, 944 F.2d at 118 (citing Caplin v. Marine Midland Grace Trust Co. of N.Y., 406 U.S. 416 (1972)); see also Wornick v. Gaffney, 544 F.3d 486, 490 (2d Cir. 2008); Wight, 219 F.3d at 86; In re Mediators, Inc., 105 F.3d 822 (2d Cir. 1997); Hirsch v. Arthur Andersen & Co., 72 F.3d 1085, 1093 (2d Cir. 1995). There is good reason for this rule: formally, the Trustee steps into the shoes of the debtor for the purpose of bringing property into the bankruptcy estate, and as such possesses only the rights of the debtor. See 11 U.S.C. 541(a)(1). There is no indication in either the Bankruptcy Code or SIPA that Congress intended to give the Trustee power to pursue claims that are not the property of the debtor. A party must assert his own legal rights and interests, and cannot rest his claim to relief on the legal rights or interests of third parties. Wagoner, 944 F.2d at 118. Practically, giving the Trustee the power to pursue claims on behalf of creditors would usurp the creditors right to determine whether and in what forum to vindicate their legal injuries, and would raise difficult issues of preclusion. Caplin, 406 U.S. at 43132. Moreover, as the Second Circuit pointed out in Mediators, were the Trustee empowered to pursue the claims of third party creditors, the debtors assets would be depleted to enforce rights possessed by third parties and defendants would face the danger of duplicative recoveries. 105 F.3d at 826

87a (citing Barnes v. Schatzkin, 215 A.D. 10 (1st Dept 1925)). Here, there is no doubt that the common law causes of action in the Amended Complaints, premised on a Ponzi scheme of unprecedented scope and duration orchestrated by BMIS, belong to the creditors, not to BMIS. See Hirsch, 72 F.3d at 1093 (collecting cases). Thus, the Trustee cannot pursue them in his role as such. Second, the Trustee cannot purse these common law claims on behalf of the debtor, BMIS. This is a consequence of the equitable doctrine of in pari delicto, which mandates that the courts will not intercede to resolve a dispute between two wrongdoers. Kirschner v. KPMG LLP, 15 N.Y.3d 446, 464 (2010). Here, in pari delicto would preclude Madoff from recovering against Defendants, and, under general principles of agency law, his wrongdoing as BMISs agent is imputed to BMIS itself. [T]he acts of agents, and the knowledge they acquire while acting within the scope of their authority are presumptively imputed to their principals. Id. at 465. The result is that (1) BMIS could not have sued Defendants for the alleged scheme, and (2) the Trusteestanding the shoes of BMIScannot do so either. HSBC, 454 B.R. at 3738. Because managements misconduct is imputed to the corporation, and because a trustee stands in the shoes of the corporation, the Wagoner rule bars a trustee from suing to recover for a wrong that he himself essentially took part in. Wight, 219 F.3d at 87. Thus, the Trustee lacks standing to

88a pursue these claims either as a representative of the creditors or as the successor of the debtor. Third, the Trustee fails to establish any other basis for standing. The Trustee does not have a right to contribution under New York law, when the source of his obligation to the creditors is SIPA, rather than any tort claims that the creditors may eventually pursue against the debtor. Moreover, SIPA does not give the Trustee the power to pursue claims on behalf of creditors, any more than the Bankruptcy Code does. See 15 U.S.C. 78fff1(a) (SIPA trustee has same powers as a Chapter 11 trustee). Nor is SIPA consistent with the subrogation and bailment theories asserted by the Trustee. Thus, the Trustee lacks standing to pursue his common law claims against Defendants. The Trustee strains to avoid these dispositive conclusions by raising a novel theory of standing. The Trustee points out that he is empowered, by 11 U.S.C. 544(a), to stand in the shoes of a hypothetical judgment creditor that extended credit to BMIS at the commencement of its bankruptcy in order to seek certain recoveries from third parties. He argues that that power allows him to effectively step into the shoes of all BMISs actual creditors for the purpose of pursuing common law claims against Defendants. As discussed below, this theory is not supported by the statutes text and history or by any persuasive case law, and its adoption would undermine the limitations on trustee standing established in Caplin and enforced by courts in this and other circuits for nearly forty years.

89a The Trustees remaining arguments for standing under New Yorks contribution statute and SIPA are mere reformulations of those already rejected by Judge Rakoff. They are no more persuasive to me than they were to him. See HSBC, 454 B.R. at 29 38. A. Section 544(a) The Trustee concedes, as he must, that Caplin and its progeny in this Circuit, including Wagoner, Hirsch, Mediators and other cases, stand squarely for the proposition that a Chapter 11 bankruptcy trustee lacks standing to pursue creditor claims. However, the Trustee would limit this rule to section 541 of the Bankruptcy Code, and find a distinct source of standing to pursue pre-petition creditor claims under section 544(a). Section 544(a) of the Bankruptcy Code provides, in pertinent part, as follows: (a) The trustee shall have, as of the commencement of the case, and without regard to any knowledge of the trustee or of any creditor, the rights and powers of, or may avoid any transfer of property of the debtor or any obligation incurred by the debtor that is voidable by (1) a creditor that extends credit to the debtor at the time of the commencement of the case, and that obtains, at such time and with respect to such credit, a judicial lien on all property on which a creditor on

90a a simple contract could have obtained such a judicial lien, whether or not such a creditor exists; (2) a creditor that extends credit to the debtor at the time of the commencement of the case, and obtains, at such time and with respect to such credit, an execution against the debtor that is returned unsatisfied at such time, whether or not such a creditor exists . . . Under this section, the trustee hypothetically extends credit to the debtor at the time of filing and, at that moment, obtains a judicial lien on all property in which the debtor has any interest that could be reached by a creditor. Musso v. Ostashko, 468 F.3d 99, 10405 (2d Cir. 2006) (citing In re Kors, Inc., 819 F.2d 19, 2223 (2d Cir. 1987)) (other citations omitted). As the Tenth Circuit has explained, Congress has fashioned a legal fiction [that] permits the trustee . . . to assume the guise of a creditor with a judgment against the debtor. Under that guise, the trustee may invoke whatever remedies provided by state law to judgment lien creditors to satisfy judgments against the debtor. Zilkha Energy Co. v. Leighton, 920 F.2d 1520, 1523 (10th Cir. 1990). The purpose of this section is to allow the trustee in bankruptcy to cut off any secret or unperfected liens on debtor property that would bind the debtor itself, but not the debtors judgment creditor, who typically enjoys top priority under state creditor/debtor laws. Pursuant to this section, the

91a trustee in bankruptcy can avoid unperfected liens on property belonging to the bankruptcy estate. Kors, 819 F.2d at 22; see also In re Canney, 284 F.3d 362, 374 (2d Cir. 2002) (same); 5 Collier on Bankruptcy 544.01 (16th ed. 2011). Thus, The advantage of this status derives not from the Bankruptcy Code but, rather, from the relevant state law defining creditor rights. Musso, 468 F.3d at 105. The upshot of sections 544 and 541 is that, in addition to all property and rights belonging to the debtor at the commencement of its bankruptcy, Any property of the debtor upon which a judgment creditor might obtain a lien under state law flows to the bankruptcy estate for the benefit of all creditors. Id. 1. Standing to pursue customer claims The Trustee first argues that he can use section 544(a), not only to avoid interests in BMISs property inferior to those of a judgment creditor, but also to step into the shoes of any actual creditor in order to pursue its pre-petition common law claims against third partieshere, the Defendants. The problems with this theory are legion. Foremost is that its conclusionthe Trustee is empowered to pursue the pre-petition common law claims of actual creditorsdoes not follow from its premisethat the Trustee has the powers of a judgment creditor that extends credit to the debtor at the commencement of the case. 11 U.S.C. 544(a)(1), (2). The Trustee does not argue that New York law allows a judgment creditor to seek its

92a recovery against a debtor by appropriating causes of action against third parties that belong, not to the debtor, but to the debtors other creditors. Nor could he; the result would be preposterous. Moreover, a hypothetical judgment creditor who extends credit at the commencement of the liquidation would not possess any cause of action or any other right that accrued before he extended credit. Thus, under the statute (and its predecessors), the rights of creditorswhether they are existing or hypotheticalto which the trustee succeeds are to be ascertained as of the date of bankruptcy, not at an anterior point of time. Lewis v. Manufacturers Nat. Bank of Detroit, 364 U.S. 603, 607 (1961); see also In re Southwest Supermarkets, LLC, 325 B.R. 417, 42526 (Bnkr. D. Ariz. 2005). Insofar as the customers claims here allege prepetition wrongs, a hypothetical judgment creditor that first extended credit at the commencement of the bankruptcy proceeding would not thereby obtain the rights of those prior creditorsleaving aside the absurdity of permitting a subsequent judgment creditor to assume the legal rights of unrelated creditors in the first place. After all, if the hypothetical judgment lien creditor extended credit only on the date of commencement of the bankruptcy case, how can she sue based on a wrong that occurred before the extended credit? In re Greater Southeast Community Hospital Corp., 333 B.R. 506, 520 (Bnkr. D.D.C. 2005). Finally, the Trustees reading would obviate the remainder of section 544 itself, which provides for the avoidance of preferences in favor of creditors. If

93a the Trustee were empowered to pursue any creditors claims under section 544(a), there would be no need to specify its power to assert some creditors fraudulent conveyance or avoidance claims in section 544(b). Thus, the Trustees reading of section 544(a) is inconsistent its language, the other subsections of section 544, and common sense. It is also inconsistent with precedent. If the Trustee were right, his theory would render the Supreme Courts decision in Caplin a dead letter, along with Wagoner and its progeny in this Circuit. In Caplin, the Supreme Court held that a Chapter 10 trustee, overseeing the reorganization of a financial firm, could not sue an indenture trusteea third party on behalf of debenture holdersi.e., creditors of the failed firm. The bases of that conclusion were noted above: allowing the reorganization trustee standing to pursue claims not belonging to the debtor, but to its creditors, is not within the power granted by Congress, and raises difficult preclusion problems. Likewise, basing its holding on Caplin, the Second Circuit in Wagoner held that the same factors preclude standing for a Chapter 11 bankruptcy trustee. Thus, it is settled law that the standing analysis for a bankruptcy trustee asks whether the claim belongs to the debtorin which case the trustee can pursue itor to creditorsin which case the Trustee cannot. The Trustees only response is to claim that the section 544(a) predecessor, section 70c of the Bankruptcy Act, was not in effect when the liquidation at issue in Caplin commenced. But as the

94a JPMorgan Defendants thoroughly demonstrate, that claim is just plain wrong. See JPMorgans Reply, at 2022 (collecting sources); see also UBS Reply, at 10 (same); Lewis, 364 U.S. at 603 (relying on 544(a) predecessor during period Trustee claims it was not in effect). And even if the Trustee were right, he would still need to explain how a judgment creditor under New York law is empowered to satisfy his claim by pursuing common law claims against third parties that belong to other, actual creditors. In fact, the history of section 544 subsequent to Caplin further belies the Trustees interpretation. During the 1978 revision of the bankruptcy laws, an addition was proposed as section 544(c) that would have specifically overruled Caplins limitation on trustee standing. However, that provision was not included in the final bill. While Congress unexplained failure to enact subsection (c) does not necessarily mean that subsection (a) must be read consistently with Caplinafter all, subsection (c) could conceivably have been omitted because it was found to be superfluous in light of subsection (a)its failure to act does confirm what the plain language of subsection (a) already conveys: a trustee does not have standing to pursue claims that belong to creditors rather than the estate. See In re Ozark Restaurant Equip. Co., Inc., 816 F.2d 1222, 1228 (8th Cir. 1987). For these reasons, the Trustees theory has been rejected in numerous persuasive cases, including cases from at least three Circuit Courts of Appeals. See, e.g., Ozark, 816 F.2d at 1228; In re Bradley, 326 Fed. Appx 838 (5th Cir. 2009); In re Icarus Holding,

95a LLC, 391 F.3d 1315, 1318 n.4 (11th Cir. 2004); E.F. Hutton & Co., Inc. v. Hadley, 901 F.2d 979, 98587 (11th Cir. 1990); see also In re Teligent, Inc., 307 B.R. 744, 749 (Bnkr. S.D.N.Y. 2004); In re Granite Partners, L.P., 194 B.R. 318, 32325 (Bnkr. S.D.N.Y. 1996); In re Greater Southeast, 333 B.R. at 520. Meanwhile, the cases on which the Trustee relies do not support his position. See St. Paul Fire and Marine Ins. Co. v. PepsiCo, Inc., 884 F.2d 688 (2d Cir. 1989); Koch Refining v. Farmers Union Cent. Exchange, Inc., 831 F.2d 1339 (7th Cir. 1987). Those cases address the issue whether a corporate alter ego or veil piercing claim against a debtors owners belongs to the debtorand hence the trusteeor to the creditors directly. If the former, the trustee, and the trustee alone, has the power to bring the claim, and the automatic stay precludes creditors from proceeding individually. If the latter, it is the trustee that lacks standing. St. Paul Fire and Koch interpreted the controlling state law to make such alter ego claims property of the debtor rather than the creditors. Here, by contrast, there is no dispute to whom the common law claims belongthe Trustee acknowledges they are the customers, and not the debtors. St. Paul Fire does not stand for the proposition that the Trustee can pursue claims that belong individually to the creditorsjust the opposite. If that were the rule, the Second Circuits lengthy discussion establishing ownership of the claims in the Trustee would have been unnecessary. See 884 F.2d at 70205; see also Koch, 831 F.2d at 134445; In re Ozark, 816 F.2d at 1225.

96a The Trustee nevertheless seizes on language in St. Paul Fire and Koch that suggests that when a claim is general to all creditors, and any one of them could bring the claim and all would benefit in the same way by establishing it, the trustee may assert the claim on behalf of the creditors. However, the analysis in St. Paul Fire and Koch is employed consistently with Caplin to determine which claims should be considered debtor property. Courts that follow this approach reason that allowing individual creditors to pursue certain claims common to all of them would result in the kind of rush to judgment and inconsistent adjudications that the bankruptcy laws exists to avoid. Thus, to further the goals of the bankruptcy laws generally, such claims should be deemed vested in the trustee, with exclusive standing to pursue them for the benefit of all creditors. See, e.g., Koch, 831 F.2d at 1349 ([A] single creditor may not maintain an action on his own behalf against a corporations fiduciaries if that creditor shares in an injury common to all creditors and has personally been injured only in an indirect manner.); see also Pereira v. Farace, 413 F.3d 330, 342 (2d Cir. 2005); In re Keene Corp., 164 B.R. 844, 85354 (Bnkr. S.D.N.Y. 1994). But here, the Trustees claims are not on being brought on behalf of all BMISs creditors, and could not be brought by any given one of them. In contrast to the alter ego claims asserted in Koch and St. Paul Fire, they are not derivative but direct claims. To determine whether an action accrues individually to a claimant or generally to the corporation, a court

97a must look to the injury for which relief is sought and consider whether it is peculiar and personal to the claimant or general and common to the corporation and creditors. Koch, 831 F.2d at 1349. The Trustee admits that he pursues these claims to recover the net equity of some of the claimants against the BMIS estate. These are not claims that BMIS, the corporate debtor, could have asserted against Defendants, and therefore they are not common to the corporation and its creditors. It is true that allowing the Trustee to pursue claims that belong properly to individual creditors would accrue to the benefit of all creditors by augmenting the bankruptcy estate. But under settled law, this is not enough to make them general within the meaning of Koch and St. Paul Fire. See Pereira, 413 F.3d at 342; In re Stanwich Financial Services Corp., 317 B.R. 224 (Bnkr. D. Conn. 2004). Rather, any recovery on these claims will not necessarily accrue to the benefit of all creditors harmed by the fraud, at least not in the same way. Taking one example, a net winner in the Madoff scheme may have been damaged in the amount of his final investment by Defendants alleged wrong-doing, but he will not be benefited by the Trustees recovery, which goes into the customer fund and then directly (and only) to the net losers. See In re Bernard L. Madoff Inv. Securities LLC, 654 F.3d 229 (2d Cir. 2011) (affirming Trustees interpretation of net equity under SIPA). Even if the Trustee recovers all customer losses and provides excess to the general fund, a net winner may share in the recovery only ratably, while a net

98a loser, a different class of creditor, recovers its claims against the estate in full. A trustee may maintain only a general claim. His right to bring a claim depends on whether the action vests in the trustee as an assignee for the benefit of creditors or, on the other hand, accrues to specific creditors. Koch, 831 F.2d at 1349. Requiring an equal right and interest in all creditors is the only justification for vesting exclusive standing in the trustee. Where, as here, the right to relief and the benefits of relief are peculiar to individual or groups of creditors, the right is not a generalized one that belongs to the debtors estate. Admittedly, some courts have read Koch to support a reading of section 544(a) that gives a trustee standing to pursue claims that belong to the creditors and not the debtor. See, e.g., Lumbard v. Maglia, Inc., 621 F. Supp. 1529 (S.D.N.Y. 1985); Sender v. Mann, 423 F. Supp. 2d 1155 (D. Colo. 2006); In re MS55, Inc., 2007 WL 2669150 (D. Colo. 2007). However, the dominant trend, in this Circuit and others, has been to reject those cases and adhere to the general rule that the trustee only has standing to pursue claims of the debtor. See Pereira, 413 F.3d at 342; Icarus, 391 F.3d at 1319 n.4 (collecting cases); In re Stanwich, 317 B.R. at 22728 (rejecting the Trustees reading of St. Paul Fire). The Seventh Circuit has clarified that its own law is consistent with Caplin and Wagoner, and inconsistent with the Trustees theory here: We do not question the right of a trustee in bankruptcy to maintain a veil piercing suit

99a on behalf of the bankrupt corporation (citing, among other things, Koch and St. Paul Fire), but the qualification on behalf must be stressed. If the corporation is injured by the shareholders disregard of corporate formalities, or stated differently but equivalently if a claim against the shareholders arising from their disregard of corporate formalities is the property of the corporation, then the trustee can sue; otherwise he cannot. . . . When a third party has injured not the bankrupt corporation itself but a creditor of that corporation, the trustee in bankruptcy cannot bring suit against the third party. He has no interest in the suit. Steinberg v. Buczynski, 40 F.3d 890, 89293 (7th Cir. 1994) (Posner, J.). Thus, I conclude that section 544(a) of the Bankruptcy Code does not give the Trustee standing to pursue claims that are concededly the property of the creditors directly, and not the property of the debtor. 2. Standing to pursue BMIS claims The Trustee also argues, albeit briefly, that section 544(a) allows him to pursue common law causes of action that belong to BMIS. He points out that a judgment creditor can satisfy his judgment by appropriating choses in action that belong to the

100a debtor under New York law. Thus, he continues, he can appropriate BMISs claims against Defendants. The Trustee is right, but wrong, because BMISs causes of action against Defendants are worthless under the doctrine of in pari delicto. See Picard v. HSBC, 454 B.R. at 3738. As discussed above, Madoff could not recover against Defendants for their joint frauds, breaches of fiduciary duty, conversion, etc.; Madoffs complicity is imputed to BMIS under the law of agency; and the Trustee succeeds only to the rights of BMIS. Completing the analysis, a hypothetical judgment creditor can likewise only succeed to the interest BMIS has in its (worthless) common law claims. The Trustee argues that a judgment creditor somehow takes the debtors legal rights free of the debtors equitable disability to recover on them, because of its favored status. There is some appeal to this argument, but its consequence runs afoul of controlling law, the Wagoner rule in particular. It has already been determined in this Circuit that a bankruptcy trustee, standing in the shoes of the debtor, cannot pursue claims the debtor could not. If Wagoner could be avoided by allowing the trustee to step out of the debtors shoes and into a hypothetical judgment creditors shoes under section 544(a), and then back into the debtors shoes by executing on the debtors common law claims without debtors legal disability, then Wagoner would be avoided in every case, effectively overruling it. Convenient legal fictions should not be employed to overrule binding precedent sub silentio.

101a Finally, such a fiction is not even necessary, because the Trustee already succeeds to all the debtors choses in action by virtue of section 541(a)(1), which provides that the estate is comprised of, among other things, all legal or equitable interests of the debtor in property as of the commencement of the case. Thus, section 544(a) does not provide the Trustee standing to pursue the common law claims at issue in these cases. B. Contribution 1. Introduction The Trustee next argues that because his claim for contribution is brought on behalf of BMIS, and is not subject to the defense of in pari delicto, he has standing to pursue it against Defendants. However, because the Trustees obligation to pay arises not from the common law of New York, but from SIPA, he is not subject to liability for damages for the same injury to property caused by Defendants. He thus fails to state a claim for contribution under New York law. See HSBC, 454 B.R. at 3738. 2. The Trustee fails to state a claim for contribution 11 U.S.C. 541, incorporated in SIPA, provides that BMISs liquidation estate is comprised of all legal and equitable interests of the debtor in property as of the commencement of the bankruptcy case. This includes any causes of action BMIS had

102a before it entered bankruptcy. A debtors interests in property, including causes of action, are defined by state law, and become assets of the estate once the bankruptcy petition is filed. In re Ionosphere Clubs, Inc., 156 B.R. 414, 43637 (S.D.N.Y. 1993), affd, 17 F.3d 600 (2d Cir. 1994). The Trustee relies on C.P.L.R. 1401, New Yorks contribution statute, to assert a claim on BMISs behalf. It says in pertinent part that, two or more persons who are subject to liability for damages for the same personal injury, injury to property or wrongful death, may claim contribution among them whether or not an action has been brought or a judgment has been rendered against the person from whom contribution is sought. C.P.L.R. 1401. [T]he lynchpin of New Yorks contribution provision is common liability for the same injury. N.Y. State Elec. & Gas Corp. v. FirstEnergy Corp., 2007 WL 1434901, at *8 (N.D.N.Y. May 11, 2007). The Trustee argues that the BMIS estate possesses a pre-petition cause of action under New York law for contribution that he has standing to pursue: BMIS and Defendants, he argues, are subject to liability for damages for the same . . . injury to property, namely the customers losses caused by the parties joint fraud. Thus, the Trustee can claim contribution against Defendants whether or not an action has been brought by the customers against them, or a judgment has been

103a entered in the customers favor against them. Moreover, this claim, unlike any other BMIS might have, is not barred by the doctrine of in pari delicto, because even thought parties seeking contribution are necessarily in pari delicto, the statute provides a cause of action. However, C.P.L.R. 1401 is triggered only when one joint tortfeasor is compelled under state law to pay damages arising out of a tort or tort-like injury. New Yorks statutory contribution scheme requires some form of compulsion; that is, the party seeking contribution must have been compelled in some way, such as through the entry of a judgment, to make the payment against which contribution is sought. NYSEG, 2007 WL 1434901, at *7; see also C.P.L.R. 1402 (The amount of contribution to which a person is entitled shall be the excess paid by him over and above his equitable share of the judgment recovered by the injured party.). Here, the Trustee does not allege that he, as successor to BMIS, is presently or ever will be compelled to pay any damagesi.e., that he is subject to liability to damagesat all. See C.P.L.R. 1401 (two or more persons who are subject to liability for damages . . .). The Trustee acknowledges that, The compulsion to pay in this case is the Trustees obligation to pay customer claims under SIPA. Trustees JPMorgan Br. at 26 (emphasis added). But this compulsion (or liability) is not based on state law fraud claims against BMIS by its customers; therefore, it is not based on the same injury allegedly caused by Defendants. Put otherwise, the Trustees obligation to pay the net winner BMIS customers their

104a ratable share arises, not from state law, but from SIPA; but the Banks liability to BMISs customers, if any, arises, not from SIPA, but from New York tort law. Therefore, the Trustee fails to adequately allege a right to relief under New Yorks contribution statute. The fact that federal courts, including Th[e Supreme] Court, have recognized a right to contribution under state law in cases in which state law supplied the appropriate rule of decision, does not aid the Trustee here. Northwest Airlines, Inc. v. Transport Workers Union of America, AFLCIO, 451 U.S. 77, 9697 n.38 (1981). The source of a right of contribution under state law must be an obligation imposed by state law. LNC Inv., Inc. v. First Fidelity Bank, Nat. Assn, 935 F. Supp. 1333, 1349 (S.D.N.Y. 1996) (emphasis added). By contrast, where the liability that is the basis for the contribution claim is entirely a creature of federal statute, the Trustee must rely on federal, not state, contribution law. Northwest Airlines, 451 U.S. at 9798. [W]hether contribution is available in connection with a federal statutory scheme [like SIPA] is a question governed solely by federal law. Lehman Brothers, Inc. v. Wu, 294 F. Supp. 2d 504, 50405 n.1 (S.D.N.Y. 2003); see generally Northwest Airlines, 451 U.S. at 90101. Thus, where, as here, contribution is sought for a liability created by federal statute, cases recognizing a state law right to contribution are simply inapposite, id. at 9697 n.38, and the Trustee must rely on federal law for any contribution claim. And the Trustee does not allege in his Amended Complaint or argue in his brief that either SIPA or

105a federal common law creates a right to contribution for payments he is required make under SIPA. Judge Rakoff made this point in his HSBC decision: The Trustee asserts a claim for contribution based on the fact that he has to pay customer claims pursuant to SIPA. Given that these payments are being made pursuant to a comprehensive statutory scheme, however, the Court concludes that the Trustee cannot rely on state law to seek contribution where a right to contribution is not expressly provided by a federal statute. 454 B.R. at 3738. Because the facts here are identicalthe Trustee fails to assert that he his compelled by New York law to pay tortlike damages compulsion to pay tort-like damages under New York lawJudge Rakoffs conclusion is equally valid here. As another of my colleagues, Judge Koetl, explained in another recent decision: The plaintiff brings a claim for contribution in connection with a federal statutory scheme that does not provide a right of action for contribution. The plaintiff cannot use New York State common law as an end-around to make a claim for contribution that it could not make under the federal statutory scheme. KBL Corp. v. Arnouts, 646 F. Supp. 2d 335, 341 (S.D.N.Y. 2009). Thus, the Trustee identifies no legal basis for contribution, and therefore lacks standing on that ground as well.

106a C. Standing as common law bailee or equitable subrogee Having failed to ground standing in either the Bankruptcy Code or New Yorks law of contribution, the Trustees final argument is that SIPA empowers him to do more than a typical Chapter 11 trustee can; or, more precisely, that he is so empowered, SIPA notwithstanding. He argues first that SIPA impliedly creates a common law bailment, which permits him to bring causes of action arising out of damage to the customer fund. In addition, he argues that he can pursue customer causes of action that SIPC could pursue as an equitable subrogee of customer net equity claims. Judge Rakoff rejected these contentions, HSBC, 454 B.R. at 3036; I do as well. 1. SIPA does not give to bailees or subrogees standing to pursue customers common law claims against third parties Chief Judge Preska succinctly set forth the history and purpose of SIPA as follows: Congress enacted [SIPA] after a business contraction in the securities industry led to a rash of failures among brokerage firms. After that contraction, customers of failed firms found their cash and securities on deposit either dissipated or tied up in lengthy bankruptcy proceedings. SIPA was intended to arrest this process, restore investor confidence in the capital markets, and

107a upgrade the financial responsibility requirements for registered brokers and dealers. SIPA created a new form of liquidation proceeding that was applicable only to member firms, designed to accomplish the completion of open transactions and the speedy return of most customer property. Those investors who had left identifiable securities in their names with the brokerdealer or cash balances to be used for investment purposes (which collectively constitute net equity claims) are entitled to receive such securities and cash from the liquidator before other creditors may share in the estate. The Act contemplates that customers claims will be satisfied to the greatest extent possible from the bankrupt brokerage firm. Sec. Investor Protection Corp. v. BDO Seidman, LLP, 49 F. Supp. 2d 644, 649 (S.D.N.Y. 1999) (internal citations omitted), affd, 222 F.3d 63 (2d Cir. 2000); see also Sec. Investor Protection Corp. v. Barbour, 421 U.S. 412 (1975); Appleton v. First Nat. Bank of Ohio, 62 F.3d 791, 794 (6th Cir. 1995); Mishkin v. Peat, Marwick, Mitchell & Co., 744 F. Supp. 531, 55556 (S.D.N.Y. 1990) (collecting legislative history). SIPA accomplishes its purpose by empowering SIPC, once it has identified a failing or failed securities broker, to seek a protective order from a court. The court, in turn, appoints a liquidating trustee and refers the case to Bankruptcy Court, where it proceeds more or less like a Chapter 11

108a proceeding. See 15 U.S.C. 78eee(a), (b), 78fff(b). The difference between a SIPA and a non-SIPA liquidation is that customer net equity claims are given priority over the claims of the brokers other creditors (e.g., its landlord or any unsecured lenders). See id. 78fff2. The SIPA trustee is vested with the same powers and title with respect to the debtor and the property of the debtor, including the same rights to avoid preferences, as a trustee in a case under Title 11. Id. 78fff1(a). One of the purposes of a SIPA liquidation is to to enforce rights of subrogation as provided in this chapter. Id. 78fff(a)(3). The only such rights arise, not in favor of the trustee, but in favor of SIPC. Id. 78ccc. In addition to overseeing securities brokers and, when necessary, seeking protective orders for failing ones, SIPC also helps assure prompt payments to customers by advancing funds to the SIPA trustee to satisfy net equity claims. Id. 78fff 3. SIPC obtains these funds through assessments against regulated brokers. See id. 78ddd. The right to subrogation referred above is found in section 78fff3(a)(5): To the extent moneys are advanced by SIPC to the trustee to pay or otherwise 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 with the rights and priorities provided in this chapter, except that SIPC as subrogee may assert no claim against customer property until after the allocation

109a thereof to customers as provided in section 78fff2(c) of this title. This section has been interpreted to grant SIPC statutory subrogation rights only to the extent that it satisfies customer net equity claims against the customer fund. See Picard v. HSBC, 454 B.R. at 33 34; Redington v. Touche Ross & Co., 592 F.2d 617, 624 (2d Cir. 1978), revd on other grounds, Touche Ross & Co. v. Redington, 442 U.S. 560 (1979). Moreover, this right is expressly subordinated to the fulfillment of all customer net equity claims. Section 78fff2(c), part of the distribution priority scheme, provides that the fund of customer property is to be distributed ratably to customers before any allocation is made to SIPC on a subrogation basis. In other words, SIPC is not entitled to customer property unless there is enough to satisfy all customer net equity claims. Thus, under SIPAs plain language, neither SIPC nor the Trustee has standing to assert statutory subrogation rights against third parties. Nor is there any hint in SIPA that a trustee has the powers of a common law bailee to pursue third party claims on the customers behalf. As Judge Rakoff pointed out, that statute is silent on bailment, granting the trustee the same powers as a chapter 11 trustee. HSBC, 454 B.R. at 2933. The Trustee quite candidly admits that his bailment and subrogation theories are not founded on the SIPA statute at all, but rather on common law and equitable principles. Given that both SIPC and the Trustee are creations of SIPA, designed with

110a a very specific purpose in mind, this is a remarkable admission. To support reading these sources of law into the SIPA structure, the Trustee relies on almost exclusively on the Second Circuits decision in Redington, to which I turn. See 592 F.2d at 617. 2. Redington In Redington, a securities broker, Weis, went into SIPA liquidation after its outside accountant, Touche & Ross, failed to identify accounting fraud. The trustee argued that Touche Ross thereby violated the requirements of section 17(a), and sought recovery on that basis on behalf of Weis customers. Redington v. Touche Ross & Co., 428 F. Supp. 483 (S.D.N.Y. 1977). It also brought a number of claims under State law.6 The District Court dismissed the complaint for want of subject matter jurisdiction. It declined to imply a private right of action under section 17(a) in favor of Weis customers. Because the complaint failed to state any federal claim, the District Court declined to exercise pendent jurisdiction over SIPCs and the trustees common law claims (for breach of contract, negligence, and malpractice) and dismissed the complaint. The District Court never addressed whether SIPC or the SIPA trustee had standing to bring a section 17(a) claim, or any other claim, on

These claims duplicated claims that had been asserted in an earlier filed action by SIPC and the SIPA trustee in the New York State Supreme Court. The first-filed State court suit remained pending all the while.
6

111a behalf of Weis customers; it simply held that no federal claim existed and threw the lawsuit out. The Court of Appeals reversed the District Courts conclusion that no private right of action should be implied in a favor of the brokers customers. Redington v. Touche Ross & Co., 592 F.2d 617 (2d Cir. 1978). It then proceeded to address the question the District Court had never reached: did SIPC or the SIPA trustee have standing to bring the action on behalf of Weis customers? The Second Circuit concluded that they did, either as subrogee of the customers claims pursuant to general equitable principles or as the bailee of the customers property. Id. at 62425. The Supreme Court later overturned the Second Circuits determination that Weis customers had a private right of action under section 17(a) of the Exchange Act. Touche Ross & Co. v. Redington, 442 U.S. 560 (1979). In a footnote, the Court announced that it was unnecessary to reach the other rulings by the Court of Appeals, notably its determinations that SIPC and the SIPA trustee had standing to assert the customers claims under section 17(a). Id. at 567 n.9. On remand, the Second Circuit summarily dismissed the complaint, after concluding (as the District Court judge had originally) that there was no basis for federal jurisdiction if the complaint failed to state a cause of action under section 17(a). Redington v. Touche Ross & Co., 612 F.2d 68 (2d Cir. 1979). The Trustee argues that the Redington courts decision granting SIPC and a SIPA trustee standing

112a to pursue customer claims as a common law subrogee and bailee remains good law, because the Supreme Court did not expressly overrule the Second Circuit on this point. Some judges of this circuit agree with the Trustee. See, e.g., SIPC v. BDO, 49 F. Supp. 2d at 65354 (concluding that Redington still controls); cf. SIPC v. BDO, 222 F.3d at 69, 72 (assuming without deciding Redington remains binding); In re Park South Sec., LLC, 326 B.R. 505, 51517 (Bnkr. S.D.N.Y. 2005) (same). Others, however, do not. More than twenty years ago, the Honorable Milton Pollack of this court concluded that Redington was not good law. Mishkin v. Peat, Marwick, Mitchell & Co., 744 F. Supp. 531 (S.D.N.Y. 1990). Much more recently, my colleague, the Honorable Jed S. Rakoff, has reached the same conclusion. HSBC, 454 B.R. at 35. Judge Rakoff relied on the rule that, when a court is reversed on the basis that it lacks subject matter jurisdiction, none of its other holdings has precedential value. Because no basis for federal jurisdiction existed after the section 17(a) claim was dismissed, see Redington, 612 F.2d at 69, on remand from 442 U.S. at 560, the other Redington holdings including its pronouncement on standinglack precedential value. See HSBC, 454 B.R. at 3435 (citing Labarbera v. Clestra Hauserman, Inc., 369 F.3d 224, 226 n.2 (2d Cir. 2004); Gutierrez v. Fox, 141 F.3d 425, 426 (2d Cir. 1998)). Let me elaborate further on Judge Rakoffs discussion of this point. The Supreme Court long ago held that when a case presents two questionswhether a cause of action exists, and if so whether a given party has

113a standing to assert itthe merits question is the threshold inquiry, and standing is not to be reached unless a cause of action exists. National R.R. Passenger Corp. v. National Assn of R.R. Passengers, 414 U.S. 453 (1974). In National Railroad, as in Redington, the District Court dismissed a cause of action under a federal statute for failure to state a claim, and then dismissed the case for lack of jurisdiction. As in Redington, the Court of Appeals reinstated it, concluding both that the cause of action existed and that the plaintiffs were proper parties to enforce it. On further appeal, the Supreme Court noted that three separate questions were presented by the motion to dismisswhether the private of action right exists, whether the District Court has subject matter jurisdiction, and whether the plaintiffs have standing. Nevertheless, the Court recognized that: however phrased, the threshold question clearly is whether the Amtrak Act or any other provision of law creates a cause of action whereby a private party such as the respondent can enforce duties and obligations imposed by the Act; for it is only if such a right of action exists that we need consider whether the respondent had standing to bring the action and whether the District Court had jurisdiction to entertain it. Id. at 456 (emphasis added). As in Redington, the Supreme Court found no private right of action existed and reversed, without separately addressing

114a the Circuit Courts conclusion that the plaintiffs there had standing. So while the Trustee is correct that standing is often a threshold inquiry, see Nnebe v. Daus, 644 F.3d 147, 156 (2d Cir. 2011), National Railroad holds that it is not the threshold inquiry when the very existence of a claim for relief is open to question. Rather, the merits question is the threshold issue. It is only if the purported cause of action exists that it even becomes necessary to address standing. The District Court in Redington acted in conformity with National Railroad; it did not bother to address standing to bring any claim, state or federal, once it determined that no private right of action exists under section 17(a). Similarly, and equally correctly, the Second Circuit addressed standing only after it became necessary to do so that is, only after it decided to imply the asserted federal private right of action. But once the Supreme Court told the Second Circuit that no private right of action existed under federal law, whatever the Second Circuit said about standing was rendered superfluous. Its finding on standing should never have been made; it was not necessary to the determination of the case. The Trustee of course argues that Redington should be read as holding broadly that the SIPA trustee has standing as a bailee and a subrogee to bring any sort of claim on behalf of the brokers customersnot just a section 17(a) claim. Assuming

115a without deciding that Redington can be read so broadly, if it was intended to so hold, then the Court of Appeals went beyond what was necessary to its decisionwhich was to find a basis for federal jurisdiction and then assign standing to pursue that federal claim. If one argues that the reasoning underlying that narrow holding applies equally to all other causes of action held by the customers, the obvious retort is that the holding that reasoning undergirded was rendered meaningless by the Supreme Courts reversal. In the absence of a section 17(a) cause of action, any suggestion that the trustee and SIPC can pursue other claims did not actually decide anything in the case, and so becomes mere dictum. It is holdings, not reasoning, that bind later courts; as Judge Calabresi effectively put the point, Holdingswhat is necessary to a decisionare binding. Dictano matter how strong or how characterizedare not. U.S. v. Garcia, 413 F.3d 201, 23132 n.2 (2d Cir. 2005) (Calabresi, J., concurring). In short, the Supreme Courts reversal on the threshold issue means that the Second Circuit should never have reached standing. Whatever its reasoning in the course of (erroneously) reaching the standing question surely cannot bind a lower court. Judge Rakoff also observed that Redingtons subrogation analysis was undermined by a subsequent amendment to SIPA, establishing the current priority scheme. Id. at 36. As discussed above, this scheme subordinates any subrogation right belonging to SIPC to the full payment of all customer net equity claims. As further discussed

116a below, Redingtons theory of subrogation is inconsistent with the current SIPA scheme. Under no theory of which I am aware does a decision remain good law after the passage of a superseding statute that renders its analysis patently faulty. Thus, I conclude that Redingtons statements regarding bailee and subrogee standing are no longer good law, and have not been since Redington was reversed, long ago, and therefore do not bind me. 3. The Trustees theories fail Without Redington to prop them up, the Trustees arguments collapse under their own weight. a. Bailment First, the Trustee is not a bailee of customer funds by virtue of stepping into the shoes of BMIS. This is due to the common law rule that a thief can never take the status of a bailee. See, e.g., Pivar v. Graduate School of Figurative Art of N.Y. Academy of Art, 290 A.D.2d 212 (1st Dept 2002). Madoff, and hence BMIS, acquired the customers funds through deception with the intent to appropriate them unlawfully. As BMIS was not a bailee, the Trustee cannot be.7
SIPC struggles heroically in its brief to establish the Trustees standing as successor bailee to BMISinvoking federal common law, SEC Rule 15c33, and several cases of ancient vintagebut ultimately fails to persuade. See SIPC Brief, at 1323.
7

117a Nor does SIPA independently create a bailment relationship. The only entrusting of property it accomplishes is empowering of the Trustee to collect and distribute the customer fund. But that entrusting necessarily takes place only after the customers property has been damaged. In a different situation, for example, if a SIPA customer fund was deposited in a bank account at JPMorgan, and an employee stole those funds, I may be willing to recognize the Trustees right to sue as bailee for the destruction of the funds in his possession. But that is not like what happened here. The Trustee was not in possession of customer funds when the alleged torts took place. He was not even appointed. In other words, even entertaining the possibility that SIPA creates a bailment relationship with respect to the customer funds, it necessarily does not arise until the wrongs of third parties and the debtors have already taken place. Thus, there is no damage to the property that the Trustee as bailee of those funds could pursue. Perhaps an additional example is in order: If I park my car in a city garage and another customer scratches it while its parked there, the garage may have standing as my bailee to go after the other customer. But if, instead, a stranger scratches my car while Im sitting in traffic, and I afterward park it in the garage, what interest could the garage possibly have in going after the stranger? Since it was not my bailee when the injury to property took place, the garage would have no legal standing to vindicate that injury. My subsequently arising bailment certainly does nothing to change that fact.

118a In any event, treating SIPA as creating a bailment through force of law is fanciful to begin with. See HSBC, 454 B.R. at 3233. SIPA does not entrust possession of the customer fund to anyone. Rather, it simply points the trustee toward the provisions of the Bankruptcy Code for finding and liquidating the debtors property wherever it can be found. The result of those efforts is the customer fund. Thus, there is no handing over of property at all. And as Judge Rakoff pointed out, there is no understanding that customer property will be returned in substantially the same form in which it was given, in light of SIPAs ratable distribution scheme. Thus, there is neither a handing over of property nor an expectation of giving it back. See Herrington v. Verrilli, 151 F. Supp. 2d 449, 457 (S.D.N.Y. 2001). In conclusion, SIPA does not create or contemplate a bailment relationship, and the Trustees theory of common law bailment ignores that he was not in possession of property when it was damaged by Defendants. He stands in no better position than the hypothetical parking garage operator, suing strangers for injuries that occurred before I ever parked my car with it. He thus lacks standing to vindicate the customers claims against Defendants. b. Subrogation The Trustees arguments subrogation fare no better. for equitable

119a The relevant statutory provisions are set forth above. The upshot, again, is that SIPCs statutory subrogation right is a limited one: it permits claims only to the extent of customers net equity claims against the customer, and not against any other party; moreover, it is subordinated to the payment of customer net equity claims. When Congress creates one remedy, and limits its scope, a court should be extremely hesitant before implying a broader remedy. The Trustee therefore eschews any argument that Congress actually intended to create a subrogation right for customer common law claims against third parties. Instead, he argues that equity provides that right, SIPA notwithstanding. However, the creation of SIPC contemporaneously with its limited right to recovery makes it more than just unlikely that Congress intended a different remedy. It also means that Congresss purposes and objectives may be frustrated by implying a further remedy under state law. In other words, Congress must be assumed to have provided a limited remedy for a reason. Recognizing an additional remedy anyway therefore risks undermining the Congressional scheme. In this case, more than inference supports the conclusion that no further subrogation remedy should be implied. As Judge Rakoff observed, allowing SIPC, or the Trustee as its assignee, to pursue subrogated net equity claims against third parties upsets the distribution priority of SIPA itself. SIPC is to recover the extent of its fronted net

120a equity payments, but only after the customers have recovered their net equity claims. See 15 U.S.C. 78fff3(a), 78fff2(c)(1)(B), (C). The Trustees theory would effectively permit SIPC to jump the line. HSBC, 454 B.R. at 3334; see also Holmes v. Sec. Investor Protection Corp., 503 U.S. 258, 27071 (1992) (casting doubt on SIPCs theory of equitable subrogation); Mishkin, 744 F. Supp. at 55758 (rejecting theory). Nor can the insertion of the phrase in addition to all other rights it may have at law or in equity into 78fff3(a) overcome these specific, concrete statutory impediments. I therefore conclude that the Trustee lacks standing to pursue equitable subrogation rights of SIPC, to the extent they exist, when to do so would undermine the SIPA distribution scheme.8 III. CONCLUSION The Trustee lacks standing to pursue the common law claims against Defendants. Counts 21 to 28 of the Amended Complaint in the JPMorgan case (No. 11 civ. 913, Docket #50), and Counts 12 through 28 of the Amended Complaint in the UBS case (No. 11 civ. 4212, Docket #23), are therefore DISMISSED. The Court further directs that what remains of adversary proceedings Nos. 104932 (BRL) and 104285 (BRL) be returned to the
The Trustee makes no allegation that he has been assigned any customer claims against the Banks, and therefore does not rely on any assignment for standing. The issue is thus not ripe for adjudication. See Picard v. HSBC, 454 B.R. at 3637 (rejecting assignee theory).
8

121a Bankruptcy Court for further proceedings consistent with this Opinion and Order. The Clerk of Court is instructed to close the motions at 11 Civ. 913, Dockets Nos. 32 and 56, and those at 11 Civ. 4212, Dockets Nos. 1, 16 and 17.

122a APPENDIX E UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ________ IRVING H. PICARD, Trustee for the liquidation of Bernard L. Madoff Investment Securities LLC, Plaintiff, -againstJPMORGAN CHASE & CO., JPMORGAN CHASE BANK, N.A., J.P. MORGAN SECURITIES LLC, and J.P. MORGAN SECURITIES LTD., Defendants. ________ 11 Civil 913 (CM) ________ RULE 54(b) JUDGMENT ________ Whereas, on November 1, 2011, the Trustees having moved for entry of a judgment as to the Dismissed Claims under Rule 54(b), and the matter having come before the Honorable Colleen McMahon, United States District Judge, and the Court, on November, 2011, having rendered its Stipulated Order granting the Rule 54(b) motion,

123a and that there is no just reason for delay of entry of a final judgment on the dismissed claims, directing the Clerk of Court to enter judgment dismissing causes of action twenty-one through twenty-eight of the Amended Complaint, it is, ORDERED, ADJUDGED AND DECREED: That for the reasons stated in the Courts Order dated November 30, 2011, there is no just reason for delay of entry of a final judgment on the dismissed claims, the Rule 54(b) motion is granted and causes of action twenty-one through twenty-eight of the Amended Complaint are dismissed. Dated: New York, New York November 30, 2011 RUBY J. KRAJICK Clerk of Court Deputy Clerk

By:

124a APPENDIX F UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ________ SECURITIES INVESTOR PROTECTION CORP., Plaintiff-Applicant, -againstBERNARD L. MADOFF INVESTMENT SECURITIES LLC, Defendant. ________ In re BERNARD L. MADOFF, Debtor. ________ IRVING H. PICARD, Trustee for the liquidation of Bernard L. Madoff Investment Securities LLC, Plaintiff, -againstUBS AG, et al., Defendants. ________ 11 Civil 4212 (CM) ________ 54(b) JUDGMENT

125a ________ Whereas the above-captioned action having come before this Court, and the matter having come before the Honorable Colleen McMahon, United States District Judge, and the Court, on December 2, 2011, having rendered its Order finding that there is no just reason for delay of entry of a final judgment on the Dismissed Claims, and directing the Clerk of the Court to enter a judgment under Federal Rule of Civil Procedure 54(b) dismissing Counts 12 through 28 of the Amended Complaint, it is, ORDERED, ADJUDGED AND DECREED: That for the reasons stated in the Courts order dated December 2, 2011, there is no just reason for delay of entry of a final judgment on the Dismissed Claims, pursuant to Federal Rule of Civil Procedure 54(b), Counts 12 through 28 of the Amended Complaint is dismissed; the Dismissed Claims present legal issues that are independent of the Remaining Claims that have been returned to the Bankruptcy Court for further proceedings. Dated: New York, New York December 7, 2011 RUBY J. KRAJICK Clerk of Court Deputy Clerk

By:

126a APPENDIX G 1. 11 U.S.C. 544 provides:

Trustee as lien creditor and as successor to certain creditors and purchasers. (a) The trustee shall have, as of the commencement of the case, and without regard to any knowledge of the trustee or of any creditor, the rights and powers of, or may avoid any transfer of property of the debtor or any obligation incurred by the debtor that is voidable by (1) a creditor that extends credit to the debtor at the time of the commencement of the case, and that obtains, at such time and with respect to such credit, a judicial lien on all property on which a creditor on a simple contract could have obtained such a judicial lien, whether or not such a creditor exists; (2) a creditor that extends credit to the debtor at the time of the commencement of the case, and obtains, at such time and with respect to such credit, an execution against the debtor that is returned unsatisfied at such time, whether or not such a creditor exists; or (3) a bona fide purchaser of real property, other than fixtures, from the debtor, against whom applicable law permits such transfer to be perfected, that obtains the status of a bona fide purchaser and has perfected such transfer at the time of the commencement of the case, whether or not such a purchaser exists.

127a (b) (1) Except as provided in paragraph (2), the trustee may avoid any transfer of an interest of the debtor in property or any obligation incurred by the debtor that is voidable under applicable law by a creditor holding an unsecured claim that is allowable under section 502 of this title or that is not allowable only under section 502(e) of this title. (2) Paragraph (1) shall not apply to a transfer of a charitable contribution (as that term is defined in section 548(d)(3)) that is not covered under section 548(a)(1)(B), by reason of section 548(a)(2). Any claim by any person to recover a transferred contribution described in the preceding sentence under Federal or State law in a Federal or State court shall be preempted by the commencement of the case.

128a 2. 15 U.S.C. 78fff-1 provides:

Powers and duties of a trustee. (a) Trustee powers A trustee shall be vested with the same powers and title with respect to the debtor and the property of the debtor, including the same rights to avoid preferences, as a trustee in a case under title 11. In addition, a trustee may, with the approval of SIPC but without any need for court approval (1) hire and fix the compensation of all personnel (including officers and employees of the debtor and of its examining authority) and other persons (including accountants) that are deemed by the trustee necessary for all or any purposes of the liquidation proceeding; (2) utilize SIPC employees for all or any purposes of a liquidation proceeding; and (3) margin and maintain customer accounts of the debtor for the purposes of section 78fff2(f) of this title. (b) Trustee duties To the extent consistent with the provisions of this chapter or as otherwise ordered by the court, a trustee shall be subject to the same duties as a trustee in a case under chapter 7 of title 11, including, if the debtor is a commodity broker, as defined under section 101 of such title, the duties specified in subchapter IV of such chapter 7, except that a trustee may, but shall have no duty to, reduce to money any securities constituting customer

129a property or in the general estate of the debtor. In addition, the trustee shall (1) deliver securities to or on behalf of customers to the maximum extent practicable in satisfaction of customer claims for securities of the same class and series of an issuer; and (2) subject to the prior approval of SIPC but without any need for court approval, pay or guarantee all or any part of the indebtedness of the debtor to a bank, lender, or other person if the trustee determines that the aggregate market value of securities to be made available to the trustee upon the payment or guarantee of such indebtedness does not appear to be less than the total amount of such payment or guarantee. (c) Reports by trustee to court The trustee shall make to the court and to SIPC such written reports as may be required of a trustee in a case under chapter 7 of title 11, and shall include in such reports information with respect to the progress made in distributing cash and securities to customers. Such reports shall be in such form and detail as the Commission determines by rule to present fairly the results of the liquidation proceeding as of the date of or for the period covered by such reports, having due regard for the requirements of section 78q of this title and the rules prescribed under such section and the magnitude of items and transactions involved in connection with the operations of a broker or dealer.

130a (d) Investigations The trustee shall (1) as soon as practicable, investigate the acts, conduct, property, liabilities, and financial condition of the debtor, the operation of its business, and any other matter, to the extent relevant to the liquidation proceeding, and report thereon to the court; (2) examine, by deposition or otherwise, the directors and officers of the debtor and any other witnesses concerning any of the matters referred to in paragraph (1); (3) report to the court any facts ascertained by the trustee with respect to fraud, misconduct, mismanagement, and irregularities, and to any causes of action available to the estate; and (4) as soon as practicable, prepare and submit, to SIPC and such other persons as the court designates and in such form and manner as the court directs, a statement of his investigation of matters referred to in paragraph (1).

131a 3. 15 U.S.C. 78fff-2 provides:

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.

132a (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.

133a (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 78fff3(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

134a 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 78fff3(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;

135a (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 78fff3 (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.

136a (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

137a date exceeded the amount permitted to be advanced by SIPC under the provisions of section 78fff3(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

138a (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

139a 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 78fff3(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 customers order which was to be executed as a part of its contract with the debtor.

140a (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 78fff3(a) of this title and section 78fff3(b) of this title.

141a 4. 15 U.S.C. 78fff-3 provides:

SIPC advances. (a) Advances for customers claims In order to provide for prompt payment and satisfaction of net equity claims of customers of the debtor, SIPC shall advance to the trustee such moneys, not to exceed $500,000 for each customer, as may be required to pay or otherwise satisfy claims for the amount by which the net equity of each customer exceeds his ratable share of customer property, except that (1) if all or any portion of the net equity claim of a customer in excess of his ratable share of customer property is a claim for cash, as distinct from a claim for securities or options on commodity futures contracts, the amount advanced to satisfy such claim for cash shall not exceed the standard maximum cash advance amount for each such customer, as determined in accordance with subsection (d); (2) a customer who holds accounts with the debtor in separate capacities shall be deemed to be a different customer in each capacity; (3) if all or any portion of the net equity claim of a customer in excess of his ratable share of customer property is satisfied by the delivery of securities purchased by the trustee pursuant to section 78fff2(d) of this title, the securities so purchased shall be valued as of

142a the filing date for purposes of applying the dollar limitations of this subsection; (4) no advance shall be made by SIPC to the trustee to pay or otherwise satisfy, directly or indirectly, any net equity claim of a customer who is a general partner, officer, or director of the debtor, a beneficial owner of five per centum or more of any class of equity security of the debtor (other than a nonconvertible stock having fixed preferential dividend and liquidation rights), a limited partner with a participation of five per centum or more in the net assets or net profits of the debtor, or a person who, directly or indirectly and through agreement or otherwise, exercised or had the power to exercise a controlling influence over the management or policies of the debtor; and (5) no advance shall be made by SIPC to the trustee to pay or otherwise satisfy any net equity claim of any customer who is a broker or dealer or bank, other than to the extent that it shall be established to the satisfaction of the trustee, from the books and records of the debtor or from the books and records of a broker or dealer or bank, or otherwise, that the net equity claim of such broker or dealer or bank against the debtor arose out of transactions for customers of such broker or dealer or bank (which customers are not themselves a broker or dealer or bank or a person described in paragraph (4)), in which event each such customer of such broker or

143a dealer or bank shall be deemed a separate customer of the debtor. To the extent moneys are advanced by SIPC to the trustee to pay or otherwise 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 with the rights and priorities provided in this chapter, except that SIPC as subrogee may assert no claim against customer property until after the allocation thereof to customers as provided in section 78fff2(c) of this title. (b) Other advances SIPC shall advance to the trustee (1) such moneys as may be required to carry out section 78fff2(e) of this title; and (2) to the extent the general estate of the debtor is not sufficient to pay any and all costs and expenses of administration of the estate of the debtor and of the liquidation proceeding, the amount of such costs and expenses. (c) Discretionary advances SIPC may advance to the trustee such moneys as may be required to (1) pay or guarantee indebtedness of the debtor to a bank, lender, or other person under section 78fff1(b)(2) of this title;

144a (2) guarantee or secure any indemnity under section 78fff2(f) of this title; and (3) purchase securities under section 78fff2(d) of this title. (d) Standard maximum cash advance amount defined For purposes of this section, the term standard maximum cash advance amount means $250,000, as such amount may be adjusted after December 31, 2010, as provided under subsection (e). (e) Inflation adjustment (1) In general Not later than January 1, 2011, and every 5 years thereafter, and subject to the approval of the Commission as provided under section 78ccc(e)(2) of this title, the Board of Directors of SIPC shall determine whether an inflation adjustment to the standard maximum cash advance amount is appropriate. If the Board of Directors of SIPC determines such an adjustment is appropriate, then the standard maximum cash advance amount shall be an amount equal to (A) $250,000 multiplied by (B) the ratio of the annual value of the Personal Consumption Expenditures Chain-Type Price Index (or any successor index thereto), published by the Department of Commerce, for the calendar year preceding the year in

145a which such determination is made, to the published annual value of such index for the calendar year preceding the year in which this subsection was enacted. The index values used in calculations under this paragraph shall be, as of the date of the calculation, the values most recently published by the Department of Commerce. (2) Rounding If the standard maximum cash advance amount determined under paragraph (1) for any period is not a multiple of $10,000, the amount so determined shall be rounded down to the nearest $10,000. (3) Publication and report to the Congress Not later than April 5 of any calendar year in which a determination is required to be made under paragraph (1) (A) the Commission shall publish in the Federal Register the standard maximum cash advance amount; and (B) the Board of Directors of SIPC shall submit a report to the Congress stating the standard maximum cash advance amount. (4) Implementation period Any adjustment to the standard maximum cash advance amount shall take effect on January 1 of the

146a year immediately succeeding the calendar year in which such adjustment is made. (5) Inflation adjustment considerations In making any determination under paragraph (1) to increase the standard maximum cash advance amount, the Board of Directors of SIPC shall consider (A) the overall state of the fund and the economic conditions affecting members of SIPC; (B) the potential problems affecting members of SIPC; and (C) such other factors as the Board of Directors of SIPC may determine appropriate.

147a 5. N.Y. C.P.L.R. 1401 provides:

Claim for contribution. Except as provided in sections 15-108 and 18-201 of the general obligations law, sections eleven and twenty-nine of the workers compensation law, or the workers compensation law of any other state or the federal government, two or more persons who are subject to liability for damages for the same personal injury, injury to property or wrongful death, may claim contribution among them whether or not an action has been brought or a judgment has been rendered against the person from whom contribution is sought.