14‐97‐bk(L) In re: Bernard L. Madoff Investment Securities LLC
In the United States Court of Appeals For the Second Circuit
August Term, 2014 Nos. 14‐97‐bk(L), 14‐509‐bk(con), 14‐510‐bk(con), 14‐511‐bk(con), 14‐512‐bk(con)
IN RE: BERNARD L. MADOFF INVESTMENT SECURITIES LLC
SECURITIES INVESTOR PROTECTION CORPORATION, Plaintiff‐Appellee,
v.
2427 PARENT CORPORATION ET AL., ESTATE OF DORIS M. PEARLMAN (IRA), HAROLD J. HEIN ET AL., LILLIAN BERMAN GOLDFARB ET AL., MBE PREFERRED LIMITED PARTNERSHIP ET AL., HHI INVESTMENT TRUST #2, MELVYN I. WEISS AND BARBARA J. WEISS ET AL., MICHAEL MOST, THE KOSTIN CO., MARSHA PESHKIN ET AL., Claimants‐Appellants,
IRVING H. PICARD, Trustee‐Appellee.
Appeal from the United States Bankruptcy Court for the Southern District of New York. No. 08‐1789 ― Burton R. Lifland, Judge. IN RE: BERNARD L. MADOFF INVESTMENT SECURITIES LLC
ARGUED: OCTOBER 14, 2014 DECIDED: FEBRUARY 20, 2015
Before: STRAUB, WESLEY, and LIVINGSTON, Circuit Judges.
Appeal from an order of the United States Bankruptcy Court for the Southern District of New York (Burton R. Lifland, Judge), approving the calculation of “net equity” claims under the Securities Investor Protection Act without an adjustment for inflation or interest and overruling claimant objections. We hold that the Securities Investor Protection Act does not permit an inflation or interest adjustment to “net equity” claims for customer property. Accordingly, we AFFIRM.
P. GREGORY SCHWED, (Walter H. Curchack, Daniel B. Besikof, Michael Barnett, on the brief), Loeb & Loeb LLP, New York, NY, for Claimants‐Appellants MBE Preferred Limited Partnership et al.
RICHARD A. KIRBY, (Laura K. Clinton, Scott P. Lindsay, on the brief), K&L Gates LLP, Washington, DC, for Claimant‐Appellant Estate of Doris M. Pearlman (IRA).
PAULA J. WARMUTH, Stim & Warmuth, P.C., Farmingville, NY, for Claimant‐Appellant Michael Most.
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Matthew Gluck, Matthew A. Kupillas, Jennifer Young, Milberg LLP, New York, NY, Parvin Aminolroaya, Seeger Weiss LLP, New York, NY, for Claimants‐Appellants 2427 Parent Corporation et al.
Parvin Aminolroaya, Seeger Weiss LLP, New York, NY, for Claimants‐Appellants Melvyn I. Weiss and Barbara J. Weiss et al.
Carole Neville, Dentons US LLP, New York, NY, for Claimants‐Appellants Harold J. Hein et al.
Philip Bentley, Elise S. Frejka, Kramer Levin Naftalis & Frankel LLP, New York, NY, for Claimants‐Appellants Lillian Berman Goldfarb et al.
Marcy Ressler Harris, Jennifer M. Opheim, Mark D. Richardson, Schulte Roth & Zabel LLP, New York, NY, for Claimant‐Appellant HHI Investment Trust #2.
Bernard J. Garbutt III, Morgan, Lewis & Bockius LLP, New York, NY, for Claimant‐Appellant The Kostin Co.
Helen Davis Chaitman, Peter W. Smith, Julie Gorchkova, Becker & Poliakoff, LLP, New York, NY, for Claimants‐Appellants Marsha Peshkin et al.
JOSEPHINE WANG, General Counsel, (Kevin H. Bell, Senior Associate General Counsel for Dispute Resolution, Christopher H. Larosa, Senior Associate General Counsel ‐ Litigation, Lauren T. Attard, Assistant General Counsel, on
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the brief), Securities Investor Protection Corporation, Washington, DC, for Plaintiff‐ Appellee Securities Investor Protection Corporation.
SEANNA R. BROWN, (David J. Sheehan, Jorian L. Rose, Amy Elizabeth Vanderwal, on the brief), Baker & Hostetler LLP, New York, NY, for Plaintiff‐Appellee 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.
STRAUB, Circuit Judge:
The issue presented in this appeal is whether the Securities
Investor Protection Act, 15 U.S.C. § 78aaa, et seq. (“SIPA” or “the
Act”), permits an inflation or interest adjustment to “net equity”
claims for customer property. We hold that it does not.
Claimants‐Appellants (“Claimants”) are former investors of
Bernard L. Madoff Investment Securities LLC (“BLMIS”). Trustee‐
Appellee Irving H. Picard (“Trustee”) was appointed, pursuant to
SIPA, as trustee for the liquidation of BLMIS.
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SIPA prioritizes the distribution of customer property in a
broker‐dealer liquidation. The Act creates a fund of customer
property for priority distribution exclusively among a failed broker‐
dealer’s customers, and customers share in the fund proportionally,
according to each customer’s “net equity.”
Because Madoff’s fraud lasted at least three decades,
Claimants ask that the Trustee adjust their proportional share of
customer property to reflect inflation; one Claimant also asks for an
interest adjustment, to reflect the time‐value of money. We agree
with the Trustee and the Bankruptcy Court, however, that SIPA
does not permit an inflation or interest adjustment to net equity
claims. Accordingly, we affirm the order of the United States
Bankruptcy Court for the Southern District of New York (Burton R.
Lifland, Judge), approving the Trustee’s unadjusted net equity
calculation and overruling Claimants’ objections.
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BACKGROUND
We described Bernard Madoff’s fraud in a previous appeal in
this case. See In re Bernard L. Madoff Inv. Sec. LLC, 654 F.3d 229, 231–
33 (2d Cir. 2011) (“Net Equity Decision”), cert. dismissed, 132 S. Ct.
2712, cert. denied, 133 S. Ct. 24, and 133 S. Ct. 25 (2012). Briefly stated,
although Claimants gave money to Madoff for investment, Madoff
never invested the customer funds. Id. at 231. To conceal his
complete lack of trading activity on behalf of his investors, Madoff
created fictitious paper account statements and trading records. Id.
The customer account statements listed purported securities
transactions, but they did not reflect any actual trading or holdings
of securities by Madoff on behalf of the customer. Id. at 231–32.
Madoff instead funded customer withdrawals with the principal
investments of new and existing customers. Id. at 232. The only
accurate entries in Madoff’s customer statements were those that
reflected the customers’ cash deposits and withdrawals. Id.
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After the collapse of BLMIS, the Trustee was appointed
pursuant to SIPA. Id. at 233. SIPA was enacted in 1970 as a response
to “a rash of failures among securities broker‐dealers” that caused
significant losses to customers whose assets “were unrecoverable or
became tied up in the broker‐dealers’ bankruptcy proceedings.” In
re New Times Sec. Servs., Inc., 371 F.3d 68, 84 (2d Cir. 2004) (internal
quotation marks omitted) (“New Times I”). The Act creates
procedures for liquidating failed broker‐dealers and provides their
customers special protections. Net Equity Decision, 654 F.3d at 233.
SIPA is designed to return customer property to customers.
See 1 Collier on Bankruptcy ¶ 12.01 (Alan N. Resnick & Henry J.
Sommer eds., 16th ed. 2014) (noting that the return of customer
property is SIPA’s “fundamental premise”). In a SIPA liquidation, a
fund of customer property, separate from the broker‐dealer’s
general estate, is established for priority distribution exclusively
among customers. Net Equity Decision, 654 F.3d at 233. Customer
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property consists of “cash and securities … received, acquired, or
held” by the broker‐dealer “for the securities accounts” of
customers, except securities registered in the names of individual
customers. 15 U.S.C. § 78lll(4).
Customers of the broker‐dealer “share ratably in” the fund of
“customer property on the basis and to the extent of their respective
net equities.” Id. § 78fff‐2(c)(1)(B). The larger the customer’s net
equity, the greater the customer’s share of the fund of customer
property. 1 Collier, supra, ¶ 12.14. SIPA defines net equity, in
relevant part, as:
[T]he dollar amount of the account or accounts of a customer, to be determined by … calculating the sum which would have been owed by the debtor to such customer if the debtor had liquidated, by sale or purchase on the filing date … all securities positions of such customer … minus … any indebtedness of such customer to the debtor on the filing date ….
15 U.S.C. § 78lll(11). Payments to customers based on net equity are
made insofar as the amount owed to the customer is “ascertainable
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from the books and records of the debtor or [is] otherwise
established to the satisfaction of the trustee.” Id. § 78fff‐2(b); see also
Net Equity Decision, 654 F.3d at 237.
SIPA guarantees customers a minimum amount of recovery.
When a customer’s ratable share of the recovered customer property
is insufficient to satisfy his or her net equity claim, the customer’s
claim can be supplemented by the Securities Investor Protection
Corporation (“SIPC”), which was created by SIPA and administers a
fund capitalized by the brokerage community. See 15 U.S.C.
§§ 78ccc, 78ddd. The SIPC advances to the SIPA trustee up to
$500,000 per customer, see id. § 78fff‐3(a), except that the advance for
a customer’s “claim for cash” cannot exceed $250,000, see
id. §§ 78fff‐3(a)(1), (d). To the extent that “customer property and
SIPC advances” are insufficient to satisfy a customer’s full net equity
claim, the customer is “entitled … to participate in the general
estate” as an unsecured creditor. Id. § 78fff‐2(c)(1).
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In the Net Equity Decision, we held that Madoff’s investors are
“customers” with “claims for securities” under SIPA. 654 F.3d at
236. We also addressed how net equity should be calculated in this
case, given that SIPA’s definition of net equity references “securities
positions” but Madoff never invested customer funds. We rejected
the argument of various customers that their claims should be based
on the amounts listed in their last BLMIS account statement. Id. We
observed that reliance on Madoff’s false statements to determine net
equity “would have the absurd effect of treating fictitious and
arbitrarily assigned paper profits as real and would give legal effect
to Madoff’s machinations.” Id. at 235. Instead, we upheld as a
matter of law the Trustee’s determination that net equity should be
calculated by the amount that a customer deposited into his or her
BLMIS account, less any amount that he or she withdrew from the
account. Id. at 233, 236–42 & 238 n.7. We declined to address,
however, whether the calculation of net equity should be adjusted to
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account for inflation or interest, because the Bankruptcy Court had
not yet addressed the issue. Id. at 235 n.6.
Afterward, the Trustee and the SIPC argued to the Bankruptcy
Court that SIPA does not permit adjustments for inflation or interest
to customers’ net equity claims. Various claimants objected, some
seeking just an inflation adjustment, others an interest adjustment.
The Securities and Exchange Commission (“SEC”), which has
“plenary authority to supervise the SIPC,” SIPC v. Barbour, 421 U.S.
412, 417 (1975) (internal quotation marks omitted), disagreed with
the Trustee and the SIPC and contended that net equity could be
adjusted to account for inflation. The SEC argued before the
Bankruptcy Court that adjusting for inflation would be “an accurate
way to calculate customer net equity under the narrow set of factual
circumstances presented here,” although it acknowledged that “the
decision to make such an adjustment must rest on the Court’s
consideration of the costs and benefits of doing so.” SEC Mem. of
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Law at 4, SIPC v. Bernard L. Madoff Inv. Sec. LLC, 08‐01789‐smb
(Bankr. S.D.N.Y. Dec. 10, 2012), ECF No. 5142. However, in a
colloquy with the Bankruptcy Court, the SEC’s lawyer, when asked
what kind of deference he sought, stated that the SEC was “actually
not asking for deference.”
The Bankruptcy Court upheld the Trustee’s determination
that no adjustment for inflation or interest could be made under
SIPA. The court ruled that, as a matter of law, SIPA did not permit a
time‐based adjustment to net equity. It then certified an immediate
appeal of its decision pursuant to 28 U.S.C. § 158(d)(2). We granted
the petition for direct appeal.
DISCUSSION
We review de novo the legal conclusions of the Bankruptcy
Court, including its interpretation of SIPA. Net Equity Decision, 654
F.3d at 234. Claimants contend that the Bankruptcy Court erred in
concluding that SIPA does not allow an inflation adjustment to net
equity claims for customer property. They also assert that the SEC’s
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support for an inflation adjustment is entitled to Skidmore deference.
We disagree.
I. An Inflation Adjustment to Customer Net Equity Claims Is Impermissible Under SIPA
According to Claimants, without an inflation adjustment, the
claims of Madoff’s earlier investors are unfairly undervalued when
compared to the claims of Madoff’s later investors. Although SIPA’s
text does not provide for an inflation adjustment to net equity,
Claimants urge us to construe SIPA to permit trustee discretion to
make such an adjustment. But we conclude that an inflation
adjustment to net equity is not permissible under SIPA. An inflation
adjustment goes beyond the scope of SIPA’s intended protections
and is inconsistent with SIPA’s statutory framework.
SIPA does not address the possibility of an inflation
adjustment to net equity. The Act’s definition of net equity makes
no mention of inflation, see 15 U.S.C. § 78lll(11), whereas other, albeit
unrelated, portions of SIPA do, see, e.g., id. § 78fff‐3(e) (providing
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procedures for the SIPC to periodically “determine whether an
inflation adjustment to the standard maximum cash advancement
amount is appropriate”). And although SIPA instructs that
customer securities are valued, for purposes of calculating net
equity, as though they were liquidated “on the filing date,”
id. §§ 78lll(11)(A), (B), this does not indicate that cash deposited but
never invested is to be adjusted for inflation.1
SIPA’s silence is unsurprising. In a typical broker‐dealer
failure, an inflation adjustment to net equity would be nonsensical;
where securities are actually purchased for a broker‐dealer’s
customers, the securities have values that already incorporate
economic circumstances such as inflation. SIPA’s supposed purpose
1 The “filing date” is typically the date that the SIPC brings an application in
court for a protective decree because the broker‐dealer’s customers need SIPA protection. See 15 U.S.C. §§ 78eee(a)(3), 78lll(7). The term is used throughout SIPA, e.g., id. § 78fff(c) (determination of customer status); id. § 78fff‐2(d) (trustee’s purchase of securities to replace customer securities); id. § 78lll(3) (defining “customer name securities”), and it facilitates the return to customers of their investments as they were just before liquidation. Here, Claimants’ net equities are valued as of the “filing date” by incorporating prior deposits and withdrawals.
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was to remedy broker‐dealer insolvencies—not necessarily broker‐
dealer fraud. See H.R. Rep. No. 91‐1613, at 1 (1970), reprinted in 1970
U.S.C.C.A.N. 5254, 5255 (“The primary purpose of [SIPA] is to
provide protection for investors if the broker‐dealer with whom they
are doing business encounters financial troubles.”). Hence, as we
noted in the Net Equity Decision, SIPA does not specify how net
equity should be calculated in a case like this, in which a dishonest
broker failed to invest customer funds. 654 F.3d at 237–38. We
determined that “the statutory language does not prescribe a single
means of calculating ‘net equity’ that applies in the myriad
circumstances that may arise in a SIPA liquidation,” and “[d]iffering
fact patterns will inevitably call for differing approaches to
ascertaining the fairest method for approximating ‘net equity.’” Id.
at 235.
The flexibility espoused in the Net Equity Decision, though, has
no relevance to this case. The Net Equity Decision stated “no view”
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on whether the Trustee’s method for calculating net equity “should
be adjusted to account for inflation or interest.” Id. at 235 n.6.
Although we suggested, in dicta, that a SIPA trustee should
“exercise some discretion” in selecting “a method to calculate ‘net
equity,’” and a reviewing court should “accord a degree of
deference” to the method chosen, id. at 238 n.7, that standard is
inapplicable here: We conclude that SIPA’s scheme disallows an
inflation adjustment as a matter of law.
As we emphasized previously, SIPA is intended to expedite
the return of customer property. Id. at 240. Without SIPA, customer
funds and securities held by a failed brokerage could become
“depleted or enmeshed in bankruptcy proceedings.” See SEC v.
SIPC, 758 F.3d 357, 362–63 (D.C. Cir. 2014). SIPA “addresses that
issue by protecting the custody function of brokers.” Id.; see also
1 Collier, supra, ¶ 12.01 (explaining that SIPA protects investors
against losses “resulting from the failure of an insolvent or
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otherwise failed broker‐dealer to properly perform its role as the
custodian of customer cash and securities”). Net equity claims are
thus linked directly to the customer property held by a broker‐
dealer; SIPA instructs a trustee to process claims to the extent that
they are ascertainable from the broker‐dealer’s books and records or
otherwise established to the trustee’s satisfaction. See 15 U.S.C.
§ 78fff‐2(b). BLMIS’s books and records reflected only funds
deposited and withdrawn, without any time‐based adjustment, see
Brief for Trustee‐Appellee at 7, 23, and these deposits, less
withdrawals, constitute customer property in this case, see Net Equity
Decision, 654 F.3d at 240; 15 U.S.C. § 78lll(4) (defining “customer
property,” in relevant part, as “cash and securities … received,
acquired, or held” by the broker‐dealer “for the securities accounts”
of customers).
Although SIPA defends investors from a broker‐dealer’s
failure to perform its custodial role over customer property, it does
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not otherwise shield investors from loss. Instead, the Act merely
restores investors to what their position would have been in the
absence of liquidation. We have noted that SIPA’s scheme “assumes
that a customer—as an investor in securities—wishes to retain his
investments despite the liquidation of the broker; the statute thus
works to expose the customer to the same risks and rewards that
would be enjoyed had there been no liquidation.” In re New Times
Sec. Servs., Inc., 463 F.3d 125, 128 (2d Cir. 2006) (“New Times II”)
(internal quotation marks omitted). Hence, SIPA instructs a trustee,
in many circumstances, to provide customers with securities in kind
instead of a cash equivalent. See 15 U.S.C. §§ 78fff‐1(b)(1), 78fff‐
2(b)(2); see also id. § 78fff‐2(d) (providing that 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”).
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SIPA likewise provides customers with no compensation for
the lost use of their securities or cash while liquidation is pending.
Customer securities, whether returned in kind or as a cash
equivalent, are valued as of the filing date, regardless of any
subsequent fluctuations in value. See 15 U.S.C. §§ 78fff‐2(b), (c)(1).
This may harm an investor if the securities fall in value, but
avoidance of loss beyond restoration of the pre‐failure status quo is
not SIPA’s goal. See 6 Collier, supra, ¶ 741.06 (“[I]n a SIPA
liquidation, customers are at risk for market loss.”). Although the
securities and cash have opportunity costs that are denied to the
investor during liquidation, and although the cash similarly may
have lost purchasing power in an inflationary economy, SIPA
returns to the customer the nominal pre‐liquidation balance. Cf.
SIPC v. Ambassador Church Fin./Dev. Grp., Inc., 788 F.2d 1208, 1210–12
(6th Cir.) (denying claims brought to recover post‐bankruptcy
petition interest for the “seven and one‐half year period that the
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SIPC had delayed in paying” investors’ claims, in part because “the
definition of ‘net equity’ does not include interest”), cert. denied, 479
U.S. 850 (1986).
Claimants assert that adjusting net equity claims for inflation
is the fairest method of determining net equity. Yet, we have
explained that “SIPA was not designed to provide full protection to
all victims of a brokerage collapse,” and “arguments based solely on
the equities are not, standing alone, persuasive.” SEC v. Packer,
Wilbur & Co., 498 F.2d 978, 983 (2d Cir. 1974). Contrary to
Claimants’ assertion, moreover, an unadjusted distribution of
customer property is not unjust. In fact, we recently found no abuse
of discretion in a district court’s approval, over objection, of a
receiver’s distribution plan to the victims of a Ponzi scheme that
lasted thirteen years, even though the distribution provided no
adjustment for inflation. See Commodity Futures Trading Commʹn v.
Walsh, 712 F.3d 735, 738–39, 754–55 (2d Cir. 2013); cf. also New Times
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I, 371 F.3d at 88 (agreeing that net equity was “properly calculated
as the amount of money” initially placed with the Ponzi scheme
brokerage, without noting the possibility of an inflation adjustment).
Because it is doubtful that the full amount of customer
property will be recovered in this case,2 each dollar allocated to
earlier investors in recognition of inflation reduces the amount of
principal recovered by later investors. Even if all customer property
were miraculously recovered, it would be insufficient to satisfy
customer claims to the extent such claims were increased to reflect
inflation. An inflation adjustment to net equity claims could allow
some customers to obtain, in effect, a protection from inflation for
2 The Trustee has stated that he is unlikely to recover the full amount of lost
customer money. See U.S. Gov’t Accountability Office, GAO‐12‐991, Securities Investor Protection Corporation: Customer Outcomes in the Madoff Liquidation Proceeding 6 (2012). Almost $20 billion in principal was lost in Madoff’s scheme, approximately $17.5 billion of which was lost by those who have filed claims with the Trustee. See Trustee’s Twelfth Interim Report for the Period Ending September 30, 2014, at 1 n.3, SIPC v. Bernard L. Madoff Inv. Sec. LLC, 08‐01789‐smb (Bankr. S.D.N.Y. Oct. 27, 2014), ECF No. 8276. As of late 2014, the Trustee had recovered roughly $10 billion. See id. at 1; see also http://www.madofftrustee.com. At oral argument in this appeal, the SIPC also predicted a shortfall in the amount of customer property recovered.
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which they never bargained, in contravention of the text and
purpose of SIPA, and at the expense of customers who have not yet
recovered the property they placed in Madoff’s hands.3
The purpose of determining net equity under SIPA is to
facilitate the proportional distribution of customer property actually
held by the broker, not to restore to customers the value of the
property that they originally invested. We thus previously
concluded that in this case net equity could not be based on fictitious
customer statements but instead should be determined based on
customers’ actual deposits and withdrawals. See Net Equity Decision,
654 F.3d at 235. These deposits, net withdrawals, constitute
3 An adjustment to reflect deflation in the economy—rather than inflation—
would also be inconsistent with SIPA’s scheme. A deflation adjustment would prevent customers from obtaining priority return of the full amount of their customer property.
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customer property here. Under SIPA, Claimants’ net equity claims
cannot be adjusted to reflect inflation.4
II. The SEC’s View is Not Entitled to Deference
In reaching this decision, no deference is owed to the SEC’s
view. The SEC submitted a brief and participated in oral argument
before the Bankruptcy Court in support of the position that SIPA
permits adjustments for inflation to net equity claims.5 At the
hearing on this issue before the Bankruptcy Court, however, the SEC
stated that it was “not claiming Chevron deference.”6 The SEC even
4 To be clear, our holding is limited to a post‐liquidation adjustment of
customers’ net equity calculations. Obviously, if a customer’s pre‐liquidation account contained earnings from holdings that awarded interest or were protected against inflation, for instance, the customer’s claim for net equity would include those earnings, because they “would have been owed by the debtor to such customer if the debtor had liquidated … all securities positions of such customer.” 15 U.S.C. § 78lll(11). 5 During an appearance before the House of Representatives Subcommittee on
Capital Markets in 2009, the SEC’s Deputy Solicitor similarly contended that distributions to Madoff’s investors should reflect inflation. See Statement of Michael A. Conley, Madoff Ponzi Scheme, Capital Markets, Ins. & Gov’t Sponsored Enters., House Fin. Servs., 2009 WL 4647561 (Dec. 9, 2009). 6 “Chevron deference is given to an administrative implementation of a statute
when it appears that Congress delegated authority to the agency generally to
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said more generally that it was “not asking for deference here,” but
that, “[i]f [it] were asking for deference … it would be Skidmore
deference.” The SEC has not filed a brief in this appeal, even though
SIPA provides that the SEC “may, on its own motion, file notice of
its appearance in any proceeding under this chapter and may
thereafter participate as a party.” 15 U.S.C. § 78eee(c). Claimants
nonetheless contend that the SEC’s position warrants Skidmore
deference.
In Skidmore v. Swift & Co., 323 U.S. 134 (1944), the Supreme
Court held that “an agency’s interpretation may merit some
deference whatever its form, given the ‘specialized experience and
broader investigations and information’ available to the agency, and
given the value of uniformity in its administrative and judicial
make rules carrying the force of law, and that the agency interpretation claiming deference was promulgated in the exercise of that authority.” Barrows v. Burwell, No. 13‐4179, __ F.3d __, 2015 WL 264727, at *1 n.6 (2d Cir. Jan. 22, 2015) (internal quotation marks omitted); see Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984).
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understandings of what a national law requires.” United States v.
Mead Corp., 533 U.S. 218, 234 (2001) (internal citation omitted)
(quoting Skidmore, 323 U.S. at 139). Skidmore deference is a “more
limited standard of deference” than Chevron deference. New Times I,
371 F.3d at 83. An agency’s interpretations “are ‘entitled to respect’”
under Skidmore, “but only to the extent that those interpretations
have the ‘power to persuade.’” Christensen v. Harris Cnty., 529 U.S.
576, 587 (2000) (quoting Skidmore, 323 U.S. at 140). In determining
whether to defer to an agency’s interpretation under Skidmore, we
consider “the agency’s expertise, the care it took in reaching its
conclusions, the formality with which it promulgates its
interpretations, the consistency of its views over time, and the
ultimate persuasiveness of its arguments.” New Times I, 371 F.3d at
83 (internal quotation marks omitted).
These factors do not support deference to the SEC’s
interpretation. The position that the SEC took before the Bankruptcy
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Court in this case is novel, inconsistent with its positions in other
cases, and ultimately unpersuasive. Cf. SEC v. SIPC, 872 F. Supp. 2d
1, 10 (D.D.C. 2012) (holding that the SEC’s view on a distinct issue of
SIPA interpretation was entitled “to little, if any, deference” where it
contradicted the SEC’s longstanding view), aff’d, 758 F.3d 357 (D.C.
Cir. 2014).
The SIPC explains that, in more than three hundred SIPA
liquidations prior to this one, the SEC has not once suggested that
the amount of customer claims subject to satisfaction with cash
should be adjusted to reflect inflation. See Brief for Plaintiff‐
Appellee SIPC at 43. In this case, the SEC asserted that adjusting
claims for inflation would provide the most accurate valuation, yet it
recently opposed an inflation adjustment in a different long‐lasting
Ponzi scheme. See Walsh, 712 F.3d at 744. In Walsh, which addressed
a court‐appointed receiver’s proposed distribution, the SEC argued
that an unadjusted distribution was “the best and most fair
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approach” under the circumstances, “because it yields a substantial
recovery for all investors.” Id. (quoting the SEC’s joint
recommendation with the Commodity Futures Trading
Commission). Although the SEC’s position in Walsh noted that an
inflation adjustment might be “appropriate in certain instances,” id.,
the reason stated for eschewing an adjustment in Walsh was the lack
of assets to fully satisfy each investor’s claim, see id., which is
expected to be the case here as well.7 Nor do we ultimately find the
SEC’s brief before the Bankruptcy Court to be convincing. It echoes
Claimants’ contentions that we reject here.
7 In oral argument before the Bankruptcy Court, the SEC admitted the
incongruence of its stance in Walsh and its contentions to the Bankruptcy Court. See Transcript of Sept. 10, 2013, Hearing at 25, SIPC v. Bernard L. Madoff Inv. Sec. LLC, 08‐01789‐smb (Bankr. S.D.N.Y. Sept. 10, 2013), ECF No. 5476 (“We acknowledge that this is a position that we’re taking in this litigation and as you pointed out, a different position was taken in the Walsh case.”).
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III. An Interest Adjustment to Customer Net Equity Claims Is Also Impermissible Under SIPA
In this appeal, only one Claimant seeks an adjustment for
interest, in addition to inflation; all other Claimants seek an
adjustment solely for inflation. The SEC likewise argued only for an
inflation adjustment. For the same reasons stated above with
respect to an inflation adjustment, supra Section I, we find that that
an interest adjustment to customer net equity claims is
impermissible under SIPA’s scheme.
CONCLUSION
For the foregoing reasons, we affirm the order of the United
States Bankruptcy Court for the Southern District of New York and
hold that SIPA does not permit an inflation or interest adjustment to
“net equity” claims.
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