Ponzi Scheme Investor Protection Act of 2011 - Amends the Securities Investor Protection Act of 1970 with respect to the duties of a trustee appointed for a Securities and Exchange Commission (SEC)-registered broker or dealer undergoing liquidation.
Instructs the trustee to take specified actions if the trustee determines that the debtor is a Ponzi scheme.
Establishes procedures for an indirect Ponzi scheme investor to file a claim.
Instructs the trustee to: (1) coordinate with Ponzi scheme investors to ensure proper payments to indirect Ponzi scheme investors, and (2) take specified actions to pay indirect Ponzi scheme investors.
Prescribes the maximum aggregate amount of all cash and securities that may be awarded to each indirect Ponzi scheme investor.
Prohibits the trustee of a Ponzi scheme from seeking to recover money and profits from any Ponzi scheme investor unless such investor was either: (1) complicit in the Ponzi scheme, or (2) registered, or should have been registered, with the SEC as an an investment adviser, broker, dealer, or other person with a fiduciary duty to its customers or investors.
Requires the Securities Investor Protection Corporation (SIPC) to: (1) promulgate regulations to ensure that any required adjustment in the net equity of a Ponzi scheme investor is passed to the appropriate indirect Ponzi scheme investors, (2) advance to the trustee any moneys required to pay claims and implement this Act, and (3) promulgate regulations modifying SIPC Fund assessment levels to ensure they are adequate to cover the anticipated costs of implementing this Act.
Directs the court to award the amounts recommended by the SIPC if certain allowances are to be paid by the SIPC without reasonable expectation of recoupment and there is no difference between the amounts requested and the amounts recommended.
Requires SIPC to select an independent public accountant to perform an annual audit of the trustee of the debtor in a liquidation proceeding for which SIPC does not have a reasonable expectation of recoupment of the advances it made for the proceeding.
[Congressional Bills 112th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1987 Introduced in House (IH)]
112th CONGRESS
1st Session
H. R. 1987
To amend the Securities Investor Protection Act of 1970 to provide
insurance coverage for certain indirect investors caught in Ponzi
schemes, and for other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
May 25, 2011
Mr. Ackerman introduced the following bill; which was referred to the
Committee on Financial Services
_______________________________________________________________________
A BILL
To amend the Securities Investor Protection Act of 1970 to provide
insurance coverage for certain indirect investors caught in Ponzi
schemes, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Ponzi Scheme Investor Protection Act
of 2011''.
SEC. 2. ADDITIONAL PROTECTIONS FOR INVESTORS IN PONZI SCHEMES.
(a) In General.--The Securities Investor Protection Act of 1970 (15
U.S.C. 78aaa et seq.) is amended by inserting after section 8 the
following new section:
``SEC. 8A. SPECIAL PROVISIONS RELATED TO PONZI SCHEMES.
``(a) Determination by Trustee.--Promptly after the appointment of
the trustee, such trustee shall determine if the debtor is a Ponzi
scheme. If the trustee determines that the debtor is a Ponzi scheme--
``(1) the trustee shall notify SIPC;
``(2) SIPC shall make such determination publicly
available, including on SIPC's Web site; and
``(3) if the trustee determines that customers invested
more than $1,000,000,000 in such Ponzi scheme, the trustee and
SIPC shall, not later than 30 days after such determination is
made, jointly submit to the Committee on Financial Services of
the House, the Committee on Banking, Housing, and Urban Affairs
of the Senate, and the Secretary of the Treasury a reasonable
expected timeline for the consideration of claims made under
this section.
``(b) Statement of Claim.--
``(1) In general.--An indirect Ponzi scheme investor may,
not later than the end of the 1-year period beginning on the
date SIPC makes a determination publicly available under
subsection (a), file with the trustee a written claim--
``(A) stating the type of securities held by the
Ponzi scheme on behalf of the Ponzi scheme investor on
behalf of the indirect Ponzi scheme investor;
``(B) stating the number of such securities, or in
the case of a pooled investment, the percentage of such
securities;
``(C) stating the amount of any funds invested by
the indirect Ponzi scheme investor with the Ponzi
scheme investor that were invested with the Ponzi
scheme, but for which the indirect Ponzi scheme
investor has not received a statement or other
documentation that would allow the indirect Ponzi
scheme investor to identify in which securities the
Ponzi scheme stated such funds were invested; and
``(D) containing such other information as SIPC may
determine necessary to carry out the provisions of this
section.
``(2) Notice.--At the time an indirect Ponzi scheme
investor makes a claim under paragraph (1), the indirect Ponzi
scheme investor shall also file a copy of the claim with the
appropriate Ponzi scheme investor.
``(c) Coordination With Ponzi Scheme Investor.--To the extent
necessary, the trustee shall coordinate with Ponzi scheme investors to
ensure proper payments to indirect Ponzi scheme investors under this
section.
``(d) Payments to Indirect Ponzi Scheme Investors.--
``(1) In general.--After receipt of a written statement of
claim pursuant to subsection (b), unless the trustee determines
such claim to be fraudulent, the trustee shall, with respect to
the securities that are the subject of such claim, take the
following actions in the following order:
``(A) With respect to a claim relating to
securities of a class and series of an issuer which are
ascertainable from the books and records of the Ponzi
scheme or are otherwise established to the satisfaction
of the trustee, deliver securities of such class and
series to the indirect Ponzi scheme investor if and to
the extent available to satisfy such claims in whole or
in part, with partial deliveries to be made pro rata to
the greatest extent considered practicable by the
trustee.
``(B) Pay the indirect Ponzi scheme investor a cash
amount equal to--
``(i) the value of any securities
identified in the claim and not otherwise
delivered to the indirect Ponzi scheme investor
under subparagraph (A); and
``(ii) the value of any funds identified in
the claim as being invested in the Ponzi scheme
by the Ponzi scheme investor on behalf of the
indirect Ponzi scheme investor, but for which
the indirect Ponzi scheme investor is unable to
identify in which specific securities the Ponzi
scheme stated such funds were invested.
``(2) Maximum amount.--The aggregate amount of the value of
all securities and cash delivered under paragraph (1) may not
exceed, for each indirect Ponzi scheme investor, an amount
equal to--
``(A) $100,000, minus
``(B) the aggregate amount of all cash and
securities invested in the Ponzi scheme by the Ponzi
scheme investor on behalf of the indirect Ponzi scheme
investor that is recovered by the Ponzi scheme investor
from the trustee.
``(3) Advances by sipc.--With respect to payments made
pursuant to this section, the trustee may 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 Ponzi scheme available
to satisfy such claims.
``(4) Waiver.--By accepting any security or cash from the
trustee under this section, the indirect Ponzi scheme investor
agrees to waive the right to sue the Ponzi scheme investor with
respect to such security or with respect to the security that
was the basis for such cash payment.
``(5) Security valuation.--For purposes of this subsection,
the value of a security shall be deemed to be the amount listed
for such security on the last statement the indirect Ponzi
scheme investor received from the Ponzi scheme investor before
the trustee determined the debtor was a Ponzi scheme pursuant
to subsection (a).
``(e) Prohibition on Double Payments.--Securities delivered
pursuant to subsection (d), and securities, or percentages of
securities, which were the basis for cash paid pursuant to subsection
(d), may not be the basis for any other payment by the trustee or SIPC
under this Act.
``(f) Recovery of Funds.--The trustee of a Ponzi scheme may not
seek to recover money, including profits, from any investor in the
Ponzi scheme unless such investor--
``(1) was complicit in the Ponzi scheme; or
``(2) was registered, or should have been registered, with
the Commission under the securities laws as an investment
adviser, broker, dealer, or other person with a fiduciary duty
to the customers or investors of the person.
``(g) Non-Applicability if Lawsuit Filed.--This section shall not
apply to a claim filed by an indirect Ponzi scheme investor if such
investor has filed a lawsuit against the Ponzi scheme investor, the
Ponzi scheme, or the trustee in connection with the securities that are
the basis of such claim.
``(h) Retroactive Applicability.--With respect to the appointment
of a trustee made before the date of the enactment of this section,
such trustee shall make the determination required under subsection (a)
not later than 30 days after such date of enactment, and only if such
trustee makes a determination that the debtor is a Ponzi scheme and
customers invested more than $1,000,000,000 in the Ponzi scheme.
``(i) Interest Payments.--If the Secretary of the Treasury makes a
determination that claims under this section are not being considered
in accordance with the timeline submitted to the Secretary under
subsection (a)(3), the Secretary may require any future payments made
under this section to be made with interest.
``(j) Treatment of Interest on Cash.--SIPC shall issue regulations
to ensure that any adjustment in the net equity of a Ponzi scheme
investor required under the last sentence of section 16(11) is passed
to the appropriate indirect Ponzi scheme investors.
``(k) Rulemaking.--SIPC shall issue regulations to carry out the
provisions of this section.''.
(b) SIPC Authority To Advance Funds.--Section 9 of such Act (15
U.S.C. 78fff-3) is amended by adding at the end the following new
subsection:
``(d) Advances Related to Ponzi Schemes.--SIPC shall advance to the
trustee--
``(1) such moneys as may be required to pay claims made
under section 8A; and
``(2) such moneys as may be required to carry out section
8A.''.
(c) Oversight of Trustee Compensation.--Section 5(b)(5)(C) of such
Act (15 U.S.C. 78eee(b)(5)(C)) is amended by striking ``In any case in
which such allowances are to be paid by SIPC without reasonable
expectation of recoupment thereof as provided in this Act and there is
no difference between the amounts requested and the amounts recommended
by SIPC, the court shall award the amounts recommended by SIPC. In
determining the amount of allowances in all other cases, the court
shall give due consideration to the nature, extent, and value of the
services rendered, and shall place considerable reliance on the
recommendation of SIPC.'' and inserting ``In determining the amount to
be awarded for allowances, the court shall give due consideration to
the nature, extent, and value of the services rendered. In any case in
which such allowances are to be paid by SIPC and there is a reasonable
expectation of recoupment thereof as provided in this Act, the court
shall place considerable reliance on the recommendation of SIPC.''.
SEC. 3. SIPC FUND ASSESSMENT.
Not later than the end of the 60-day period beginning on the date
of the enactment of this Act, SIPC shall issue regulations to modify
the SIPC Fund assessment levels to ensure they are adequate to cover
the anticipated costs to the SIPC Fund of carrying out the amendments
made by this Act.
SEC. 4. AUDITS OF CERTAIN TRUSTEES.
Section 11(c) of the Securities Investor Protection Act of 1970 (15
U.S.C. 78ggg(c)) is amended by adding at the end the following new
paragraph:
``(3) Audits of certain trustees.--With respect to a
liquidation proceeding for which SIPC does not have a
reasonable expectation of recoupment of the advances made by
SIPC for such liquidation proceeding, SIPC shall--
``(A) select an independent public accountant to
perform an annual audit of the trustee of the debtor in
such proceeding; and
``(B) issue a report to the Commission containing
the results of such audit.''.
SEC. 5. DEFINITIONS.
Section 16 of the Securities Investor Protection Act of 1970 (15
U.S.C. 78lll) is amended--
(1) in paragraph (11), by adding at the end the following:
``In determining net equity under this paragraph with respect
to a Ponzi scheme investor, the amount of cash in the account
or accounts of such investor, as calculated under subparagraphs
(A) through (C), shall be adjusted by the percentage increase
or decrease in the Consumer Price Index for All Urban Consumers
published by the Bureau of Labor Statistics of the Department
of Labor for the period of time between when the cash was
placed in the account and the time the net equity is
determined.''; and
(2) by adding at the end the following new paragraphs:
``(15) Securities laws.--The term `securities laws' has the
meaning given such term under section 3 of the Securities
Exchange Act of 1934.
``(16) Definitions related to ponzi schemes.--
``(A) Ponzi scheme.--The term `Ponzi scheme' means
any fraudulent investment operation which is managed in
a manner that provides investors with returns (or
purported returns) derived substantially from
investments made by other investors rather than from
profits.
``(B) Ponzi scheme investor.--The term `Ponzi
scheme investor' means a customer of a debtor, where
the trustee of such debtor has determined the debtor to
be a Ponzi scheme.
``(C) Indirect ponzi scheme investor.--The term
`indirect Ponzi scheme investor' means any person
(including any person with whom the Ponzi scheme
investor deals as principal or agent) who is not a
customer of a Ponzi scheme, but who is an investor in a
Ponzi scheme investor and on whose behalf the Ponzi
scheme investor has a claim on account of securities
received, acquired, or held by the Ponzi scheme in the
ordinary course of its business as a broker or dealer
from or for the securities accounts of such Ponzi
scheme investor for safekeeping, with a view to sale,
to cover consummated sales, pursuant to purchases, as
collateral, security, or for purposes of effecting
transfer.''.
<all>
Introduced in House
Introduced in House
Referred to the House Committee on Financial Services.
Referred to the Subcommittee on Capital Markets and Government Sponsored Enterprises.
Subcommittee Hearings Held.
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