Restoring Main Street Investor Protection and Confidence Act
Amends the Securities Investor Protection Act of 1970 to redefine "net equity."
Bases the determination of net equity, the positions, options, and contracts of a customer reported to the customer as held by the debtor, and any indebtedness of the customer to the debtor, upon: (1) the information contained in the last statement issued by the debtor to the customer before the filing date; and (2) any additional written confirmations of the customer's positions, options, contracts, or indebtedness received after such last statement but before the filing date.
Makes an exception to this requirement when a debtor's records indicate a higher value. Requires determination of the customer's net equity using the debtor's books and records instead of the customer's last statement when the debtor's books and records indicate that the net value of a customer's positions, options, and contracts reported to the customer as held by the debtor, and any indebtedness of the customer to the debtor, is greater than the customer's net value as calculated on the basis specified by this Act.
Prohibits reliance on the final statement of the debtor to customer, however, if the customer: (1) knew the debtor was involved in fraudulent activity with respect to any of its customers which reasonably indicated a fraud adversely affecting a substantial number of customers; or (2) as a registered broker, dealer, or investment adviser under specified securities laws, or a person required to be so registered, knew, or should have known, that the debtor was involved in a fraudulent activity and did not notify the Securities Investor Protection Corporation (SIPC), the Securities and Exchange Commission (SEC), or law enforcement personnel.
Prohibits a trustee in bankruptcy in a liquidation proceeding from recovering any property transferred by the debtor to a customer before the filing date unless, at the time of such transfer, the customer meets the same criteria regarding actual or constructive knowledge of the debtor's involvement in fraudulent activity.
Prescribes alternative methodologies for allocation of customer property to customers by a trustee in a liquidation proceeding. Requires public notice and comment as a prerequisite to court approval of a proposed allocation methodology.
Transfers from the SIPC to the SEC authority to nominate to a court persons for appointment as trustee for the liquidation of a debtor's business and as attorney for the trustee.
Prohibits a trustee from serving in multiple liquidations if the trustee is currently serving as such under this Act for the liquidation of the business of another debtor.
Sets forth requirements for trustee and attorney compensation.
Requires the SIPC to issue quarterly public reports on its payments to the trustee, as well as all other costs in connection with the liquidation proceeding.
Defines as a "customer" of the debtor under such Act: (1) any person that had cash or securities that were converted or otherwise misappropriated by the debtor (or any person who controls, is controlled by, or is under common control with the debtor, if such person was operating through the debtor), irrespective of whether the debtor held or otherwise had custody, possession, or control of that cash or securities; and (2) any other person the SIPC deems a customer of the debtor.
Authorizes the SEC as well as the SIPC (as under current law) to apply for a protective decree on an SIPC member's behalf with any court of competent jurisdiction.
Prescribes the timing of: (1) SIPC advances, and (2) payments to customers.
Conditions the SEC authorization to make loans to the SIPC upon an SEC determination that the SIPC is unable to borrow in the public debt markets at reasonable terms (both as to yield and maturity).
Requires the SEC to inspect SIPC members periodically to ensure that the information they provide to customers is accurate.
Requires the self-regulatory organization to which an SIPC member belongs, or in which it is a participant, to inspect or examine the member to assess its financial stability as well as ensure that the information the member provides to customers is accurate.
[Congressional Bills 114th Congress]
[From the U.S. Government Publishing Office]
[S. 67 Introduced in Senate (IS)]
114th CONGRESS
1st Session
S. 67
To amend the Securities Investor Protection Act of 1970 to confirm that
a customer's net equity claim is based on the customer's last statement
and that certain recoveries are prohibited, to change how trustees are
appointed, and for other purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
January 7, 2015
Mr. Vitter introduced the following bill; which was read twice and
referred to the Committee on Banking, Housing, and Urban Affairs
_______________________________________________________________________
A BILL
To amend the Securities Investor Protection Act of 1970 to confirm that
a customer's net equity claim is based on the customer's last statement
and that certain recoveries are prohibited, to change how trustees are
appointed, 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 ``Restoring Main Street Investor
Protection and Confidence Act''.
SEC. 2. SECURITIES INVESTOR PROTECTION ACT OF 1970 AMENDMENTS.
(a) Net Equity Based on Last Statement.--Section 16(11) of the
Securities Investor Protection Act of 1970 (15 U.S.C. 78lll(11)) is
amended to read as follows:
``(11) Net equity.--
``(A) In general.--The term `net equity' means the
dollar amount of the account or accounts of a customer,
to be determined by--
``(i) 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--
``(I) all securities positions of
such customer (other than customer name
securities reclaimed by such customer);
and
``(II) all positions in futures
contracts and options on futures
contracts held in a portfolio margining
account carried as a securities account
pursuant to a portfolio margining
program approved by the Commission,
including all property collateralizing
such positions, to the extent that such
property is not otherwise included
herein; minus
``(ii) any indebtedness of such customer to
the debtor on the filing date; plus
``(iii) any payment by such customer of
such indebtedness to the debtor which is made
with the approval of the trustee and within
such period as the trustee may determine (but
in no event more than sixty days after the
publication of notice under section 8(a)).
``(B) Treatment of certain commodity futures
contracts.--A claim for a commodity futures contract
received, acquired, or held in a portfolio margining
account pursuant to a portfolio margining program
approved by the Commission or a claim for a security
futures contract, shall be deemed to be a claim with
respect to such contract as of the filing date, and
such claim shall be treated as a claim for cash.
``(C) Treatment of accounts held by a customer in
separate capacities.--In determining net equity under
this paragraph, accounts held by a customer in separate
capacities shall be deemed to be accounts of separate
customers.
``(D) Reliance on final customer statement.--
``(i) In general.--In determining net
equity under this paragraph, the positions,
options, and contracts of a customer reported
to the customer as held by the debtor, and any
indebtedness of the customer to the debtor,
shall be determined based on--
``(I) the information contained in
the last statement issued by the debtor
to the customer before the filing date;
and
``(II) any additional written
confirmations of the customer's
positions, options, contracts, or
indebtedness received after such last
statement but before the filing date.
``(ii) Exception when debtor's records
indicate higher value.--Notwithstanding clause
(i), if the books and records of the debtor
indicate that the net value of a customer's
positions, options, and contracts reported to
the customer as held by the debtor, and any
indebtedness of the customer to the debtor, is
greater than the net value of the customer as
calculated under clause (i) using the
customer's last statement, then the
determination of the net equity of the customer
under this paragraph shall be done using the
books and records of the debtor instead of the
customer's last statement.
``(iii) Fraud exception.--The provisions of
this subparagraph shall not apply to any
customer that--
``(I) knew the debtor was involved
in fraudulent activity with respect to
any customer of the debtor which
reasonably indicated a fraud adversely
affecting a substantial number of
customers; or
``(II) was a person that--
``(aa) was, or was required
to be, registered--
``(AA) as a broker
or dealer under the
Securities Exchange Act
of 1934; or
``(BB) as an
investment adviser
under the Investment
Advisers Act of 1940,
or that would have been
required to register as
an investment adviser
under the Investment
Advisers Act of 1940
but for section 203(m)
of such Act;
``(bb) knew, or, due to the
activities of such person
causing such person to be
described under item (aa),
should have known, that the
debtor was involved in
fraudulent activity with
respect to any customer of the
debtor; and
``(cc) did not notify SIPC,
the Commission, or law
enforcement personnel that the
debtor was involved in such
fraudulent activity.''.
(b) Allocation of Customer Property to Customers.--Section 8(c) of
the Securities Investor Protection Act of 1970 (15 U.S.C. 78fff-2(c))
is amended--
(1) in paragraph (1), by amending subparagraph (B) to read
as follows:
``(B) second, to customers of such debtor, as
described under paragraph (4);''; and
(2) by adding at the end the following:
``(4) Allocation of customer property to customers.--
``(A) In general.--Allocations of customer property
to customers under paragraph (1)(B) shall be made such
that customers share in customer property based on a
methodology--
``(i) based on the net equity of a
customer, as determined using the last
statement issued by the debtor to the customer
before the filing date;
``(ii) determined by the trustee, in
consultation with the Commission; and
``(iii) approved by the court.
``(B) Alternate methodology.--If the trustee
determines that allocating customer property in
accordance with subparagraph (A) would be unfair and
inequitable to a substantial segment of customers and
would not fully serve the remedial purposes of this
Act, allocations of customer property to customers
under paragraph (1)(B) shall be made such that
customers share in customer property based on a fair
and reasonable methodology, with special consideration
for the typical, non-professional investor, that--
``(i) if the trustee determines that it is
necessary in order to reach a fair and
reasonable result, is determined without regard
to section 16(11)(D);
``(ii) is determined by the trustee, in
consultation with the Commission; and
``(iii) is approved by the court.
``(C) Public notice and comment.--Before approving
a proposed methodology under subparagraph (A)(ii) or
subparagraph (B)(ii), the court shall--
``(i) notify customers and other interested
parties that the court is considering the
proposed methodology; and
``(ii) provide the customers and interested
parties an opportunity to provide comments on
the proposed methodology.''.
(c) Prohibition on Certain Recoveries.--
(1) In general.--Section 8 of the Securities Investor
Protection Act of 1970 (15 U.S.C. 78fff-2) is amended by adding
at the end the following new subsection:
``(g) Prohibition on Certain Recoveries.--Notwithstanding any other
provision of this Act, a trustee may not recover any property
transferred by the debtor to a customer before the filing date unless,
at the time of such transfer, such customer--
``(1) knew the debtor was involved in fraudulent activity
with respect to any customer of the debtor which reasonably
indicated a fraud adversely affecting a substantial number of
customers; or
``(2) was a person that--
``(A) was, or was required to be, registered--
``(i) as a broker or dealer under the
Securities Exchange Act of 1934; or
``(ii) as an investment adviser under the
Investment Advisers Act of 1940, or that would
have been required to register as an investment
adviser under the Investment Advisers Act of
1940 but for section 203(m) of such Act;
``(B) knew, or, due to the activities of such
person causing such person to be described under
subparagraph (A), should have known, that the debtor
was involved in fraudulent activity with respect to any
customer of the debtor; and
``(C) did not notify SIPC, the Commission, or law
enforcement personnel that the debtor was involved in
such fraudulent activity.''.
(2) Construction.--Nothing in this Act, or the amendments
made by this Act, shall be construed as prohibiting a trustee
appointed under the Securities Investor Protection Act of 1970
from recovering property transferred by a debtor to a person
who is not a customer of the debtor.
(d) Appointment of Trustees.--
(1) In general.--Section 5(b)(3) of the Securities Investor
Protection Act of 1970 (15 U.S.C. 78eee(b)(3)) is amended to
read as follows:
``(3) Appointment of trustee and attorney.--
``(A) In general.--If the court issues a protective
decree under paragraph (1), such court shall forthwith
appoint, as trustee for the liquidation of the business
of the debtor and as attorney for the trustee, such
persons as the court determines best fit to serve as
trustee and as attorney from among the persons selected
by the Commission pursuant to subparagraph (B). The
persons appointed as trustee and as attorney for the
trustee may be associated with the same firm.
``(B) Commission candidates.--The Commission shall
maintain a list of candidates for the position of
trustee and attorney for the trustee for a debtor in a
liquidation proceedings, and shall periodically update
the list, as appropriate. With respect to a debtor and
upon the court issuing a protective decree under
paragraph (1), the Commission shall forthwith provide
the court with such list.
``(C) Disinterest requirement.--No person may be
appointed to serve as trustee or attorney for the
trustee if such person is not disinterested within the
meaning of paragraph (6), except that for any specified
purpose other than to represent a trustee in conducting
a liquidation proceeding, the trustee may, with the
approval of SIPC and the court, employ an attorney who
is not disinterested.
``(D) Qualification.--A trustee appointed under
this paragraph shall qualify by filing a bond in the
manner prescribed by section 322 of title 11, United
States Code, except that neither SIPC nor any employee
of SIPC shall be required to file a bond when appointed
as trustee.
``(E) Prohibition on trustee serving in multiple
liquidations.--A trustee may not be appointed under
this paragraph if the trustee is currently serving as
trustee for the liquidation of the business of another
debtor under this Act.''.
(2) Compensation for trustee and attorney.--Section 5(b)(5)
of the Securities Investor Protection Act of 1970 (15 U.S.C.
78eee(b)(5)) is amended--
(A) in subparagraph (A), by adding at the end the
following: ``The court shall publicly disclose all such
allowances that are granted.'';
(B) by amending subparagraph (C) to read as
follows:
``(C) Awarding of allowances.--Whenever an
application for allowances is filed pursuant to
subparagraph (B), the court shall determine the amount
of allowances, giving due consideration to the nature,
extent, and value of the services rendered.''; and
(C) by adding at the end the following:
``(F) SIPC disclosures.--SIPC shall issue quarterly
public reports on--
``(i) all payments made by SIPC to the
trustee;
``(ii) all other costs in connection with
the liquidation proceeding, including legal and
accounting costs; and
``(iii) all additional expenses incurred by
SIPC, and the nature of such expenses.''.
(3) Effective date.--The amendment made this subsection
shall take effect with respect to trustees and attorneys
appointed after the date of the enactment of this Act.
(e) Definition of Customer Status.--Section 16(2)(B) of the
Securities Investor Protection Act of 1970 (15 U.S.C. 78lll(2)(B)) is
amended--
(1) in clause (ii), by striking ``; and'' and inserting a
semicolon;
(2) in clause (iii), by striking the period at the end and
inserting a semicolon; and
(3) by adding at the end the following new clauses:
``(iv) any person that had cash or
securities that were converted or otherwise
misappropriated by the debtor (or any person
who controls, is controlled by, or is under
common control with the debtor, if such person
was operating through the debtor), irrespective
of whether the debtor held or otherwise had
custody, possession, or control of such cash or
securities; and
``(v) any other person that the Commission,
in its discretion and without any need for
court approval, deems a customer of the
debtor.''.
(f) Determination of Need of Protection.--Section 5 of the
Securities Investor Protection Act of 1970 (15 U.S.C. 78eee) is
amended--
(1) in subsection (a)(3)--
(A) by amending the heading for such paragraph by
inserting ``the commission or'' before ``sipc'';
(B) in the first subparagraph (A)--
(i) by inserting ``The Commission or''
before ``SIPC may''; and
(ii) by inserting ``the Commission or''
before ``SIPC determines''; and
(C) by redesignating the second subparagraph (A)
and the first subparagraph (B) as clauses (i) and (ii),
respectively, and moving such clauses 2 ems to the
right; and
(2) in subsection (b)(1), by striking ``application by
SIPC'' and inserting ``application by the Commission or SIPC''.
(g) Timing of SIPC Advances; Result of Delay.--Section 9 of the
Securities Investor Protection Act of 1970 (15 U.S.C. 78fff-3) is
amended by adding at the end the following:
``(f) Timing of SIPC Advances; Result of Delay.--
``(1) In general.--SIPC advances made to satisfy customer
claims pursuant to subsection (a) shall be made before the end
of the 3-month period beginning on the date that is the end of
the 6-month period described under section 8(a)(3), plus the
amount of any extension granted under such paragraph.
``(2) Result of delay.--If SIPC fails to make advances to
the trustee in the period specified in paragraph (1), then for
purposes of calculating a customer's net equity under this Act,
interest shall accrue beginning on the date that is the end of
the 3-month period specified in paragraph (1).
``(3) Court determination.--If the trustee determines that
enough information has been provided to SIPC to make an advance
pursuant to subsection (a), the trustee may petition the court
to have the court direct SIPC to make such advance.''.
(h) Timing of Payments to Customers.--Section 8(b) of the
Securities Investor Protection Act of 1970 (15 U.S.C. 78fff-2(b)) is
amended--
(1) in paragraph (1), by striking ``and'' at the end;
(2) in paragraph (2), by striking the period at the end and
inserting a semicolon; and
(3) by inserting after paragraph (2) the following:
``(3) upon petition by a customer, order the trustee to
carry out the obligations of the trustee under this subsection
with respect to such customer; and
``(4) if the court determines that the trustee has
improperly delayed carrying out the obligations of the trustee
under this subsection, impose financial sanctions on the
trustee.''.
(i) Commission Authority To Require SIPC Action.--Section 11(b) of
the Securities Investor Protection Act of 1970 (15 U.S.C. 78ggg(b)) is
amended to read as follows:
``(b) Commission Authority To Require SIPC Action.--In the event of
the refusal of SIPC to commit its funds or otherwise to act for the
protection of customers of any member of SIPC, the Commission may
require SIPC to discharge its obligations under this Act without court
approval.''.
(j) Limitation on SEC Loans to SIPC.--Section 4(g) of the
Securities Investor Protection Act of 1970 (15 U.S.C. 78ddd(g)) is
amended by inserting after ``this Act'' the following: ``and the
Commission, in consultation with the Secretary of the Treasury,
determines that SIPC is unable to borrow in the public debt markets at
reasonable terms (both as to yield and maturity)''.
(k) Inspection of SIPC Members by SEC and Self-Regulatory
Organizations.--
(1) In general.--The Securities Investor Protection Act of
1970 (15 U.S.C. 78aaa et seq.) is amended--
(A) in section 11, by adding at the end the
following:
``(e) Inspection of SIPC Members by SEC.--The Commission shall
carry out periodic inspections of SIPC members to ensure that the
information such members provide to customers, including information
contained in account statements and transaction confirmations, is
accurate.''; and
(B) in section 13(c)--
(i) by redesignating paragraphs (1) and (2)
as subparagraphs (A) and (B), respectively, and
moving such subparagraphs 2 ems to the right;
(ii) by striking ``The self-regulatory
organization'' and inserting the following:
``(1) In general.--The self-regulatory organization''; and
(iii) by adding at the end the following:
``(2) Inspection of information provided to customers.--
Under such regulations as the Commission may prescribe, the
self-regulatory organization of which a member of SIPC is a
member or in which it is a participant shall inspect or examine
such member to--
``(A) assess the financial stability of such
member; and
``(B) ensure that the information such member
provides to customers, including information contained
in account statements and transaction confirmations, is
accurate.''.
(2) Report.--Not later than the end of the 1-year period
beginning on the date of the enactment of this Act, the
Securities and Exchange Commission shall issue a report to the
Committee on Financial Services of the House of Representatives
and the Committee on Banking, Housing, and Urban Affairs of the
Senate on the implementation of the amendments made by this
subsection.
SEC. 3. EFFECTIVE DATE.
Except as provided under section 2(d)(3), the amendments made by
section 2 shall take effect with respect to a liquidation proceeding
under the Securities Investor Protection Act of 1970 that--
(1) was in progress on the date of the enactment of this
Act; or
(2) is initiated after the date of the enactment of this
Act.
<all>
Introduced in Senate
Introduced in Senate
Read twice and referred to the Committee on Banking, Housing, and Urban Affairs.
Committee on Banking, Housing, and Urban Affairs Senate Subcommittee on Securities, Insurance, and Investment. Hearings held. With printed Hearing: S.Hrg. 114-163.
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