462 B.R. 53
Bankr. S.D.N.Y.2011Background
- Trustee Giddens seeks confirmation that TBA claims are not SIPA customer claims against LBI.
- TBAs are forward-delivery instruments tied to Agency MBS; ownership/entrustment specifics are central.
- At the Filing Date, Representative Claimants had zero cash and zero securities in their LBI accounts.
- Representative Claimants contend TBAs resemble securities and should grant SIPA customer protections; MSIM, GPIF, and PIMCO oppose.
- Hearing occurred November 17, 2011; record includes declarations, MSFTA guidance, and client statements showing no entrusted property.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Entrustment requirement for SIPA customer status | Representative Claimants: entrustment occurred via TBAs | Trustee: no property entrusted to LBI | No entrustment; not SIPA customers |
| TBAs as securities under SIPA | TBAs are securities or equivalent to securities | TBAs do not fit SIPA security categories | TBAs are not securities under SIPA |
| Net equity treatment for TBA-related claims | TBA damages constitute net equity | No entrusted property; not net equity | Claims not net equity; not customer claims |
Key Cases Cited
- Adler Coleman Clearing Corp. v. Adler Coleman, 211 B.R. 486 (S.D.N.Y. 1997) (distinguishes entrustment requirement for net equity)
- In re Bernard L. Madoff Inv. Secs. LLC, 654 F.3d 229 (2d Cir. 2011) (clarifies customer definition and entrustment)
- Oberweis Secs., Inc., 135 B.R. 842 (Bankr.N.D. Ill. 1991) (breach of contract claims not SIPA customer claims)
- SSIW Corp., 7 B.R. 735 (Bankr.S.D.N.Y. 1980) (put options; limits on security classification)
- Abrams v. Oppenheimer Gov't Secs., Inc., 737 F.2d 582 (7th Cir. 1984) (Ginnie Mae forwards not securities; aids security classification analysis)