758 F.3d 357
D.C. Cir.2014Background
- SIPC may liquidate a SIPC-member broker to protect customers’ property; it has no authority over non-members.
- SGC (a SIPC member) and SIBL (non-member) were involved in Stanford’s fraud; SGC promoted SIBL CDs.
- CD investors deposited funds with SIBL, not with SGC, and received CDs or certificates; SGC did not hold investor cash/securities.
- SEC sought an order under SIPA to liquidate SGC to protect SIBL CD investors; SIPC declined, finding investors were not SGC customers.
- District court and the D.C. Circuit held CD investors were not SGC customers under SIPA’s statutory definition; the court reviewed de novo.
- Court ultimately affirmed denial of SIPC liquidation against SGC, based on the capital exclusion and transactional structure.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether CD investors are SGC customers under SIPA | SEC contends investors deposited cash with SGC via a unified Stanford entity | SGC/SIPC argue cash/ CDs were not deposited with SGC; investors not customers | No, investors are not SGC customers |
| Whether SGC and SIBL can be substantively consolidated | SEC urges disregard of corporate separateness to treat investors as customers | Court should not disregard separateness; consolidation does not render them customers | Even if consolidated, CD investors still not customers under the exclusion |
| Whether § 78lll(2)(C)(ii) capital exclusion applies | Sec argues proceeds become part of consolidated capital, excluding from customer status | Investors intended to loan funds; proceeds part of lender capital | Capital exclusion applies; investors excluded from customer status |
| Whether Old Naples/Primeline support SEC’s position | SEC relies on those decisions to treat funds as deposited with broker | Those cases both require capital-exclusion analysis; not satisfied here | Those cases reinforce, but do not override, capital-exclusion finding |
| Whether the SEC is entitled to Chevron deference for its analysis letter | SEC contends deference given to its statutory interpretation | Court need not defer because outcome rests on statutory text and facts | Not reached; court relied on statutory text, not Chevron deference ruling |
Key Cases Cited
- Sec. Investor Prot. Corp. v. Barbour, 421 U.S. 412 (U.S. 1975) (congressional framework and SIPA structure for SIPC cooperation with SEC)
- In re New Times Sec. Servs., Inc. (New Times II), 463 F.3d 125 (2d Cir. 2006) (customer definition focuses on custodian role and investment custodial trust)
- New Times Sec. Servs., Inc. (New Times I), 371 F.3d 68 (2d Cir. 2004) (procedural posture and consolidation context in SIPA)
- Old Naples Sec., Inc., 223 F.3d 1296 (11th Cir. 2000) (capital-exclusion—lenders not customers under SIPA when funds are part of debtor’s capital)
- Primeline Sec. Corp., 295 F.3d 1100 (10th Cir. 2002) (investors treated as lenders or investors under capital exclusion framework)
- In re Bernard L. Madoff Inv. Sec. LLC, 654 F.3d 229 (2d Cir. 2011) (customer definition and custodian-function analysis in SIPA)