SECURITIES AND EXCHANGE COMMISSION, Aрplicant, v. SECURITIES INVESTOR PROTECTION CORPORATION, Respondent.
Civil Action No. 11-mc-678 (RLW).
United States District Court, District of Columbia.
Feb. 9, 2012.
841 F. Supp. 2d 321
ROBERT L. WILKINS, District Judge.
Edwin John U., Eugene Frank Assaf, Jr., John Caviness O’Quinn, Michael W. McConnell, Susan Davies, Kirkland & Ellis LLP, Washington, DC, for Respondent.
ROBERT L. WILKINS, District Judge.
This case was commenced by an Application of the Securities and Exchange Commission (“SEC“). (Dkt. No. 1). The SEC seeks an order from this Court mandating that the Securities Investor Protection Corporation (“SIPC“) file an application for a protective decree with the United States District Court for the Northern District of Texas (the “Texas federal court“). If filed, the SIPC application would seek to commence a liquidation proceeding in the Texas federal court pursuant to
In support of its Application, the SEC has filed an Ex Parte1 Motion for an Order to Show Cause why SIPC should
I. BACKGROUND
This case is an outgrowth of the 2009 collapse of a group of companies owned or controlled by Robert Allen Stanford. Stanford allеgedly sold more than $7 billion worth of certificates of deposit (“CDs“) that were issued by the Stanford International Bank, Ltd. (“SIBL“), an Antiguan bank. The CDs were marketed by the Stanford Group Company (“SGC“), a now-defunct broker-dealer that was registered with the SEC and that was a member of SIPC. The SEC contends that Stanford actually misappropriated billions of dollars and operated a fraudulent “Ponzi scheme” in which obligations of the CDs were paid using the proceeds from the sale of new CDs rather than from earnings, liquid assets or reserves. Following an investigation, the SEC brought a civil enforcement action against Stanford and his entities in the Texas federal court. Federal prosecutors have also brought criminal charges against Stanford in that court. The Texas federal court has appointed a Receiver to oversee the assets of SGC and other Stanford entities. The Receiver reports that, as of February 2009, SGC had approximately 32,000 active accounts for which it acted as the introducing broker.
In early 2009, the Receiver asked SIPC to review whether the SGC customers who were allegedly defrauded were entitled to protection from SIPC. When Congress passed the
In this case, SIPC has declined to file an application for a protective decree for the SGC customers in the Texas federal court—the court which would have jurisdiction over the liquidation proceeding. SIPC has apparently concluded that the SGC customers are not covered by the statute because, among other grounds, SGC did not perform a custody function for the customers who purchased the SIBL CDs. (Dkt. No. 3 at 2-3). According to SIPC, the SEC shared this conclusion from sometime in 2009 until June 2011 when the SEC “abruptly reversed course.” Id. at 3. This timing allegedly corresponds with a threat of a United States Senator to interfere with the confirmations of two SEC commissioners unless the SEC revisited the issue of SIPC protection for the SGC customers. Id. On June 15, 2011, the SEC delivered a formal analysis to SIPC (“SEC Analysis“) arguing that SGC “has failеd to meet its obligations to customers,” that the SGC customers were in need of the protections of the SIPA, and that SIPC should seek to commence a liquidation proceeding. Id. at 3; Dkt. No. 1-3 at 2. SIPC has advised the SEC that it has considered the SEC Analysis, that it disagrees with the SEC, and that it will not seek to commence a liquidation proceeding.
The
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 apply to the district court of the United States in which the principal office of SIPC is located for an order requiring SIPC to discharge its obligations under this chapter and for such other relief as the court may deem appropriate to carry out the purposes of this chapter.
II. POSITIONS OF THE PARTIES
At this stage, the primary dispute between the parties revolves around how this matter should be characterized and how it should proceed. The SEC contends that because the statute states that “the Commission may apply to the district court” for an order, the Commission need only file an application and that a formal complaint and summons pursuant to
- whether the Commission in fact has determined that SGC, a SIPC member, has failed or is in danger of failing to meet its оbligations to customers;
- whether one or more of the other statutory conditions required for a protective decree are met; and
- whether SIPA Section 11(b) authorizes the Court to order SIPC to file an application for a protective decree in the Texas Court.
(Dkt. No. 2 at 4). Indeed, the SEC contends that its “preliminary determination that SGC has failed or is in danger of failing
SIPC, on the other hand, contends that the statutory language in SIPA does not require the Court to conduct a summary proceeding. SIPC argues that the SEC should file a formal complaint, that the parties should be allowеd to conduct discovery, and that this matter should proceed as a normal civil action pursuant to the Federal Rules of Civil Procedure. (Dkt. No. 12 at 18-22). SIPC argues that the SEC’s interpretation of SIPA is not entitled to deference by this Court and that the statutory language does not support the contention that the SEC’s preliminary determination that SGC has failed to meet its obligations to its customers is unreviewable by this Court. (Dkt. No. 3 at 5). SIPC maintains that the SEC is seeking improperly tо shift the burden onto SIPC and to evade review because the SEC cannot show that SGC’s customers meet the statutory requirements necessary to obtain the protections conveyed by a SIPC liquidation proceeding. (Dkt. No. 12 at 6-7). SIPC argues that tens of thousands of claims seeking over $1 billion are likely to be filed if a liquidation proceeding is filed, and that, because those claims have no merit, the adjudication and defense of those claims will impose a large and unnecessary cost upon SIPC. Id. at 3.
III. THE NATURE OF THE ACTION
The analysis must begin with an examination of the Federal Rules of Civil Procedure.
These rules govern the procedure in all civil actions and proceedings in the United States district courts, except as stated in
Rule 81 . They should be construed and administered to secure the just, speedy, and inexpensive determination of every action and proceeding.
As noted by the Supreme Court, however, Congress can expressly provide by statute “to allow proceedings more summary than the full court trial at common law.” N.H. Fire Ins. Co. v. Scanlon, 362 U.S. 404, 407, 80 S.Ct. 843, 4 L.Ed.2d 826 (1960). In one of the examples cited in Scanlon, see id. at 407 n. 6, 80 S.Ct. 843, the Supreme Court observed that Congress had clearly expressed an intent for summary proceedings in two provisions of
In this matter, the statutory language is not nearly as explicit as the above-described example cited favorably by the Supreme Court in Scanlon. Here, the statute provides that “the Commission may apply to the district court of the United States ... for an order requiring SIPC to discharge its obligations under this chapter and for such other relief as the court may deem appropriate ....”
To construe this statute, the Court must first begin with its plain meaning, and if the statutory language is clear, the judicial inquiry normally еnds there. See Bennett v. Islamic Republic of Iran, 618 F.3d 19, 22 (D.C.Cir.2010). If the language “is subject to more than one interpretation and the meaning of Congress is not apparent from the language itself, the court may be forced to look to the general purpose of Congress in enacting the statute and to its legislative history for helpful clues.” United States v. Braxtonbrown-Smith, 278 F.3d 1348, 1352 (D.C.Cir.2002), cert. denied, 536 U.S. 932, 122 S.Ct. 2609, 153 L.Ed.2d 795 (2002). Even when the plain meaning of the statute is discernible, “the court must avoid an interpretation that undermines congressional purpose considered as a whole when alternative interpretations consistent with the legislative purpose are available.” Id.
In this case, the Court finds that the plain meaning of the statute is clear.3 The plain meaning of “apply” is “[t]o make a formal request or a motion <apply for a loan> <apply for injunctive relief> ....” BLACK’S LAW DICTIONARY 116 (9th ed.2009). Likewise, the plain meaning of “application” is “a request or petition” or a “motion.” Id. at 115. In S.E.C. v. McCarthy, 322 F.3d 650, 656-57 (9th Cir.2003), the court relied upon this plain meaning to hold that Congress’ use of the word “application” in
The Court also concludes that the plain meaning comports with the structure and purpose of SIPA. Congress clearly intended that an application by SIPC for a protective decree should be a summary proceeding, specifying that if the debtor fails
SIPC places great weight on the Supreme Court’s use of the word “action” to describe the means by which the SEC could proceed against SIPC. See Barbour, 421 U.S. at 421 & n. 3, 95 S.Ct. 1733. SIPC argues that Barbour therefore supports the contention that Congress intended that applications filed by the SEC against SIPC proceed as plenary actions. This Court disagrees. First and foremost, the issue bеfore the Supreme Court in Barbour was whether the customers of SIPC members had an implied right to compel SIPC to file an application for a protective decree. Id. at 413-14, 95 S.Ct. 1733. Determining the precise nature or characteristics of how such a matter would proceed if the SEC were to seek such compulsion was not necessary to the holding in Barbour, and therefore any statements by the Supreme Court about that issue in the opinion are dictum. Mоreover, the Supreme Court was far from consistent in its dictum, because it also described a potential filing by the SEC as “seek[ing] in district court to compel the SIPC,” id. at 418, 95 S.Ct. 1733, and as “enforcement by [the SEC] in court of the obligations imposed upon [SIPC],” id. at 420, 95 S.Ct. 1733. Thus, the selected dictum from Barbour provides no convincing support for treating the SEC Application as a plenary action, particularly since the plain language of the statute and the structure of SIPA demonstrate Congress’ intent for a summаry proceeding.6
IV. THE SPECIFIC PROCEDURES TO BE EMPLOYED
Because the Application of the SEC is properly construed as a summary proceeding, the full, formal procedures of the Federal Rules of Civil Procedure are neither required nor appropriate. As our Circuit Court of Appeals has explained, “‘[s]ummary’ proceedings by definition are those conducted ‘in a prompt and simple
The Court will defer ruling on all of the specific procedures that will be employed in this summary proceeding. Up to this point, the parties have primarily sparred over whether this Application should proceed as a plenary or summary proceeding. Therefore, the parties have not fully briefed what рrocedures should apply in a summary proceeding. The Court hereby directs SIPC and the SEC to address that issue in their respective memoranda in response and reply to the SEC Application. After the issues have been fully briefed, the Court can make an informed decision on specific procedures.
Nonetheless, there is one aspect of procedure that is ripe for decision now. As stated above, the SEC contends that its “рreliminary determination that SGC has failed or is in danger of failing to meet its obligations to customers is not subject to judicial review by this Court.” (Dkt. No. 2 at 7). This contention is untenable. The statute provides that “[i]n 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 apply to the district court ... for an order requiring SIPC to discharge its obligations under this chapter ....”
This construction is supported by a review of the SIPA provision governing the situation when SIPC applies to the district court for a protective decree against a SIPC member. That statute provides that “[i]f SIPC determines—(A) the member [of SIPC] has failed or is in danger of failing to meet its obligations to customers; and (B) one or more [othеr specified] conditions ... exist with respect to such member,” then “SIPC may ... file an application for a protective decree ....”
In sum, as part of its evaluation of the instant Application, the Court must determine whether SIPC has refused to commit its funds or otherwise refused to act for the protection of customers of any SIPC member. In doing so, the Court must do so in summary fashion, on a short timeline, and with the understanding that this proceeding will only determine whether SIPC should be compelled to file an application for a protective decree in the Texas federal court. If SIPC is compelled to file a protective decree, the Texas federal court will determine whether such a decree should be grantеd. If a liquidation proceeding commences, the Texas federal court will determine whether SIPC is liable for any claims that may be filed by customers in that liquidation proceeding. The parties should, with scalpel-like precision, address in their remaining briefing the procedures, burdens, and discovery that are necessary and appropriate with these circumstances in mind.
CONCLUSION
For the foregoing reasons, the Ex Parte Motion for an Order to Show Causе is GRANTED, and the Motion to Strike is DENIED. An Order accompanies this Memorandum.
SO ORDERED.
ROBERT L. WILKINS
United States District Judge