[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.''.
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