I 112th CONGRESS 1st Session H. R. 1987 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.

1.

Short title

This Act may be cited as the Ponzi Scheme Investor Protection Act of 2011.

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:

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..

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.

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. .

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. .